Why Boris Johnson’s plan for ‘free ports’ isn’t a good idea

I suspect that Liz Truss must be one of the new cabinet ministers most feared by civil servants. They will work readily for any minister irrespective of their political views. They respect a minister who knows their own mind and can argue their department’s case in cabinet. But they fear a zealot. A minister who is so convinced of his or her own rectitude that they are unwilling to engage with or even listen to their civil servants.

Amidst the bluster and bravado that has come to define the new Prime Minister, civil servants are having to deal with the very real threat of a no-deal Brexit. Now they see, with the recent announcement of “free ports”, the fast-tracking of a deregulatory, low-tax agenda that many consider has been the zealots’ real project all along. We’re a step closer to the prospect of the UK becoming a bargain basement economy. The government’s intention to open ten new free ports will not help our just-in-time supply chain to keep jobs in manufacturing; it will not enable perishable food or medicines to reach our supermarkets and hospitals quicker in the event of a no deal. Why, then, are they suddenly a political priority?

That they are is a chilling indication of the degree to which the Conservative Party has been captured by the zealots. Free ports were actually discontinued by David Cameron’s Conservative government in 2012 on the grounds that “the UK’s current customs facilitations offer broadly the same benefits that attract businesses to free zones in other developed countries, such as the United States”. Now these customs-exempt territories, which allow goods to be stored and processed without attracting tariffs, are deemed to be central to defining Britain’s new economy.

We have a government that has failed to ensure the new Customs Declaration Service is equipped to handle changes to trade; failed to properly prepare businesses for those changes; and is now trying to claim that free ports, by exempting goods from customs procedures, might make things easier at the border.

What the Tories are actually proposing are free trade zones (FTZs) under the auspices of free ports. This is where significant tax breaks are given to investors, where the super-rich can store property tax-free and where manufacturing can take place under a different (read: more lax and less worker friendly) regulatory regime to that of the rest of the country. This is not, as the zealots sometimes claim, a way of boosting the economy of our hard-pressed coastal towns. In fact, it is a way of relocating industry and manufacturing companies away from other areas of the country and getting coastal communities to work without the same rights and protections that previous workers in those companies enjoyed.

The policy is sponsored by the new Chief Secretary to the Treasury, Rishi Sunak. He wrote the book on free ports and Liz Truss was amongst the handful of the new right who drafted Britannia Unchained, alongside Kwasi Kwarteng, Dominic Raab, Priti Patel and Chris Skidmore. The book is considered by some as the unofficial manifesto of the new government, wherein they call for FTZs with substantial tax breaks, minimal regulation and exemption from duties. Johnson has publicly declared his support for such proposals — a fact unconnected, I am sure, from the £25,000 donation he received from one aspiring free port.

What does the evidence actually suggest that these FTZs do? A 2011 review by the World Bank found many had become “white elephants”, with the cost of revenue lost to the Exchequer outweighing the benefits. The Economist reported that they create distortions in economies, and that many leave a long trail of failed zones that either never got going, were poorly run or in which investors gladly took tax breaks without producing substantial employment or export earnings. If free trade zones do little more than encourage tax evasion and money laundering, whilst posing a significant threat to jobs and investment in other parts of the country through the displacement effect, who benefits? The answer is clear: the rich, not the workers.

A recent report from the European parliament’s special committee on financial crimes, tax evasion and tax avoidance highlighted precisely these concerns, noting that customs-free sites intended as storage facilities for goods in transit were being used to hoard or launder high-value assets by the super-rich. These concerns echo those of the intergovernmental Financial Action Task Force, whose 2010 review noted serious concerns about how a combination of tax incentives and relaxed monitoring and supervision – even by competent regulators – has resulted in a reduction in finance and trade controls and enforcement. This has in turn created opportunities for money laundering and the financing of terrorism. The task force considers that “the same characteristics that make FTZs attractive to legitimate business also attract abuse by illicit actors” and, more alarmingly, that FTZs have been used in the transport and production of weapons of mass destruction.

Reports from FTZs around the world demonstrate lax enforcement of labour or environmental laws as part of the regulatory holiday given to investors. Workers at Poland’s Tamorbzreg Special Enterprise Zone, for example, were allegedly sacked for striking against poor working conditions. There are similar examples in China, Cambodia and elsewhere. A 2017 European parliament report notes that often in such zones “the governance of labour rights may differ from the rest of the country and fall below international legal standards”.

If this government has its way, FTZs could become the manifestation of our very worst fears about their true political agenda: a race to the bottom on rights and standards. That is why we need a general election, so that an elected Labour government can avoid the chaos of a no-deal Brexit, defend workers’ rights and environmental standards, and unlock the real investment needed across our country.