A Deal With The Devolved

Craig Dalzell

Green Freeports. They’re not Free, they’re mostly not at the Ports, and it’s very unlikely they’ll be “Green” either – not in any meaningful sense of the word.

If I asked you to describe what you thought a Freeport was, there’s a good chance you’ll describe something like a bonded warehouse within a fenced-off area of a harbourside or behind the security checkpoints of an airport. You might think about an industrial estate in the same zone where workers could enter – leaving their hard-won rights at the door – so that they can build products for export.

What you probably wouldn’t describe is what is now happening in Scotland, where half of the Central Belt and a large chunk of the Highlands (see the maps below) are being carved out of Scotland where any “qualifying business” can apply to be included within the “Freeport” for the purposes of avoiding tax, whether they are near the port or even many miles away from it.

My next question would be to ask you what benefits would be doled out to the “qualifying businesses”? This has been a disturbingly vague part of the plan so far as very little has ever been put out into the public domain in the regard. The campaign promises of the various corporate coalitions vying for their little slice of extraterritoriality aren’t much help either. The Cromarty coalition put a great deal of stock in how they’d help to boost manufacturing in projects like ScotWind but this, at least as far as I can see, runs contrary to the entire purpose of a Freeport. You see, the underlying assumption of a Freeport is that it allows a manufacturing company, say, to import components turn them into value-added products then export them without either entering the domestic economy. If goods are being produced for ScotWind then they should have to pay the taxes that would be applied as if the company was not in a Freeport. This means that some kind of financial (read: profit) benefit can only be gained either if there is a massive economy of scale whereby the manufacturing of goods for export can cross-subsidise the domestic market goods or, much more likely, if the “benefits” of the Freeport include even greater suppression of wages and workers’ rights than the UK imposes outwith such ports and this wage suppression is enough to more than fully offset the other tax avoidances being exploited. In other words, if the Freeport is used to produce goods for the domestic Scottish economy, it will do so by transferring business costs from the shareholders profiting from the sale goods onto the workers who produce them.

But, I hear some say, aren’t these Freeports just a UK Government invention being forced upon Scotland against the will of the Scottish Government? At best, are the latter acting to mediate the problems they are going to cause?

The test of that claim lies in what plans the Scottish Government themselves have for the Freeports and we got a first glimpse at that this week when they launched a public consultation into their proposals for how the ports will be affected by taxes that are entirely devolved to the Scottish Government and are completely independent of the UK Government. It is not an encouraging read and Common Weal’s response to the consultation is not likely to be positive.
The Scottish Government’s initial offering lies in two devolved taxes – one nationally controlled and one controlled by Local Authorities. On the national level, they are proposing a five year, “full or partial relief” from Land and Buildings Transactions Tax on non-residential transactions within the two Freeport zones. Special focus is apparently being given to fencing off “undeveloped areas located in the wider Green Freeport boundaries” rather than at the ports themselves.

What this means in practice is that if you want to buy an office or a warehouse within one of the zones – say, in Biggar or Peebles for the wider catchment area for the Forth Freeport – or if you want to buy land to build such an office or warehouse and you can link the activities of that building to the Freeport somehow, then you’ll be able to claim a substantial tax break. For a £1 million purchase, this could amount to something in the region of £50,000 plus or minus any other thresholds or subsidies that you can squeeze in there. That’s the equivalent of the entire year’s income tax paid to the Scottish Government by 20 workers with annual salaries of £24,000.

The second tax cut is one that is technically outwith the power of the Scottish Government but is one they’re keen to “encourage” anyway. They propose that companies within the Freeport zones can apply for full or partial business rates relief, again for up to five years. However, these rates are entirely controlled by Local Authorities and LAs are, if anything, even more stretched for finances than the Scottish Government is so – barring any LAs being controlled by particularly Government-loyal Councillors – they’ve offered what can only be described as a bribe for compliance. The Scottish Government has promised to fund any LA that “chooses” to give these rates cuts to Freeport businesses. With the revenue cut landing entirely on someone else, the only thing that will prevent the tax cuts is a stand against them on morale or principled grounds (assuming, of course, that this is a truly zero-sum calculation for the Council and Holyrood won’t threaten to use…more vigorous means of ensuring compliance if it is not immediately forthcoming). How much those tax breaks will cost and where the subsequent cuts will land elsewhere in the budget is, at present, anyone’s guess.

The reason that the Scottish Government appears to be pushing this can be found in the excuse that the LBTT tax breaks are “broadly equivalent to” the stamp duty cuts being applied by the UK Government to the Freeports they’re setting up in England. The Scottish Government are taking part in a tax race to the bottom rather than deciding whether or not these ports and these tax breaks will actually benefit the Scottish economy. Freeport experts like Richard Murphy and Peter Henderson have all said that Freeports don’t act to create jobs – they merely, at best, displace them from outwith the Freeport to within. If one Freeport offers a better “deal” than another, then they might – might – displace a job from one Freeport to another (though this is never as easy as it sounds). But if all Freeports are offering the same deal and, as in this case, the Freeport zones are so wide as to bring the jobs within the Freeport without them having to move then all that will happen is that the jobs and locations stay the same – but the tax take goes down. Business owners reap more profits. The Scottish public sector endures more Austerity.

With the changing of the Guard in the Scottish Government now mere days away and with a variety of views on Freeports present between the candidates it is anyone’s guess whether this plan will carry on or be changed (for better or even worse). I therefore want to encourage every one of you to respond to the consultation and object as strongly as you can to the Scottish Government endorsing the Freeports and forcing us to pay for them by way of cuts to other public services. There are many ways to develop the Scottish economy to ensure that it builds a resilient nation and maximises wellbeing. Building new hives of tax avoidance, smuggling and oppression of workers is not one of them.

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