Insights
On Wednesday, the Government set out its latest plans for freeports, intended to “create jobs, drive investment and regenerate communities”. Chosen sites will benefit from streamlined planning, tax reliefs, and simplified customs procedures.
We can expect tough competition. Many areas will view a freeport as a way to stimulate local growth in the face of the devastating economic impact of Covid-19 and the further challenges posed by the end of the Brexit transition period.
It’s crucial that the new freeports are designed to deliver sustained economic benefits for the places that host them. Here are five things to consider when developing a bid, to help maximise the local economic benefits.
1. Make a strong strategic case.
The Government’s commitment to ‘levelling up’ has focused attention on its approach to assessing businesses cases. Some argue that the process is biased against investments in weaker economies, and so works against the levelling up agenda. One of the ways in which we hope the Government will respond is by encouraging greater focus on the strategic case for investments. This is because the ‘benefit cost ratio’ alone is not the best way to assess projects intended to transform weaker economies; benefit cost ratios tend to be higher for projects in stronger local economies, all else being equal.
If the strategic case becomes more important, then it will also face greater scrutiny. Claims that a freeport will contribute to levelling up just because it’s in a poorer region won’t be enough. Bids will need to demonstrate how the freeport will address real barriers to growth, attract new business and avoid displacement of economic activity from neighbouring places.
2. Take displacement seriously.
If employment increases in an area where there’s been investment, such as a new freeport or an enterprise zone, it is natural to take this is a sign of success. Unfortunately, there is increasing evidence that in many instances, a large proportion of these ‘new’ jobs and businesses would have existed anyway; they have simply been moved to take advantage of the benefits on offer.
If this displacement comes from a neighbouring LA or LEP, it may seem like a price worth paying to deliver benefits for local residents and businesses in a time of economic crisis. But that won’t contribute much to levelling up. And more to the point, the evidence suggests that most displacement occurs locally. As such, a failure to take displacement seriously could result in a freeport which doesn’t do much for local growth and jobs, and in the worst case, simple delivers a ‘zero sum’ outcome, with winners and losers but no local gains overall. Bids should recognise the risk of displacement, and demonstrate how it will be minimised through targeted incentives.
3. Learn from past successes – and failures.
UK customs arrangements mean that our freeports are likely to be more similar to enterprise-zone-type initiatives, than to freeports in the US, for example. High-quality evaluations of enterprise zones suggest that they can have positive local impacts. Around half of the relevant studies, in each case, find benefits in terms of employment, wages, poverty, and number of businesses. The challenge for freeports is to follow in the footsteps of successful schemes, rather than those which did not deliver improvements.
This is partly, of course, about understanding your local context. Our enterprise zones evidence review can help places to understand how context affects the chances of success. For example, one study finds larger positive effects for sectors with lower relocation costs, and for health and business services in particular. Another, which examines the role of transport and market access, finds that proximity to train stations increases the number of businesses.
The evidence is also clear that simply clustering businesses together in a freeport is unlikely to deliver significant productivity benefits. A freeport needs a more specific strategy – for example, to attract a significant cluster of specialist firms, for which the benefits of clustering will be greater – which details why it will succeed where other areas have failed.
4. Take the tough decisions.
A concentrated investment in one location can often deliver greater benefits – for everyone in a region – than distributing smaller pots of investment across the region. This can be unintuitive and politically difficult; the smaller pots approach can seem fairer, even when it may undermine the overall chances of stimulating growth.
A 2015 case study from Greater Manchester (GM) shows that it’s possible to overcome this type of dilemma. Invited to be one of four vanguard Enterprise Zones in 2010, GM had to decide where to locate its Zone. Rather than each pitching to have the Zone within their boundaries, GM’s local authorities used an agreed assessment framework to evaluate sites across the city region. Sites were assessed for their ability to create employment and, crucially, deliver new economic activity through their connectivity to other parts of GM. The analysis showed that an area close to Manchester Airport was likely to deliver the greatest economic impact for the whole of GM, and it was agreed that the Airport City Enterprise Zone would be proposed. The LAs decided to locate the Zone where it would provide the greatest overall economic boost, despite the political challenges for individual leaders of doing so.
5. Commit to finding out whether it works.
Headline totals of new jobs and businesses are useful in the short term and can help to build momentum publicly. But for long-term development, it is also crucial that you understand the net difference that the freeport has made, including the role that displacement has played. How will you assess whether the freeport delivers the local benefits that you predicted?
Commitment to evaluation can be a difficult decision for local leaders, but with central government’s increased focus on data and impact, this should be an essential element of any successful freeport bid.
And at the national level, if we don’t continually improve our understanding of which interventions and investments deliver the greatest local growth, it’s hard to see how we can deliver on the ongoing challenge of levelling up.
