Scotland's Economic Performance - The contribution of place-based economic development zones

Major ports benefit from a number of these allowances and easements, so as merely being a characteristic of a relatively large business (such as some forms of Capital Allowance) and some more specifically to their industry. On the more specific elements:
Permitted Development Rights (“PDR”). Ports are able to access PDR for narrowly framed and incremental developments. However, the definitions of applicable develops are historic and are tightly focused on handling of cargo activities. The modern major port is now so much more than just a hub for the movement of goods. They are economic engines and catalysts in their own right. PDR for ports needs to be updated to reflect this broader role and in turn give greater opportunity to capture the (often high quality) jobs that would come with it.
In the view of the UKMPG, Part 8, Class B rights could be improved by broadening them out to explicitly include development which involves the processing, preparation or alteration of goods, materials and products which are transported through the port. There is strong evidence to suggest why, in a wider planning and sustainability sense, this would be a beneficial change. For example, the provision of a port-centric logistic warehouse facility – where a degree of processing and preparation of goods takes place - on a port estate, rather at a location away from the port, has the potential to reduce HGV movements and associated effects. You will note that we are not seeking to create a free-for-all, merely create more sensible flexibility for port related activity.
UKMPG has done significant work around targeted amendments to PDR clauses and associated improvements. Including this work here would unduly extend and unbalance our response to the specific questions being put. We would therefore welcome the opportunity to meet with Scottish Government officials and share this work separately.
Customs Reliefs: Various types of Customs Reliefs are utilised by UK ports and indeed logistics chains more generally as part their day to day business. These include Temporary Storage for the immediate and short-term handling of goods through to more structural mechanisms such as bonded warehousing and Inward / Outward Processing Relief. So whilst customs and duty measures can be helpful there is already significant functionality available. Some forms of, for example, duty inversion could be useful for certain businesses / sectors.
What could usefully be considered, on a broader and cross sectoral basis, is an evolution of the administration of such processes. A specific example would be on the administration of Inward and Outward Processing Relief. Application and certification for these schemes is burdensome. An improvement would be for businesses operating in a port area to be automatically accredited or ‘deemed’ to be part of these mechanisms. Indeed, this approach would be a useful candidate for application to ports more generally, not just Freeports, as part of a wider strategy of enhancing the UK’s and Scotland’s predominant global gateways for trade – it’s seaports – boosting prosperity in coastal communities.

UKMPG has undertaken some work with inward investment experts at property consultancy CBRE looking at generic cost models for model companies in some different industry sectors. We used scenarios of different incentive packages to assess potential impact on location investment decision making. A general lesson from this exercise was that different sectors will respond differently to different elements of an incentive package. A potential takeaway from this from the Scottish Government could be to operate a ‘toolbox’ approach to its offering for stimulating investment, with the flexibility to tailor offers to opportunities. A second potential takeaway might be that if the Scottish Government wishes to target specific sectors or industries in line with its broader economic strategy then it can tailor its toolbox from the outset to be attractive to such sectors.
We would specifically highlight the importance of a streamlined planning permission approach to not only attracting investment but rapid securing it and then converting that investment into job creation relatively rapidly. That has been the positive experience of UKMPG members in using Local Development Orders, for example. We should stress that streamlined doesn’t mean low standards or lack of accountability. What it means is establishing the processes that ensure that standards and accountability are addressed at the right times and that opportunities can seized more quickly within previously agreed parameters.
Some insights from the modelling work with CBRE include:
• Some commonly mentioned incentives - I.e. business rate discounts – could have a lower impact on location choices than commonly thought, given the relatively small share of the cost base of property taxes in some sectors;
• Cost areas with a policy element that are likely to have more meaningful impacts on investment decisions are energy costs and labour costs;
• Levers that Government could utilise around energy costs include providing high-capacity connectivity, employing the discounts on certain levy elements of the delivered power price (as is the case for some energy intensive sectors already) and / or through PPAs with on site (renewable) energy generation servicing the business ‘campus’ of the free zone;
• For Labour costs levers include national insurance discounts and hiring / training subsidies;
• Although occupiers look hard and closely at the financial appraisal of competing locations, non-financial benefits can also play a material role in decision making. Government can play a key role in stimulating these factors. Planning system improvements are a very important positive example;
• Government can also play a critical role in stimulating a ‘campus’ approach to a free zone location and the agglomeration scale and scope economies / benefits that come with it. These include provision of connectivity (transport, energy, digital) and supporting the alignment of local skills and innovation providers.

The UK’s major ports sector is unusual globally and unique in Europe in being privately sector owned and operated. They typically neither seek nor benefit from significant financial incentives of the type listed above. We would not characterise the Port Infrastructure Fund as an incentive measure. It is a scheme to ensure adequate border infrastructure and to level to a degree the playing field for ports vs the very significant amount of Government funding being committed to develop inland border infrastructure in a small number of locations.
The Scottish Government’s Cluster approach is an interesting approach to stimulating investment in itself. Clustering is a proven method of multiplying agglomeration benefits. The phrasing of the “Scotland's Economic Performance - The contribution of place-based economic development zones” consultation discussion of the Clusters policy and freeports could be taken to suggest that there is a tension between them. We strongly disagree. A ‘freeport’ could act powerfully as a stimulant to an existing cluster or a springboard for a new cluster. We would encourage the Scottish Government to pursue this line of thinking and would be please to discuss it further.
However, it’s important to recognise that the term ‘freeport’ has some recognition amongst the likely target audience for large scale inward investment. That is the experience of UKMPG members’ discussions with large scale manufacturers, developers and occupiers based outside of the UK. Customs warehousing badging doesn’t have the same ‘brand recognition’.

As highlighted in our response 1a we believe that the best approach is to utilise a ‘tool box’ approach to policy levers and incentives. Funding support for infrastructure – notably connectivity infrastructure in terms of transport, energy and digital – is we believe an important part of the wider enabling context for freeport success and attracting significant investment. Such infrastructure development wouldn’t only benefit the freeport, it is also likely to bring benefits to the wider local community. For example in impact assessments for transport connectivity projects that UKMPG members have been involved in £1 of investment in a ‘port’ related road development has driven £4 of benefits for the wider regional economy.
UK port operators together deliver over £600 million of investment per year in UK port and associated infrastructure (of which £500 million comes from UKMPG members) largely without recourse to Government funding. Where there has been public sector investment, for example in surrounding infrastructure, there are considerable ‘crowding in’ effects. A third-party review of recent major developments for UKMPG undertaken of members key investment projects by development specialists Barton Willmore estimates that for every £1 of public sector investment, the private sector has invested £16. Port operators are ambitious to continue this proud record of development. The Scottish Government can play a crucial role in realising this ambition via a nationally appropriate freeports approach through improving the surrounding infrastructure, regulatory environment and incentives for port sector investment in a number of areas.

We have highlighted in our response to 1a the importance of a streamlined planning permission approach to not only attracting investment but rapid securing it and then converting that investment into job creation relatively rapidly. That has been the positive experience of UKMPG members in using Local Development Orders, for example. Masterplan Consent Areas could well be a useful tool in this regard, and we’d welcome further discussion on their application in the freeports concept, but also more generally in the context of stimulating investment in port areas which may not be freeports.
We wish to stress again that streamlined doesn’t mean low standards or lack of accountability. What it means is establishing the processes that ensure that standards and accountability are addressed at the right times and that opportunities can seized more quickly within previously agreed parameters.

As highlighted previously, we believe a ‘toolbox’ approach is important as different incentives will work better for different sectors.
We would flag that non-financial measures (we’ve highlighted planning as key) have an important role to play in attracting inward investment. They may also have fewer of the distortive effects of financial measures and have obvious positives from the perspective of public funding.
We believe that financial measures should be set at ‘just enough’ levels that nudge investment whilst minimising risks of market distortion and leakage from other hard-pressed regions. If the correct flexibilities and ‘nudges’ are in place, these spur wider agglomeration effects which are in themselves more powerful and enduring reasons to create and maintain businesses. This is opposed to the problems experienced in Enterprise Zones and similar approaches where businesses come and go solely on the basis of financial incentives.

UKMPG has been repeatedly assured by the Westminster Government that Governments in Scotland, Wales and Northern Ireland have significant flexibility in the design and implementation of the freeport approach in their nations. We would therefore expect that the Scottish Government would build the priorities of its economic agenda into its approach. This could be through the design of the freeports approach or more tactically through levers like the assessment criteria set for bids. A freeports approach should be harnessed as one way of catalysing progress towards the Scottish Government’s economic agenda rather than in tension with it.
From a bidder’s perspective UKMPG is in an advanced stage of developing with its members a joint commitment to high standards of environmental, social and economic sustainably in their approach to and any future operation of freeports. The commitment also, of course, includes high levels of compliance, security and integrity as is the case with major ports operations today. We look forward to sharing this with the Scottish Government shortly.

Free zones and special economic zones of various kinds are not overnight success stories. We note that the original launch of the Westminster Government’s freeports initiative referenced the Development Corporation linked to the regeneration of London’s Docklands. The original LDDC was established in 1981 and, 39 years later, substantial redevelopment is still ongoing (regardless of what one thinks of the results). Similarly, the world’s largest freeport development, the Jebel Ali Free Zone (JAFZA) is 35 years old having been first established in 1985.

To attract and retain investment the freeport tool kit needs to cover measures which incentivise and expedite investment in the initial phase (e.g. planning regime flexibility) and make an enduring difference to operating costs (e.g. tariffs for energy costs). By their nature these measures can have different time horizons.

We would strongly recommend that the Scottish Government thinks long term for certain incentives. We note that some of the measures in the JAFZA have a 50-year time horizon.

Please see our response to Question 5.

Securing significant investment is a competitive matter. It seems clear that the Westminster Government seems intent on rapidly progressing the designation of freeports in England. It is plausible that some of those locations would be in the North of England and even locations further South could have a competitive impact on some Scottish ports. As we’ve highlighted earlier in this response the term ‘freeport’ has some recognition amongst the likely target audience for large scale inward investment. That is the experience of UKMPG members’ discussions with large scale manufacturers, developers and occupiers based outside of the UK. Customs warehousing badging doesn’t have the same ‘brand recognition’.
However, the issue of winners and losers is a real one. UKMPG believes that there are a number of steps the Scottish Government could take to mitigate the impact of a purely binary choice.
Even a ‘single’ Scottish freeport could be constructed in a different manner to their English counterparts to reflect the needs of Scotland’s economy and citizens – perhaps a greater volume of sites but ones that are smaller in footprint or alternatively a ‘hub and spoke’ model with a larger central site and a network of satellites.

More broadly UKMPG does not consider that freeports are a silver bullet for the risks of Brexit or the regeneration of coastal communities. They should instead be seen as one element of a wider strategy to boost both trade and prosperity.

There are several measures (such planning reform and connectivity) being discussed in the context of freeports that could and should have broader applicability for ports and coastal communities as a whole.

Therefore, we strongly recommend that there are a range of pro-investment, pro-regeneration reforms open to all ports and that there is not a big step change between ‘winners’ and ‘losers’. By widening the access to sensible pro-investment, pro-regeneration reforms the Scottish Government not only increases the potential for both the direct investment and job creation of ports themselves but also supporting a positive cycle of agglomeration benefits in a wider distribution of locations.

A number of UKMPG members have previous experience of operating freeports in the UK – Liverpool (Peel Ports) and Tilbury (Forth Ports) being two examples. It is instructive that such port operators are engaged in developing bids for the current iteration of the UK freeports model. When asked why it could be different this time their response is that the more broadly based approach to stimulating investment – as opposed to a narrow focus on tariffs and duties – is vital. It has also been highlighted that changes in the regulatory regime also negated what advantages there were from freeports almost at a stroke. Therefore, a long-term perspective and regulatory consistency seem important lessons to learn from the UK’s previous freeports experience.