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Rachel Reeves will not unveil any new freeports in the Budget on Wednesday despite Downing Street saying last Friday that the UK planned to build five more of the tax-free sites, government officials have admitted.
The chancellor will instead announce only “next steps” on five existing freeports, which will receive official clearance to have custom sites within their boundaries, the officials said.
Reeves will also approve plans for a separate “investment zone” in the East Midlands that were put forward by the previous Conservative government last year.
The announcement of “five new freeports” by Downing Street on Friday, while Prime Minister Sir Keir Starmer was in Samoa for the Commonwealth heads of government summit, caused bafflement among port executives, Whitehall officials and local mayors who had no warning of the “plan”.
This was because there was no plan to add to the 12 existing freeports — eight in England and two each in Scotland and Wales — that were a flagship economic policy of the last Tory government.
“It just was a total cock-up with the comms,” said one official. Downing Street did not immediately respond to a request for comment.
Reeves will on Wednesday announce “continued funding” for the existing freeports scheme — a favourite policy of former prime ministers Boris Johnson and Rishi Sunak as a means of attracting investment after Brexit.
The ports have special customs facilities that enable them to import inputs tariff-free and pay tariffs on finished goods only when they are placed on the market. The sites also receive tax breaks on employing new staff and investment in new buildings and machinery.
Seven have operational custom zones at present, and Reeves is expected to confirm that five others are now ready to open their customs facilities, including Liverpool, Humber and the Inverness and Cromarty Firth Green freeport in Scotland.
The Labour government is pushing ahead despite academic analysis showing that the structure of UK tariffs provides limited advantages from such sites.
So far, just six businesses are using customs sites at the eight freeports in England, according to data shared with Whitehall departments by HM Revenue & Customs, the tax agency.
Starmer said on Friday that Labour did not take an “ideological view” of the ports, which will now be aligned with the party’s industrial strategy. Set out this month, it promises to offer state backing to key high-growth sectors.
“We looked at them, they are working well, I think they could work better, so rather than stand them down we’re going to go with it, we’re going to make some improvements so they could work even better,” he said.
Starmer added that ministers would look to “maximise the potential” of the freeports by linking them more deeply into the Local Growth Plans that the government has requested from local authorities as part of its plan to boost growth.
Each freeport has an area of specialisation. Humber is intended as a rare earth metals processing hub, while Teesside is to be a new offshore wind turbine manufacturing facility. The Plymouth and South Devon site is looking at testing autonomous maritime vehicles.
Freeports have to date attracted £6.4bn in investment and created an estimated 7,000 jobs, according to figures provided by the government. Low-tax investment zones in England are on track to create about 90,000 additional jobs by 2033 while attracting £10bn in private investment, it added.
However, economic analyses of similar schemes in the UK and overseas have found freeports tend to shift investment away from other parts of the country, rather than generating new inward investment.
When the policy was launched in 2021, the Office for Budget Responsibility, the independent fiscal watchdog, said it expected the impact of freeports on UK GDP to be so small that it would be “difficult to discern even in retrospect”.