At its heart a free port is a place where customs duties are reduced significantly - most especially entrepot goods. The object is to use the low or no tariff regime - protected from the surrounding economy - as a way of attracting export-led businesses. Some of the success of Hong Kong and Singapore lies in their being free ports - places where transshipment and trading was very low tax.
The suggestion - being explored by ministers - of bringing back the idea of Enterprise Zones, provides a further push to allowing local authorities the scope to create lower tax, lower cost environments for businesses to develop:
Enterprise zones were pioneered in the 1980s and although they were criticised for the amount they cost and the number of the jobs they created, there were some success stories. The Docklands area of East London, for instance, was once mainly derelict buildings but since a zone was established it has become an international financial powerhouse.
The tax and regulatory tools now available to local authorities include:
Business Rates - at present these are set centrally with the local authority merely the collection agent. Council's have some emergency powers to waive or reduce rates but these are very tightly defined. There is a lobby to return to the pre-1992 situation where business rates were set and wholly retained locally. One aspect of these developments relates to 'tax increment financing' (TIF) where authorities borrow aganst anticipated future tax revenues from new development
Council Tax - the localism bill looks likely to give some scope for local councils to flex rates and, through ideas such as the 'New Homes Bonus', capture some of the forward value from development. It would be interesting to explore whether a TIF-type model could be developed using this bonus plus the extra council tax revenue.
Planning relaxation - under the new Local Development Framework (LDF) approach local authorities can consider granting de facto permitted development rights at specific locations and on identified sites. In effect, this removes planning costs from the system - both the costs associated with the process itself and also the wider costs connected to the delay. Although this acts primarily as an incentive to business investors, it might also provide a further financial opportunity through instruments underwritten by the implied savings.
Using these methods - plus a generally light-touch approach to regulation - would create an environment conducive to business development. However, the real benefits would arise if government looked at other taxes and duties - corporation tax, VAT and specific duties on particular goods and services. Allowing local authorities to reduce these imposts for exporting businesses would allow a further concentration of private industry.
Any programme of lower taxes would have to be semi-permanent - at least 20 years - to begin to have the desired effects. It would not work if firms were attracted by short-term incentives only to trip off somewhere else when those incentives were ended. In an ideal model, the low business tax, low tariff environment would be complemented by lower rates of personal tax - allowing authorities to drop income tax or NI. Such an approach would support enterprise and would provide an incentive for international capital to lodge in the 'freeport'.
In making these suggestions I am clear that past approaches to regeneration have largely failed to "close the gap" between successful and unsuccessful places. Broadly speaking the poorest places in the country back in 1968 are still the poorest places in 2011. There are some small beacons in this litany of underachievement - enterprise zones were one, the Enterprise Initiative another. However, the most effective (and the best thing Gordon Brown did by far) was Neighbourhood Renewal Fund - what the 'freeport' idea does is take this authority-wide approach and link it to new funding models and tax incentives.
It's either that or UDI for Bradford - creating a kind of Hong Kong of the South Pennines!