New UK-Scotland row erupts over creation of freeports

A new front in the constitutional conflict between the Scottish and UK governments has emerged after the former pulled out of joint plans to create two freeports in Scotland, which were expected to create tens of thousands of jobs and help boost the post-Covid economic recovery.

Scottish business minister Ivan McKee has announced the Scottish Government will instead establish its own Green Port, claiming UK ministers refused to commit to ensuring any port scheme would be underpinned by fair work conditions and net-zero ambitions.

Yet in a letter seen by The Scotsman to Mr McKee, Scottish Secretary Alister Jack agreed any joint prospectus drawn up by both governments to attract freeport bids would reflect the “very high importance” of reaching net zero and include “fair work practices”.

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However, Mr Jack did also state the benchmark of the National Living Wage would need to apply, rather than the “Real Living Wage”.

Business minister Ivan McKee has rejected the UK government's Freeport plan.

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UK Government sources say there is “frustration and anger” at the move by the Scottish Government and have blamed the new SNP-Green government agreement for the decision.

Freeports have been hailed by Boris Johnson’s Government as a major part of his post-Brexit “global Britain” plans to boost international trade.

The special economic zones, which can be airports or sea ports, remove customs rules, such as taxes, on imports in a bid to encourage economic activity and increase manufacturing.

One freeport operated in Scotland at Glasgow Prestwick Airport until 2012 when the-then UK Government decided not to renew the legislation governing the seven across the UK.

However, in the 2021 Budget, Chancellor Rishi Sunak announced eight would open in England, benefiting from a range of tax incentives, such as enhanced capital allowances and relief from stamp duty and employer national insurance contributions for additional employees. They would also have access to a regeneration and infrastructure fund worth up to £175 million.

Similar benefits were also expected to apply to the Scottish freeports with the value of tax reliefs expected to be up to £120m over five years, and the Scottish Government receiving £18m of additional funds as a result of government spending on freeports in England. Aberdeen Council, Forth Ports in Edinburgh, Dundee and the Port of Cromarty Firth were among Scottish locations keen on submitting bids.

The Scottish Government had previously said it would adapt the freeport model as a Green Port, but had continued discussing a joint prospectus for bidders with the UK Government, which was expected to be published later this month.

However, in an announcement on Friday, Mr McKee said Mr Jack had not provided a “firm UK Government commitment on payment of the real living wage and net-zero conditionality in the operation of green ports in Scotland" and as a result “the Scottish Government will now progress plans to develop a green port model which is designed to meet the specific needs of Scotland’s economy”.

He said: “I have been clear that any model implemented in Scotland must include a firm commitment to conditionality around fair work and net zero.

"These are central tenets of Scotland’s future economy and principles we cannot compromise on. The UK Government’s offer does not reflect this, provide fair set-up funding, or indeed recognise the vital role the real living wage plays in secure pay and employment contracts.

“It is difficult to comprehend why UK ministers would seek to dilute a strong commitment to fair work, including payment of the real living wage, when seeking to implement their freeport policy in Scotland.

“With just weeks to go before COP26, the UK Government should be working with us to help deliver a net zero economy given both the Scottish and UK Government have statutory targets to meet on reducing our carbon emissions.

“The Scottish Government therefore has no option, but to take forward plans to further develop our green port model which meet the specific needs of Scotland’s economy.”

A UK Government source said: “We had been working very hard with the Scottish Government on bringing two freeports to Scotland, with the Treasury picking up the ongoing costs, but this decision has put that in jeopardy.

"We cannot understand why they would use the red herring of net zero to derail this when all the bids in England emphasised their green credentials.

"But then we know [Scottish Greens co-convener] Patrick Harvie has denounced the idea, so it would appear that the Scottish Greens are now heavily influencing economic policy in a way that is detrimental to Scotland’s economic recovery.

“Much more would have been delivered by working together, but we remain committed to this and we will press on and deliver at least one Freeport for Scotland.”

Freeports have been criticised, most notably by the European Parliament in 2019, after it was reported they were being used for tax evasion and money laundering.

Mr Harvie, now minister for zero carbon buildings and active travel, has previously described freeports as “a form of sanctioned tax dodging, linked to deregulation and race-to-the-bottom free market extremism”.

He has also criticised the Scottish Government’s re-branding of its scheme as Greenports, saying “simply putting the word ‘green’ into the name doesn't change that – this is Tory economics”.

The row has also caused frustration among Scotland’s business community.

Tracy Black, CBI Scotland director, said: “Businesses will be disappointed to see an exciting opportunity for economic development marred in a dispute between the UK and Scottish governments.

“As we look to rebuild from the impact of the pandemic, freeports can help shape place-based regional growth, regeneration and investment – as well as helping Scottish firms to realise their full exporting potential.

“After a tough 18 months for the Scottish economy, we need to see greater co-operation between all levels of government if we want to turn ambition for Scotland’s economy into tangible action.”

Dr Liz Cameron, chief executive of the Scottish Chambers of Commerce, described the row as an “incredibly disappointing development”.

She said: “It is highly regrettable that a shared agreement on the design and implementation of a freeports model for Scotland could not be reached between the Scottish and UK governments. This situation should have been avoided and many businesses will view the lack of co-operation and partnership with dismay.

“The UK Government’s decision to move forward on its own, while disappointing, will be welcomed by many ports who have invested significant time and money in anticipation for bidding for the status.”

She added: ”We need to receive details urgently of how businesses can bid and what the next steps are. We cannot afford any further delays especially when Scotland is already behind other parts of the UK, impacting on our ability to attract global investment.

“We also understand the Scottish Government intends to pursue its Green Ports model. Business will need the detail of how this will operate and will urgently need confirmation from both governments that investment incentives will be mirrored across the UK to prevent competitive disadvantage for Scottish businesses.”

Liam Kerr, Scottish Conservative spokesman for net zero, transport and energy, said: “The SNP refused to acknowledge the potential benefits of freeports for Scotland's economy for a long time.

"And their Green partners have made it their mission to tear down the idea, along with the oil and gas industry and vital roads investment.

"So we will see how much longer Ivan McKee's newfound interest lasts. The people of Scotland deserve a Scottish Government that will work co-operatively to boost our recovery from Covid.

"Not one that threatens jobs and the economy in the quest for grievance."

A UK Government spokesperson said: “The UK Government's freeport model embraces the highest employment and environmental standards.

“It is disappointing that despite strenuous efforts to work together, the Scottish Government is choosing not to work with us to bring freeports to Scotland. There is a strong appetite from businesses and it would boost the economy and create jobs.

“We will continue to work to ensure that Scotland can enjoy the benefits of the model.”

Meanwhile the Scottish Government has also paused work on the building of a border control post (BCP) at Cairnryan "until receiving clarity from the UK Government on the requirements for the facility and the financial position”.

Work on the BCP started last autumn to “apply devolved controls, protecting human, animal and plant health” on EU goods arriving into Scotland through the Loch Ryan ferry routes from Belfast and Larne.

It was a move the UK Government has said the BCP was not required as checks would be carried out in Northern Ireland.

However, rural affairs minister Mairi Gougeon said: “We are pressing the UK Government to cover the costs of the border facility including the BCP under its EU-Exit commitments. The UK Government has declined to provide us with the necessary assurances.

“With some major uncertainties to be resolved that are not within the control of the Scottish Government, we have made the decision to pause elements of this project until we are in a position to proceed with confidence in the requirements and the financial position.”

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