On 14 February 2022, the Scottish and UK Governments finally agreed a partnership to establish two Green Freeports in Scotland. The bidding process was open from 25 March 2022 until 20 June 2022.
Applying Scotland's priorities to the Freeport model
In a statement to the Scottish Parliament on 21 January 2021, Scottish Trade Minister Ivan McKee said "The reputation of Freeports across the world is mixed, with concerns about deregulation and risks of criminality, tax evasion and reductions in workers' rights raised. That, Presiding Officer, is not a model nor an approach that this Scottish Government will sign up to or allow here in Scotland."
He then went on to say that the Scottish government have decided to.... "take the Freeport model and apply Scotland's priorities to it, so that it meets our ambition to deliver a net zero, wellbeing economy that upholds the highest standards of environmental protections and fair work practices, and supports our strategy of building clusters of high productivity businesses across Scotland's regions."
Designate economic development and trading zones
The Scottish green freeport model (as it is now known) will seek to anchor up to two new designated economic development and trading zones within a defined boundary. These will, or can, include: a rail, sea or airport, supporting innovative green tech industries, paying the real Living Wage and supporting decarbonisation and a just transition to net zero emissions. Operators and businesses situated in the designated zone will benefit from a mixture of reserved and devolved tax benefits, through a combination of devolved and reserved levers.
Key policy objectives
Green freeports will contribute to four key policy objectives:
- Promoting regeneration and high-quality job creation
- Promoting decarbonisation and a just transition to the net zero economy
- Establishing hubs for global trade and investment
- Fostering an innovative environment.
For further background, see our February 2021 update, Freeports and Green Ports: The English and Scottish Approaches.
A joint approach between Scottish and UK Government
It is a joint approach because it involves tax reliefs that are devolved, such as rates relief, and reserved, such as enhanced tax allowances, Employer National Insurance relief and customs duty reliefs. The Scottish Government will have an equal say with the UK Government on all bids and will expect bidders to commit to achieving net zero by 2045 and embed fair work practices in the Green Freeport area.
Green Freeports don't just have to be seaports. The model has been designed to apply effectively to areas with seaports, airports, and rail ports. Bidders include a consortium of Aberdeen International Airport, Aberdeen Harbour Board, the Port of Peterhead, Aberdeen City and Aberdeenshire councils. Other consortia in contention include: Grangemouth and the Firth of Forth (Forth Ports), which encompasses Edinburgh Airport and a recently upgraded intermodal rail terminal; and Opportunity Cromarty Firth in the far north of Scotland.
From our involvement working with owners of land forming part of English Freeports, and in particular advising them in relation to the negotiation of the site-specific agreements with the Freeport Companies and the local authorities, some common themes and challenges have arisen that have needed to be worked through to try and address the differing objectives and risks for the various stakeholders. These include:
- How to encourage new occupiers and inward investment
- How the tax benefits track alongside the development process in terms of timeline
- How to deal with existing tenants and occupiers
- Competing drivers of Government's policy objective of 'additionality' verses developers' need to have sufficient certainty of obligations and flexibility on uses to ensure the attractiveness of the reliefs is not outweighed by excessive red tape
- Negotiation challenges on multi-ownership freeports of landowners/developers wanting to ensure that the terms of each site-specific agreement within the freeport zone are consistent
- Involvement of public and private sector in the freeport companies, and who is best placed to take on various roles.
Early stakeholder involvement for a smooth process
Getting the relevant landowners/developers involved at an early stage to help shape the strategy, particularly from the perspective of what will be achievable in the context of assessing viability of a development scheme and attracting new businesses to the region, will help deliver a smoother process when it comes to negotiating the documentation with relevant stakeholders prior to the approval of final business case by Government and the freeport being given approval to commence operation.
Carrie Armstrong is Real Estate Partner at Addleshaw Goddard, an international law firm combining legal, technology, resourcing, and consultancy expertise to deliver more impact for clients.