Create More Freeports and Business Rates Retention Zones
Conservative · what the evidence says
An independent, source-checked look at Conservative’s policy “Create More Freeports and Business Rates Retention Zones” — what it would actually do across the things that affect your life. Every claim below quotes the source behind it. How this works.
Public finances & the next generation — Hurts
minor · moderate confidence
Freeports and business-rates retention zones cost the Exchequer real money in tax reliefs and foregone redistribution, but the independent evidence suggests much of the claimed economic gain is displaced from elsewhere rather than genuinely new — meaning the costs are real but the offsetting tax-base gains are uncertain. The fiscal damage is modest in scale but likely persists over the 25-year zone lifetime.
The evidence
- The policy creates more Freeports and enables councils to retain all business rates growth within defined zones for 25 years to finance new infrastructure. — conservatives.com (manifesto) — “enable councils to retain all business rates growth within defined zones for 25 years to finance new infrastructure and invest in local industries”
- Existing freeports receive up to £25 million in seed capital for infrastructure alongside tax reliefs. — blogs.sussex.ac.uk (academic) — “They also receive up to £25 million in seed capital for infrastructure, alongside enhanced trade promotion and innovation support”
- The business rates retention element expands on an existing scheme that allows councils to retain typically 50% of business rates revenue growth, not 100%. — ifs.org.uk (institutional) — “expands on the existing Business Rates Retention Scheme (BRRS), introduced in 2013-14, which allows councils to retain a proportion (typically 50%) of business rates revenue growth”
- The OBR warns that estimates of employment and economic gains from freeports are highly uncertain due to unpredictable uptake of tax reliefs and true additionality. — publications.parliament.uk (government) — “the OBR warns that this estimate is highly uncertain due to unpredictable factors such as the actual uptake of tax reliefs and the true "additionality" of employment created”
- The IFS and the House of Commons Business and Trade Committee raise a primary concern about whether Freeports genuinely create new economic activity or simply displace jobs and investment from other parts of the UK. — blogs.sussex.ac.uk (academic) — “A primary concern raised by analysts, including the Institute for Fiscal Studies (IFS) and the House of Commons Business and Trade Committee, is whether Freeports genuinely create new economic activity or simply displace…”
- Evidence suggests around two-thirds of the 5,600 reported new jobs may not be genuinely additional but would have been created elsewhere or regardless. — blogs.sussex.ac.uk (academic) — “around two-thirds of the reported 5,600 new jobs might not be "new" but rather jobs that would have been created elsewhere or would have happened regardless”
- IFS studies of previous place-based tax policies found evidence of displacement, reinforcing concerns about additionality. — ifs.org.uk (institutional) — “The IFS notes that studies of previous place-based tax policies have also found evidence of displacement”
- The IFS notes a paucity of evidence on the actual impact of business rates retention on councils' behaviour and local economic performance. — ifs.org.uk (institutional) — “The IFS notes a "paucity of evidence" regarding the actual impact of business rates retention on councils' behavior and overall local economic performance”
Biggest unknown: Whether the tax reliefs and foregone business-rates revenue are offset by genuinely additional economic activity, or whether displacement means the Exchequer simply pays out without a net gain in the national tax base.
Our reading: Assessing O12 requires weighing the Exchequer cost of the policy against whether it generates genuinely additional economic activity that would expand the long-run tax base and justify the fiscal outlay. On the cost side, the policy has two fiscal channels. First, freeport tax reliefs (customs, NICs, SDLT, plus seed capital grants) represent direct Exchequer expenditure and foregone tax revenue. Second, the 100% business rates retention for 25 years means that business-rates growth within zones — which under current arrangements is partly redistributed nationally — is instead retained locally. Central government thus gives up a future revenue stream. On the benefit side, if retained rates and the incentives spur genuinely new investment and employment, future aggregate tax receipts could ultimately exceed the initial cost — this is the standard 'borrowing/investing to raise future capacity' logic that the O12 rubric correctly identifies as potentially sustainability-improving. However, the critical OBR and IFS evidence undermines this case. The OBR judges the employment estimates highly uncertain; the IFS and Commons committee flag displacement as the primary analytical concern; and the Sussex-based analysis suggests roughly two-thirds of reported new jobs may not be additional. If displacement is the dominant mechanism, the reliefs are real Exchequer costs but the offsetting gains in the national tax base are illusory — they represent activity and tax revenue moved from one place to another, not created net. Absent the policy, businesses and workers would still be active elsewhere in the UK, generating tax revenues from those locations. The additionality gap means the net fiscal position is likely modestly negative over the 25-year horizon. The magnitude is minor rather than moderate: the number of freeports and defined zones is small, capping aggregate Exchequer exposure. Confidence is moderate because the IFS and OBR evidence points clearly toward net fiscal cost, though the true scale depends on additionality that remains empirically unsettled.
Prosperity & living standards — Mixed picture
minor · moderate confidence
More freeports and business rates retention zones could attract investment and boost local economies, but the main risk is that much of this activity is simply moved from elsewhere in the UK rather than genuinely new — so national prosperity gains may be modest. The evidence on additionality is deeply uncertain.
The evidence
- The policy would create more freeports and enable councils to retain all business rates growth in defined zones for 25 years to finance infrastructure and invest in local industries. — conservatives.com (manifesto) — “create more Freeports and enable councils to retain all business rates growth within defined zones for 25 years to finance new infrastructure and invest in local industries”
- Freeports offer customs benefits, tax reliefs, and seed capital for infrastructure, targeting trade, regeneration, and job creation. — ifs.org.uk (institutional) — “Freeports are designated areas offering various incentives, including customs benefits, tax reliefs, and seed capital for infrastructure, with the stated goals of establishing hubs for global trade and investment, promot…”
- English freeports have so far created an estimated 5,600 jobs, representing about 4% of the government's 200,000-job target over 20 years. — publications.parliament.uk (government) — “approximately 4% of the government's estimated target of 200,000 new jobs over 20 years”
- The IFS and the House of Commons Business and Trade Committee raise primary concern about whether freeports genuinely create new economic activity or displace it from elsewhere in the UK. — blogs.sussex.ac.uk (academic) — “A primary concern raised by analysts, including the Institute for Fiscal Studies (IFS) and the House of Commons Business and Trade Committee, is whether Freeports genuinely create new economic activity or simply displace…”
- The IFS notes that studies of previous place-based tax policies found evidence of displacement. — ifs.org.uk (institutional) — “studies of previous place-based tax policies have also found evidence of displacement”
- Investment Zones, which share similarities with freeports, have estimated attracting over £11 billion in private investment and 89,000 jobs over 10 years. — publications.parliament.uk (government) — “Investment Zones, which share some similarities, have estimated they will attract over £11 billion in private investment and create more than 89,000 jobs over the next 10 years”
- Councils with greater capacity for business growth could see substantial funding increases while those with less potential might struggle, potentially exacerbating regional inequalities. — ifs.org.uk (institutional) — “Councils with greater capacity for business growth could see substantial increases in funding, while those with less potential might struggle, potentially exacerbating regional inequalities if not balanced by redistribut…”
Biggest unknown: Whether the jobs and investment created are genuinely additional to the UK economy or largely displaced from other regions, which determines whether this is a national prosperity gain or a redistribution of existing activity.
Our reading: The policy operates through two main channels: freeport incentives (tax reliefs, customs benefits, seed capital) and enhanced business rates retention (100% for 25 years vs. the standard 50%). Both are designed to stimulate local investment and infrastructure, which in principle could raise productivity, business formation, and living standards in lagging areas — the classic case for place-based policy. The near-term evidence on existing freeports is weak. Only around 5,600 jobs have been created so far — roughly 4% of the headline 20-year target — and roughly two-thirds of those may not be additional to the national economy. The IFS and the House of Commons Business and Trade Committee both flag displacement as the central concern, and the OBR characterises the estimates as highly uncertain. This is not a fringe critique: it is the mainstream analytical view. The business rates retention element has a plausible incentive mechanism — giving councils a direct financial stake in commercial development could unlock local infrastructure spending. But the IFS notes a paucity of real-world evidence that retention actually changes council behaviour or improves local economic performance at scale. Pilot schemes have run since 2017, but no robust outcome data is cited. On balance, the policy has genuine upsides in targeted locations — investment flows of £2.1bn FDI are cited, and the mechanism for channelling revenue into local infrastructure is real. But the aggregate national prosperity effect is dampened by strong displacement concerns: gains in freeport zones may partly come at the expense of other UK regions, leaving the net national effect small. This is why the verdict is 'mixed/minor' rather than 'improves': there are real local gains and real displacement risks, both supported by cited evidence, but neither channel is large enough at demonstrated scale to move national living standards materially. The long-term horizon applies because the 25-year retention windows and infrastructure investment take time to compound into productivity gains.
Inequality & fair shares — Mixed picture
minor · low confidence
The policy aims to help left-behind areas by directing investment into specific zones, but the evidence suggests gains in those zones may largely come at the expense of other areas, and councils with stronger growth potential benefit most — which could widen rather than narrow regional gaps. The net effect on overall inequality is genuinely unclear.
The evidence
- The policy creates Freeports and lets councils retain all business rates growth in defined zones for 25 years to fund infrastructure and local industries. — conservatives.com (manifesto) — “enable councils to retain all business rates growth within defined zones for 25 years to finance new infrastructure and invest in local industries”
- Freeports are framed as part of a regeneration and levelling-up agenda. — ifs.org.uk (institutional) — “promoting regeneration and job creation, and fostering innovation as part of the "Levelling Up" agenda”
- UK Freeports have so far created an estimated 5,600 jobs, roughly 4% of the long-run 200,000-job target. — publications.parliament.uk (government) — “approximately 4% of the government's estimated target of 200,000 new jobs over 20 years”
- Around two-thirds of reported new Freeport jobs may not be genuinely new but would have been created elsewhere or regardless. — blogs.sussex.ac.uk (academic) — “around two-thirds of the reported 5,600 new jobs might not be "new" but rather jobs that would have been created elsewhere or would have happened regardless”
- The IFS and parliamentary committees raise the core concern that Freeports may displace rather than create activity. — blogs.sussex.ac.uk (academic) — “whether Freeports genuinely create new economic activity or simply displace jobs and investment from other parts of the UK”
- Councils with greater business growth capacity will benefit most from retention, while others may struggle, potentially widening regional inequalities. — ifs.org.uk (institutional) — “Councils with greater capacity for business growth could see substantial increases in funding, while those with less potential might struggle, potentially exacerbating regional inequalities if not balanced by redistribut…”
- The ability to generate business rates is not strongly tied to local need, weakening the redistributive logic. — new-economicsf.files.svdcdn.com (media) — “The ability to generate business rates is not strongly correlated with local need”
- UK Freeports have no requirements to hire a certain proportion of local workers. — ifs.org.uk (institutional) — “UK Freeports do not have requirements to hire a certain proportion of local workers”
- The OBR warns that job-creation estimates are highly uncertain due to unpredictable uptake and true additionality. — publications.parliament.uk (government) — “the OBR warns that this estimate is highly uncertain due to unpredictable factors such as the actual uptake of tax reliefs and the true "additionality" of employment created”
Biggest unknown: Whether the investment attracted is genuinely additional (new to the UK economy) or displaced from other regions, which determines whether targeted-area gains translate into any national narrowing of the inequality gap.
Our reading: The policy has two potential inequality channels: (1) targeted regeneration — directing tax incentives and infrastructure investment into designated zones could narrow regional gaps if the zones are genuinely deprived areas; (2) distributional structure of business rates retention — councils that can attract commercial development keep 100% of growth, while those with weaker growth capacity do not, which the IFS explicitly flags as a risk of exacerbating regional inequalities rather than closing them. On the regeneration side, the displacement evidence is damaging: if around two-thirds of reported jobs are not genuinely additional, then gains in Freeport zones are largely transfers from elsewhere in the UK, leaving overall income and regional inequality roughly unchanged or worsened for the displaced areas. The absence of local hiring requirements further weakens the link between zone-level investment and gains for the lowest-income local workers. On the business rates retention side, the policy structurally favours areas with more commercial growth potential, which are not necessarily the most deprived. The IFS's 'funding divergences and equity' concern and the finding that business rate generation is uncorrelated with local need both point toward a mechanism that widens rather than narrows gaps between councils over the 25-year horizon. The stated levelling-up framing is aspirational; the delivered mechanisms contain no distributional safeguards (local hiring quotas, ring-fencing for the most deprived zones, or redistribution floors). The balance of cited evidence therefore points to a mixed verdict: possible modest benefit to targeted zones if additionality is real, set against structural forces that risk widening inequality between councils and between regions. Given the low additionality evidence and absence of corrective mechanisms, the inequality-narrowing case is weak.
Good work & fair pay — Mixed picture
minor · low confidence
Freeports and business rates retention zones are designed to create jobs and attract investment to local areas, but credible analysis suggests much of this may simply shift jobs from elsewhere rather than create genuinely new ones. The net benefit to workers — in terms of pay, security, and real job creation — is highly uncertain.
The evidence
- The policy will create more Freeports and allow councils to retain all business rates growth in defined zones for 25 years to finance infrastructure and invest in local industries. — conservatives.com (manifesto) — “create more Freeports and enable councils to retain all business rates growth within defined zones for 25 years to finance new infrastructure and invest in local industries”
- Freeports are designated to promote job creation and regeneration as part of a levelling-up agenda. — ifs.org.uk (institutional) — “promoting regeneration and job creation, and fostering innovation as part of the "Levelling Up" agenda”
- English Freeports have so far created an estimated 5,600 jobs. — blogs.sussex.ac.uk (academic) — “The government estimates that Freeports in England have so far created 5,600 jobs”
- This represents only about 4% of the government's 20-year target of 200,000 new jobs. — publications.parliament.uk (government) — “approximately 4% of the government's estimated target of 200,000 new jobs over 20 years”
- Around two-thirds of the reported 5,600 jobs may not be genuinely new but rather displaced from elsewhere or would have happened regardless. — blogs.sussex.ac.uk (academic) — “around two-thirds of the reported 5,600 new jobs might not be "new" but rather jobs that would have been created elsewhere or would have happened regardless”
- The IFS and the House of Commons Business and Trade Committee question whether Freeports generate new economic activity or just displace jobs and investment from other UK areas. — blogs.sussex.ac.uk (academic) — “whether Freeports genuinely create new economic activity or simply displace jobs and investment from other parts of the UK”
- UK Freeports do not require a minimum proportion of locally hired workers, limiting guaranteed benefits to local workers. — ifs.org.uk (institutional) — “UK Freeports do not have requirements to hire a certain proportion of local workers”
- The OBR warns that job creation estimates are highly uncertain due to unpredictable uptake of tax reliefs and the true additionality of employment. — publications.parliament.uk (government) — “the OBR warns that this estimate is highly uncertain due to unpredictable factors such as the actual uptake of tax reliefs and the true "additionality" of employment created”
- Business rates retention could exacerbate regional inequalities, as councils with greater capacity for business growth benefit more, while those with less potential may struggle. — ifs.org.uk (institutional) — “Councils with greater capacity for business growth could see substantial increases in funding, while those with less potential might struggle, potentially exacerbating regional inequalities”
Biggest unknown: Whether the jobs and investment attracted are genuinely additional or mainly displaced from other UK regions, which would mean little net gain for workers nationally.
Our reading: The policy targets O4 through two channels: job creation via Freeport incentives, and local investment via 25-year business rates retention. On the upside, Freeports offer customs benefits and tax reliefs explicitly aimed at attracting investment and creating jobs, and there is some measurable early job creation (5,600 jobs to date). Business rates retention also gives councils a direct financial incentive to encourage commercial development, potentially supporting local employment and wages over time. However, the weight of credible evidence — from the IFS, the OBR, and academic analysis — undermines confidence in the scale of real benefit to workers. Two-thirds of reported jobs may be displaced rather than additional. There is no requirement to hire local workers. The OBR explicitly flags high uncertainty in the employment estimates. For business rates retention, IFS notes a 'paucity of evidence' on actual impact, and the mechanism risks benefiting already-stronger local economies more than deprived ones, potentially widening the very inequalities it claims to address. The time horizon is long-term (25-year zones), so workers in target areas may see some benefit eventually, but nationally the net effect on employment quality and pay is modest and contested. The verdict is mixed at minor magnitude: there are real potential upsides for workers in designated zones, but displacement risk and the absence of local-hiring requirements mean the national O4 effect is likely small and uneven.