The Economist UK - 10.08.2019

22 Britain The EconomistAugust 10th 2019

2 minister duly announced plans to renovate

20 hospitals.

Matt Hancock, the health secretary and

an enthusiastic convert to Mr Johnson’s

cause, promised he would “make sure that

money gets to the front line”, which in this

case conveniently includes hospitals in

marginal constituencies such as Boston,

Stoke and Truro. Although Mr Johnson has

promised an additional 20,000 police offi-

cers, there will be no proportional increase

in the staff who work alongside them, like

data analysts or those who work in the

courts. Londoners, who twice elected Mr

Johnson as mayor, will recognise his fond-

ness for policy announcements that look

good splashed across an election poster.

Many of these announcements then

turn out to be less impressive than the

headline figure would suggest. As Sally

Gainsbury of the Nuffield Trust, a think-

tank, has pointed out, £1bn of the £2.1bn

announced for thenhshad already been

promised (though it was later put on hold).

Likewise, half of the fund for poor towns

had been set aside by Theresa May, Mr

Johnson’s predecessor. Solutions for knot-

tier problems remain in development. An

answer to the social-care funding crisis is

expected in the autumn.With theexcep-

tion of the extra police officers, where a

new board run by the Home Office will

oversee recruitment, the extra money has

not been accompanied by reforms to how

services are run.

Most of the money will be spent over the

next few years, meaning it will almost cer-

tainly be dependent on a successful re-

election campaign. In the next few months

Brexit is likely to take up the government’s

attention, and the Conservatives’ perilous

parliamentary position means they will

struggle to get much else done. Facing sim-

ilar obstacles, Mrs May also came to power

with bold ambitions to reform the British

state. She failed to put them into practice,

and it will not be a surprise if Mr Johnson

struggles too. 7

T

he vast, bulbous-bowed Höegh Auto-

liners car-carrier, with room for 6,500

vehicles, takes up the space of three nor-

mal-sized ships in the Port of Tyne. Inside

are several thousand shiny new Nissan

Leafs, Qashqais and Jukes bound for the

continent. Newcastle’s deep-sea port is not

the country’s busiest, but because it serves

nearby Nissan Sunderland, the biggest car-

making site, it is among the first in line to

become one of the government’s swash-

buckling new “free ports”.

Such zones are physically inside a coun-

try but legally outside it for customs pur-

poses. As well as zero tariffs, free ports pile

on other goodies such as low taxes and

loose regulation. The idea is that firms will

flock to them. Brexiteers in particular

dream of free ports pulling in companies

and container ships from everywhere. Bo-

ris Johnson, the prime minister, has prom-

ised to anoint ten free ports—mostly big

harbours and perhaps some airports. On

August 2nd Liz Truss, the trade secretary,

set up a free ports advisory panel.

Other countries are fans. Dubai’s Jebel

Ali free zone hosts 7,000 global firms.

America is dotted with 265 foreign-trade

zones. Europe has dozens of free ports.

Regulators worry that some are havens for

money-laundering or tax evasion—though

they are most concerned about facilities

where the rich store art and other fancy

goods, such as those in Luxembourg, not

the type of zone Britain is contemplating.

If the Port of Tyne became a free port,

enthuses Matt Beeton, its chief executive,

more firms would move into space cur-

rently occupied by weeds and cormorants.

Nissan is keen. More business activity

would further boost the port’s contribution

to the local area, including deprived South

Shields. Another policy aim of free ports is

to help left-behind places, by generating

investment and pulling in economic activ-

ity. The old industrial area around the

mouth of the river Tees has been preparing

since last year to become a free port.

Yet they are no panacea. On the tariff

side, their utility may be tiny. The plan

post-Brexit is for Britain to maintain low

tariffs on most goods. American foreign-

trade zones are supposed to encourage do-

mestic production by letting firms bring in

inputs tariff-free (solving the problem of

tariff inversion, where finished goods car-

ry a lower tariff than their component

parts). But Brexit is unlikely to lead to high-

er tariffs on inputs than on finished goods,

according to a paper by the ukTrade Policy

Observatory, which examined World Trade

Organisation (wto) tariff schedules.

Another, subtler function could be to

help Britain navigate wtotariff rules, notes

Meredith Crowley, an economist at Cam-

bridge University who sits on the free ports

advisory panel. The country will have to de-

cide between setting tariffs at 10% or at 0%

on car parts, for example. Either rate would

apply to all countries, including China,

meaning a risk of being swamped by Chi-

nese imports. If Britain sets the tariff at 10%

it could use free ports to help big manufac-

turers that use European supply chains.

A well-known problem with free zones

is that they can turn into a domestic beg-

gar-thy-neighbour policy. Cutting taxes in

one place encourages firms to leave others.

Mr Beeton wants a free port, but to make

sure it would not suck activity from the

hinterland he wants to draw a bigger

boundary and to use supply-chain tracking

systems to create a “virtual” free zone. But

free ports could still take business away

from elsewhere.

Another argument against is that Brit-

ain used to have a few until 2012, but no one

complained when they were phased out.

That was probably because eu state-aid

rules prevented them from bringing in

truly freewheeling policies on regulation,

tax and labour standards. The wtois less

stringent. Mr Johnson’s government may

therefore use aggressive supply-side poli-

cies to create real free ports, but the Trea-

sury would count the cost.

Which ports will win the new status?

The government wants free ports to help

rebalance the economy away from the

south-east. Of 30 big ports, 17 are in poor ar-

eas, mainly in the north and Wales. They

should be at the front of the queue. But the

south is home to many ports (see map). It

might be hard to overlook Bristol Port,

which gave to Mr Johnson’s campaign. Ben

Houchen, mayor of Tees Valley, says Tees-

side should come ahead of Dover. If free

ports are the gateway to prosperity, as Ms

Truss says, it will be hard to be left out. 7

NEWCASTLE

What free ports can and cannot achieve

Trade post-Brexit

Free-for-all

IRELAND

Ty n e

Liverpool

Milford Haven

Southampton

London

Grimsby &

Immingham

Te e s &

Hartlepool

Bristol

Dover

50

10

Pier review

British ports by total freight traffic

2017, tonnes m

Source: Df T