Opinion: Free Zone Revolution

In New Labour’s puerile and patronising ‘Animated Manifesto Film’ their first pledge is the desire to instigate a ‘new industrial revolution’. This is followed by no explanation whatsoever as to how precisely they are going to do this. If you look deeper, however, the reality is damning. It is an acknowledgement that after 13 years of power many urban areas, especially in the North of England, Northern Ireland, Scotland and South Wales, are still experiencing crippling poverty and high unemployment.

The LibDems go one better; they at least acknowledge a truth that policy to tackle the state of the economy, as a whole, may not penetrate those areas scarred more deeply than most by their previous reliance on state run industries. Since I’m going to guess that Labour is not going to rely on the free market to create this new industrial revolution. No matter how ‘green and digital’ these industries are, to rely on New Labour’s soviet style economic management is a regression. The LibDems are proposing £400 million worth of investment into shipyards in the North of England and Scotland. The trouble is that this investment comes from the taxpayer and it should not.

Alternatively my proposal is this: our policy should be to create ‘free zones’ starting in urban areas within regions with the lowest GVA per head and highest unemployment. Free zones are industrial areas where Corporation tax, Stamp Duty and Capital Gains tax do not apply. These Special Economic Zones (SEZs) could contain varying degrees of economic liberalism (so long as they are more liberal than the rest of the country in general). We should use varying types of SEZs to channel Foreign Direct Investment (FDI) to the areas of the UK where it is needed most.

SEZs work. SEZs are responsible for China becoming the largest recipient of Foreign Direct Investment (FDI) and for helping bolster Russia’s economy despite the economic downturn. They have been tried and tested throughout the world and have proven especially potent in areas where industry was previously under state control. Singapore began using SEZs in the 1960s6; this has resulted in the most open economy for international trade, the second best economy for investment potential and some of the lowest levels of economic corruption in the world.

This is a policy the next government could enact straight away. The Jebel Ali Free Zone in the UAE is a mere 48 km square and hosts over 6400 businesses. Start with 50 km square free zones in Glasgow, Belfast, Newcastle, Liverpool, Manchester, Hull, Leeds, Birmingham and South Wales. Expand these areas slowly always keeping the most preferable tax rates in the areas of highest unemployment.

Since the North is accessible to Europe via its brilliant airports (Liverpool John Lennon, City Manchester, Leeds Bradford International, Newcastle International, Birmingham International), SEZs could also be the key to Britain gaining so much more from her membership of the EU. It makes no sense that a constituency, such as South Shields, located so close to an airport (40 minutes from Newcastle International) should have an unemployment rate of 8%.

It would not just be the North who would reap the benefit of this policy. North England is the largest food and drink producing region in England and Wales. SEZs for companies related to food production and packaging would mean cheaper weekly shops for the whole country. This has the potential to make a significant difference to the lives of those struggling to cope with the recession where it is needed most in a relatively short space of time.

This proposal is not an excuse for tax exceptionalism. In fact, it may even serve to swell the Treasury coffers as, depending on where the SEZs are located, the increase in National Insurance contributions and the decrease of job seekers allowance payments, as a result of a reduction in unemployment, could more than make up for the loss of revenue from Corporation tax. Furthermore no one can put a price on the dignity of gainful employment.

It makes sense to make the areas of England worst hit by high unemployment and poverty exceptionally attractive to businesses and industry. And I know that I am not alone in believing that any ‘new industrial revolution’ has to occur in the poorest areas first to bring this country out of its debt-ridden, government-reliant malaise.

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10 Comments

  • Anthony Aloysius St 26th Apr '10 - 3:27pm

    “In New Labour’s puerile and patronising ‘Animated Manifesto Film’ their first pledge is the desire to instigate a ‘new industrial revolution’. This is followed by no explanation whatsoever as to how precisely they are going to do this.”

    You have to click on a link for the explanation.

  • Andrew Suffield 26th Apr '10 - 3:57pm

    The trouble is that this investment comes from the taxpayer and it should not.

    How about justifying that claim? Spending tax money on projects that enable industry, but which could not be funded out of private capital due to externalities, is a legitimate and beneficial thing to do. Can you demonstrate that this project can be privately funded? If it can, why has it not already happened? If not, how does your proposal change these circumstances?

    It all sounds plausible, but plausibility doesn’t make things work, and I’d like to see something more concrete.

  • This isn’t a bad idea at all, but it’s important to distinguish between the intent behind SEZs (enhancing opportunities for investment and commerce in a particular area) and the £400million shipyard investment (achieving strategic goals in terms of expanding renewable energy provision and enhancing the UK as a base for parts of its supply chain). The former is a great thing to do in terms of bringing new investment to deprived areas, while the latter is a necessity to combat market failures arising from climate change. The market environment necessary for the entirety of that £400 million investment to come from the private sector is not yet present, and right now there’s something of a bidding war amongst countries along the North Sea who could potentially host that supply chain to secure it before it does.

    It is important to remember that the distinction between SEZs and state subsidies for business in particular areas is more ideological than real; they’re both interventions by the state to enhance a geographic area’s competitiveness for investment.

  • “…areas scarred more deeply than most by their previous reliance on state run industries.”
    “…to rely on New Labour’s soviet style economic management is a regression.”

    Privitisation, and the closure of state run industries has caused some areas to have high unemployment.

    Rather than reverse this, we should take Privitisation to the extreme and throw away billions in tax receipts.

    Because state run industry is ‘Soviet’.

    Did I get that right?

    Which of these scenarios is more likely?

    a) Companies not currently based in Britain will up sticks and move here for the sake of these potentially volatile zones, incurring all the costs that relocating to a new country entails. (Volatile as they could disappear if economic policy changes).

    b) Companies already working and providing jobs in Britain will simply move those jobs to these zones, in order to avoid paying tax. Result: A lot of extra money for those companies, a lot less for the state, and no net new jobs.

    Which public services would you be cutting to fund this tax loss? Or are public services ‘Soviet’ as well?

  • Richard Wilkes 26th Apr '10 - 4:02pm

    Few quick points:

    Whats to prevent existing firms just moving into one of these SEZ’s, in order to cut their tax bill, at the expense of the employment on their existing site?

    What about smaller firms, new start-up’s, who may not be able to afford the units/property in these SEZ’s?

    What about location based businesses that open up & compete with existing businesses outside of the SEZ?

    “Since the North is accessible to Europe via its brilliant airports (Liverpool John Lennon, City Manchester, Leeds Bradford International, Newcastle International, Birmingham International)”

    Birmingham is not in ‘the North’ 🙂

  • I much prefer the idea that the Lib Dems should from a coalition with the Co-operative party. Or the liberal vison idea that the only way to beat the Conservatives is to offer more tax breaks for the rich. Oh hang on, this is essentially what your proposing again.

    Of course this proposal IS tax exceptionalist and as such fits easily in with the soviet style economic management you mock. Too much unemployment in the South Shields, we’re move some some jobs from someone else.

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