Freeports are a gimmick that betrays the weakness of the Budget

When I started as a political journalist 38 years ago, on the New Statesman in 1983, freeports were an exciting new idea among the free-market think tanks that were enjoying their moment in the sun under Margaret Thatcher.

The New Statesman was interested in the ideas of the new right, and I found Madsen Pirie, who set up the Adam Smith Institute just before Thatcher came to power, a lively and intriguing exponent of them.

One of his ideas was freeports. This was so long ago that his pamphlet Freeports is now a collector’s item. A copy in “very good” condition (“never been read”!) was on eBay for £60 last month. The idea was that ports around Britain should have taxes and regulations abolished, so that they could become hubs of international trade like the city-states of old, Hong Kong and Singapore.

I thought some of the Adam Smith Institute’s ideas were good. I thought privatisation was a good idea in principle, but I disagreed with the way it was done, enriching managers and people who could afford to buy shares.

But freeports were a dud. I thought they didn’t work on free-marketeers’ own terms: cutting taxes and regulations for some areas and not for others would distort the market and result in less efficient use of resources. Indeed, they were a form of government intervention of which Pirie and his colleagues would otherwise disapprove.

Enterprise zones were a similar idea, where the government would offer tax and planning law incentives to development. The London Docklands Development Corporation, promoted by Michael Heseltine, was a successful example, but there wasn’t much that was “free market” about it. It was an example of a bold planning idea backed up by a public-private partnership.

Freeports have waxed and waned since, waxing when Conservative governments are desperate for “new” ideas and waning when politicians have better things to do with their time. As the ideas have been fitfully tried out over the years, the evidence has accumulated that they don’t work. All they do is divert jobs from nearby and encourage tax manipulation.

I’m afraid there was far too much of this kind of nonsense in Rishi Sunak’s Budget last week. Gimmicky incentives for house buying that produce a few visible gainers at the expense of the many invisible losers; and a tax subsidy for capital investment that would distort incentives, as Paul Johnson of the Institute for Fiscal Studies said.

That is what has been wrong with some of these supposedly free-market Conservatives for the past 38 years: they don’t really believe in market forces; they believe in state intervention just as long as it is dressed up as a tax cut.

Yours,

John Rentoul

Chief political commentator