Did the Scottish Government have no choice over free ports?

by | 17 Feb 2022

Is the investment promised in Scotland if it accepts free ports of a scale that makes the decision impossible? Almost certainly not.

While there has been widespread unhappiness about the Scottish Government’s decision to allow the UK Government’s free port model into Scotland, some have made the argument that the Scottish Government had no choice as it was a take-it-or-leave-it deal and they couldn’t justify ignoring the investment in Scotland.

The UK Government will invest “up to” £52 million to help set up free ports in Scotland and then cover tax breaks for five years. Is this an offer that couldn’t be refused?

As always with money and government it can be hard to get the scale of the implications right because the numbers are so big. The Scottish Government’s total budget is about £55 billion in 2022-23. This means that the UK Government’s investment in free ports is worth about 0.095 per cent of total spend.

To help put that into a perspective that is easier to understand, let’s compare that to a personal budget. The median annual salary in Scotland is about £30,000. So the comparative amount of money that a median individual person would need to be offered to match what the Scottish Government has been offered is about £28.

This is a one-off sum for a permanent decision. The Scottish Government had previously expressed strong moral objections to free ports but has set those aside to gain the investment. What would be a personal comparator? It would be that there is something that you personally had a strong moral objection to but you would be willing to overlook your principles for a one-off payment of £28.

Another way to make the comparison would be to look at what other things on which the public sector spends the kind of money coming to Scotland as a sweetener to accept free ports. For example, in 2020 the Scottish Government gave £62 million in subsidy to the oil and gas industry to help it ‘recover from Covid’. That sector is now achieving previously unprecedented levels of profit.

Alternatively, Edinburgh City Council paid the American asset management behemoth Nuveen (total assets; £1 trillion) a grant of £56 million to build the new shopping mall which replaced the St James Centre, despite the development being profitable without subsidy. It is therefore clear that finding one-off sums of £52 million is not difficult for government.

If an individual was told they must sell out a strong personal principle for the sake of £28 and no other sustainable justification, that would seldom be considered an impossible position to be put in

Does the five-year tax cut (funded by the UK) justify the decision? The UK Government barely seems to think so itself. It has only budgeted for £50 million to cover the cost of the tax cut to all 11 free ports, suggesting that Scotland in total would account for a subsidy of about £9 million a year in tax cuts. But it is wrong to say that money is coming to Scotland since it goes directly to the corporations.

From this, the UK Government’s own independent watchdog projects that there will be few meaningful benefits as it believes the majority of the economic activity to take place in these free ports will simply displace economic activity elsewhere.

This barely makes for a compelling case to overturn existing policy, particularly given the implications. While you may imagine free ports are tight clusters based around harbours, this is wrong – they can stretch to 45km. A free port at Edinburgh Airport and another at Prestwick would virtually turn the whole central belt of Scotland into a deregulated tax haven for corporations.

The only mitigation consists of the weakest possible commitments to ‘net zero’ and ‘good jobs’, commitments which the Scottish Government has failed to realise in multiple previous circumstances. It is made as the most authoritative study so far shows the big energy companies are extensively ‘greenwashing’ their promises.

If the ‘good jobs’ and ‘net zero carbon’ fail to materialise (as seems very likely given the tiny amounts of money involved in corporate terms), there is no sanction or claw-back. There is barely an economic case and no credible environmental case for this development.

If an individual was told they must sell out a strong personal principle for the sake of £28 and no other sustainable justification, that would seldom be considered an impossible position to be put in. The same applies here to the Scottish Government.

Correction: there was a typo in the percentage initially used in this analysis – all other numbers correct.

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