Exclusive:Tax haven or economic boost? Scotland's green freeports fuel workers' rights fears

Freeports were tabled in 2019 by the Conservative UK government under Boris Johnson as a key post-Brexit policy the former prime minister claimed would create thousands of jobs in "left-behind areas" across Britain.

But Labour branded the scheme “a race to the bottom that will have money launderers and tax dodgers rubbing their hands with glee".

Freeports are designated zones where tax and customs rules are relaxed to encourage economic investment. The final business cases for Scotland’s two freeports are set to be signed off soon by the UK and Scottish governments, releasing up to £25 million of seed funding for each site.

Businesses investing in Scotland’s green freeport tax zones can receive relief from non-domestic rates and land and buildings transition tax, while firms will pay no National Insurance contributions on new staff. There are also streamlined customs checks and tariff incentives.

READ MORE: Petroineos poised for tax breaks despite refinery closure

The Scottish Government was wary of the idea, while the Scottish Greens, who went on to form a co-operation deal with the SNP before they were rolled out, loathed them and still detest them.

In February 2021, three months before Nicola Sturgeon’s government was returned to Bute House, SNP ministers wrote to Westminster, calling for support for its “green freeports” model - billed as enhanced versions of the eight freeports for the rest of the UK - with a focus on fair work, sustainable growth and a just transition to net zero.

But it took a further 12 months of wrangling between Scotland’s two governments, at the height of hostile relations between Holyrood and Westminster, to thrash out a deal.

SNP business minister Ivan McKee was eventually pulled from the talks and replaced by economy secretary Kate Forbes to get a deal over the line as the Scottish Government attempted unsuccessfully to have a commitment on the real living wage for operators embedded into the policy.

A year later, both governments signed off two freeports for Scotland - one for the Forth, including Edinburgh, Grangemouth and part of Fife, and another east coast zone designated for Inverness and Cromarty Firth.

The Forth green freeport includes designated tax zones in Grangemouth, Leith, Rosyth and Burntisland - with a strategy to focus on offshore wind at Leith, Rosyth and Burntisland, alternative fuels and chemicals at Grangemouth, shipbuilding at Rosyth and creative industries in Leith. The draft final business case states there will be “16,000 direct jobs created on the tax site land”.

The Inverness and Cromarty Firth Freeport has three designated tax zones at Cromarty Firth, Inverness and Ardersier where it is hoped one of the largest unused brownfield sites in the UK can be brought back into use. Bosses believe the freeport could create 18,300 jobs across the UK, 11,300 of which would be in the Highlands.

The freeports began operations in June last year when the tax sites went live, with £800m of investment of the £14.4bn expected to be generated over the next 25 years already tallied up.

That investment includes Japanese company Sumitomo Electric Industries’ investment in a new cable factory at Nigg at the Cromarty Firth freeport, which will supply high voltage cables to the offshore renewables sector.

A total of £24.5m of public sector funding has been used to secure an estimated £350m in inward investment from the renewables project. But a leading economist has warned the Scottish green freeports are, in reality, no different to their UK versions.

Speaking to The Scotsman, David Bailey, professor of business economics at the Birmingham Business School, and a senior fellow of the UK in a Changing Europe programme, stressed “most economists are pretty sceptical about freeports”, adding “there is no evidence that freeports boost growth”.

Prof Bailey pointed to concerns that freeports result in “economic activity going from one place to another, rather than being new investment”.

READ MORE: Labour to equip Scotland with ‘renewable-ready ports’ to scale up green energy ambitions

He added: “From a Scottish point of view, they might be happy with investment moving from England, but that's not necessarily going to be the case.”

Turning to the pledges made by SNP ministers over fair work and net-zero credentials, Prof Bailey said: “I can't really see any way of that being enforced and there’s no evidence of that being in action.

“It looked like it was a good soundbite, but there's nothing to suggest that, in reality, they are any different to the UK freeports.”

On fair work, Prof Bailey suggested that despite having failed on a commitment for the national living wage, “with the Labour government increasing the minimum wage and moving towards that, you could argue that the UK government is going some way to address that”.

Ms Forbes has insisted that fair work and net zero are embedded into the Scottish freeports.

She said. “Scotland’s green freeports have already attracted at least £800m of the estimated £14.4bn of public and private investment they aspire to generate over the next 25 years.

“This is a game-changing sum for businesses and workers as benefits spread through supply chains, with money invested back into our local economies.”

The economy secretary and deputy first minister added: “The Scottish Government has been clear that Scotland’s green freeports must maintain high environmental standards and embed fair work principles, such as paying the real living wage and no inappropriate use of zero-hours contracts.

READ MORE: Kate Forbes: Scotland’s green freeports will bring in billions of pounds in new investment

“Both sites have developed fair work charters, which beneficiary businesses must sign up to and these will be robustly monitored.”

Fears have also been raised about the tax perks and less-arduous tax checks of freeport sites opening the door to money laundering and security risks, heightened by concerns with models operating in the European Union.

In response to that threat, the Forth green freeport has drawn up a “security and illicit activity risk management strategy” that will “ensure effective monitoring and managing of threats and opportunities”.

The business case points to the need to “identify, manage, and mitigate fraud, crime and security risks” such as “terrorism, insider threat, robbery, theft, human trafficking, money laundering, cyber-attacks”.

The business cases of Scotland’s two green freeports point to a fair work charter being drawn up, which the Forth freeport insists is “mandatory” while the Highlands site states that “all owners of tax site land will be required to adopt it”.

But any notion of Scotland’s freeports being a beacon for fair work risks being undermined by Petroineos announcing the closure of its Grangemouth oil refinery, with hundreds of jobs lost.

The site, central to the Forth green freeport zone, is to close before plans for a just transition for Grangemouth are published, before the UK and Scottish governments’ crucial Project Willow research for future options for the site is published and before Westminster officially gives the go-ahead for Scotland’s carbon capture project that would link up with Grangemouth.

The STUC trade union has previously warned the green freeports “are structurally the same as freeports but recommend that employers follow principles of fair work, commitment to transition and sustainable growth”.

The union still has concerns, but has been able to take part in discussions with the Forth green freeport bosses about how fair work principles will be protected.

STUC general secretary Roz Foyer said: “Green freeports have been born into a highly challenging industrial landscape with early government predictions on the number and pace of jobs green freeports were expected to create, clearly falling short.

“Just this week, workers in Grangemouth - part of the Forth green freeport area - were issued with redundancy notices and no meaningful government initiative has been brought forward to bridge the employment gap between jobs losses now and promised new projects for the future. This cannot be allowed to continue.”

She added: “Trade unions demanded a seat at the table to ensure measures were in place for the freeports to support decent unionised jobs and meaningful investment for our communities.

“We have that seat at the Firth of Forth freeport and are setting out what is needed on fair work, jobs, and skills. Our concern over this approach remains, but we are in the room and setting out to deliver for workers at these sites. This is the model other sites should follow.

“If the Scottish Government is serious about fair work and realising the potential of a just transition, having workers’ voices round the table is critical.”

Sarah Murray, chief executive of Forth Green Freeport (FGF), has moved to give reassurances on fair work.

She said: “The principles around fair work, fair opportunities, the real living wage, a mechanism to provide an effective voice for workers and community benefits are the foundation of the FGF and any inward investor must sign a fair work charter and contribute to the skills fund.

All workers’ rights legislation and protections apply to employees and the fair work charter is going beyond this legal minimum. A workers’ representative sits as an active member of the FGF governance board and is the co-chair of the skills and fair work sub-committee.”

READ MORE: SNP 'teeing up' investors to fund a green future for Grangemouth as crunch study due

Addressing whether the freeport will contribute to climate goals, Ms Murray added: “FGF will make a significant contribution to Scotland’s net-zero ambitions and the UK’s green industrialisation strategy with all inward investors being required to commit to a net zero charter.

"FGF will create up to 34,500 clean, green jobs, with 16,000 of these being direct jobs, and act as a catalyst for new green technologies and renewable energy or advanced manufacturing, making a significant contribution to the re-industrialisation of Scotland.”

The optics of the Grangemouth situation is made worse by the fact Petroineos could earn around £6m from the sale of hundreds of thousands of free pollution permits from the UK government over the refinery closure. The company is in line to benefit from a share of £25m of seed funding capital that will be released from Scotland’s two governments when the Forth freeports business case is signed off.

Scottish Labour Economy spokesperson Daniel Johnson said “Once again the SNP’s grand rhetoric on workers’ rights and climate leadership has fallen apart upon delivery. Scotland deserves better than the SNP’s empty promises and hollow stunts.”

READ MORE: Renewables investment fears over Labour's energy price plan that would cut Scots' bills

Greens co-leader Lorna Slater branded the zones a “cynical and dated Tory device”.

She added: “Freeports are simply mini tax havens that big corporations use to avoid having to pay their fair share towards keeping public services that we all rely on like schools and our NHS.

“It isn’t warm words that protect people and planet from greedy corporations and the damage they are doing. It is legal obligations that will make a difference. Unless the rules are watertight and binding then some businesses will find every way they can to get out of following them.”

Cromarty Firth and Inverness Green Freeport did not respond to requests to comment.