Green Freeports Programme: business and regulatory impact assessment (BRIA)

Section 1: Background, aims and options

Background to policy area

1. In August 2019, the UK Government announced its intention to establish a Freeports Programme. When the UK Government launched the Freeports bidding prospectus for England, a commitment was made to work with the devolved administrations to ensure all four nations of the UK could benefit from Freeports. In 2022, Scottish Government and UK Government agreed a model for Green Freeports, which adapted the UK Freeport model to meet the unique conditions and economic opportunities in Scotland, aligning with the Scottish Government’s National Strategy for Economic Transformation (NSET).

2. Working within the framework of the Freeports model designed in England – with added emphasis on fair work and decarbonisation, the Green Freeport model is a place-based intervention designed to target incentives for businesses to encourage investment in specific port areas. As economic assets, ports have significant potential which can be leveraged to unlock major investment, promote green growth, and be at the forefront of driving the just transition to net zero in Scotland. Despite a strong industrial heritage, some ports and their surrounding areas face persistent economic challenges.^[1] The picture is not uniform, but these challenges can include lower levels of economic performance, increased quantity of underdeveloped land, higher levels of unemployment and deprivation, labour markets more populated with lower-skilled jobs, failure to retain businesses, and patterns of out-migration.^[2] These traits can shape reinforcing cycles where once-thriving industrial areas become less attractive to investment, with long-term market failures likely to persist and economic potential remaining unrealised. By boosting the competitiveness of these areas, Green Freeport incentives seek to provide a stimulus to promote regeneration and high quality job creation and in doing so reverse such trends.

3. The Green Freeports Programme has been jointly established by Scottish Government and UK Government. Working in collaboration, the two governments define the policy framework, enable the necessary devolved and reserved policy levers, selected the Green Freeport locations, assess business cases, and oversee delivery and performance of individual Green Freeports through audit and assurance. Individual Green Freeports are delivered through local coalitions of public and private partners, comprising of one or more local authorities (dependent on the location of the Green Freeport), along with other partners including port authorities, businesses, and academic institutions. These partners come together around a shared vision for regional economic growth and, with government support, the location coalition apply the incentives so operators and businesses locating within designated Green Freeport sites can benefit.

4. Following a competitive bidding exercise in January 2023, two Green Freeports were selected by the governments from five bids: Forth Green Freeport and Inverness and Cromarty Firth Green Freeport.^[3] To become operational, each selected Green Freeport coalition is required to complete a setup phase by submitting an outline business case (OBC) and a full business case (FBC), which are subject to published requirements specified by the two governments.

Purpose, policy design, and desired effect

1. The Green Freeport model has four core objectives set at a programme level by Scottish Government and agreed by the UK Government:

• Promote regeneration and high-quality job creation
• Promote decarbonisation and a just transition to a net zero economy
• Establishing hubs for global trade and investment
• Foster an innovative environment

2. These objectives are envisaged to be realised over time through a process whereby investable sites are created, investment is landed in target sectors, and this supports growth of new industrial clusters. This increased activity unlocks further benefits to local communities, including skills programmes to support access to new, well-paid jobs. Positive impacts are reinforcing, and controls are in place ensuring benefits are well-aligned to the core objectives. These processes include:

• tax and customs incentives decreasing the costs and risks of private investment, encouraging major new business activity in priority sectors within the Green Freeport
• seed capital funding, enabling critical supporting infrastructure and supporting sites to be unlocked
• supply chain opportunities emerging from new industrial clusters, with high value businesses supporting increased innovation and productivity
• dedicated Green Freeport skills funds, training programmes, and multi-agency collaboration – applied locally - supporting growth of a well-paid and well-skilled labour force, attuned to sectoral priorities
• decarbonisation occurring as a result of new investment in green energy (a target sector) accelerating Scotland’s clean energy output, enabling cheaper, greener and more secure energy for the long term
• investment being further enabled by a supportive planning environment, wider trade promotion activity, and the investment of retained non-domestic rates to support the Green Freeport’s activities
• positive social impact arising from empowering communities and strengthening local economies, leading to better outcomes for those based in Green Freeport regions

Policy Levers

3. The below sets out the package of Green Freeport policy levers and their desired effect which are designed to support this process of change.

Tax Reliefs

Businesses located in tax sites designated within the Green Freeport can benefit from a package of reserved and devolved tax reliefs. Each Green Freeport is entitled to up to three designated tax sites (totalling no more than 600 hectares). In order to be granted tax site status, the land in question must be underdeveloped.^[4] Tax site proposals are submitted in detail during the business case stage, and are subject to SG and UKG assessment before designation. Tax reliefs available consist of:

• full Land and Building Transaction Tax (LBTT) relief for land and buildings in Green Freeport tax sites bought for commercial use or development for commercial purposes
• 100% relief from non-domestic rates (NDR) for 5 years on newly occupied business premises, and certain existing businesses where they expand in Green Freeport tax sites
• 100% first year capital allowance (ECA) for companies’ qualifying expenditure on plant and machinery assets for use in Green Freeport tax sites
• enhanced structures and buildings allowance (SBA+) which provides accelerated relief to allow businesses to reduce their taxable profits by 10% of the cost of qualifying non-residential investment in Green Freeport tax sites per year, relieving 100% of their cost of structures and buildings over 10 years
• zero-rate Employer National Insurance Contributions (NICs) on salaries of any eligible new employee working in a Green Freeport tax site for at least 60% of their time, on earnings up to £25,000 per year. This relief can be applied for 36 months per employee

The window for tax site designation is anticipated to be 10 years, with a review for the devolved levers built in after 5 years. Each tax relief is subject to individual rules and conditions (including sunset clauses) which determine how reliefs can be accessed in relation to the designated tax site window.

Tax reliefs directly decrease the cost of investing for businesses in Green Freeport areas which are historically underdeveloped, helping to unlock investment that may otherwise be commercially unviable. Depending on the tax incentive in question, the reliefs help to unlock investment in land for development, commercial buildings and plant and machinery, as well as lowering initial operating and new employment costs. Tax reliefs are not awarded selectively to specific businesses; instead, they are made available on determinate tax sites. To that extent, there is sufficient flexibility to ensure reliefs are available to any business that wishes to locate on the site, subject to the landowner’s commercial decision-making, and providing the investment meets with the Green Freeport’s own strategic alignment tests for new investment – e.g. sector. Tax reliefs carry a displacement risk and Green Freeports must implement controls and tests to mitigate the risk of displaced economic activity, with a view to ensuring the Green Freeport catalyses new and additional economic activity which would not have happened without the Green Freeport.

Seed capital

Each Green Freeport will receive up to £25 million seed capital funding to use primarily for site remediation and infrastructure projects. The funding is to be used on supporting projects which address local market failures and unlock sites for development which have remained underdeveloped for long periods. How exactly the funding is used will depend on specific local needs, as is signed-off by Governments as part of setup phase.

Learning from past interventions (such as Enterprise Zones) has shown tax incentives alone are not necessarily sufficient to bring development to undeveloped sites, for instance where there are infrastructure deficits or contaminated land. Seed capital, which can be used for ‘pump priming’, is therefore included to helping remediate or prepare sites for investment. This can close viability gaps and play a critical role in de-risking of private sector investment, and ultimately making Green Freeport locations more attractive.

Non-domestic rates retention

Local authorities will retain 100% of non-domestic rates growth on Green Freeport tax sites (over an agreed baseline and subject to an agreed displacement factor) for 25-years, to be reinvested in line with local priorities but in aid of Green Freeport objectives.

This allows Green Freeports, through local authorities, to address local barriers to investment in a targeted way. Guaranteeing retained rates for 25 years give local authorities the certainty they need to borrow to invest in regeneration and infrastructure that will support further growth. Retained receipts can be used to cover borrowing costs (where relevant); re-invest in the Green Freeport tax site to generate further growth; or offset expected effects of any displacement of local economic activity from deprived areas.

Customs

Businesses bringing goods into designated Green Freeport customs sites are able to benefit from:

• duty suspension while goods remain on site
• duty inversion where finished goods attract a lower tariff than their component parts
• customs duty exemption on re-exported goods
• simplified import declarations

These facilitations will reduce costs for businesses operating in customs sites that lack existing customs facilitations, increasing their international competitiveness and incentivising investment in customs sites and trade through nearby ports.

Fair Work

In order to access the tax and other incentives, businesses in Green Freeports must agree, via signing up to a Fair Work Charter, to embed Fair Work First principles (including payment of the Real Living Wage) into their operations.

Embedded conditions around Fair Work First support the creation of high-quality employment and training opportunities, which will encourage local recruitment and maximise social impact of the Green Freeport.

Planning

Reform to the Permitted Development Rights for ports, along with the creation of a national planning protocol for Green Freeports, enable a supportive planning environment for the Green Freeport, to help facilitate appropriate development.

Planning issues can be an insurmountable barrier for the development of sites, whereas a supportive planning environment can have a significant impact on accelerating development of sites by increasing business confidence and de-risking investment.

Trade and Investment

UKG, SG and Scottish Development International (SDI) will support Green Freeports to build an international profile, attract investors, and help businesses trade.

Targeted promotional activities can help attract prospective investors to Green Freeport areas, which they may not have otherwise been aware of.

Innovation

UKG and SG will work with Green Freeports to support businesses to innovate and access innovation funding. Through the Freeport Regulation Engagement Network (FREN), Green Freeports will be able to engage with regulators and explore opportunities for regulatory innovation and flexibilities (e.g., sandboxes).

This support will help Green Freeports bring forward more innovative, research and development (R&D) heavy investment, which may face larger risks or costs. The FREN will be especially valuable to small and medium-sized enterprises (SMEs) and those firms without dedicated regulatory compliance teams, strengthening local economic linkages (which international experience shows to be key).

Net Zero

Net Zero Charters will require Green Freeports to demonstrate how activity will promote decarbonisation and deliver net positive carbon savings.

Net Zero Charters will ensure the Green Freeports’ new activity will commit to decarbonisation. This could include: making sure that greenhouse gas emissions of on-land freight distribution are minimised, making sure that vessels using the port operate in a low-carbon manner (e.g. reducing use of fossil fuels), ensuring any construction work is sustainable and low-carbon, reduction in use of carbon-intensive energy within the Green Freeport and/or transition towards renewable or low-carbon energy use, and if applicable, increasing the use of technologies such as carbon capture and storage and renewable or low-carbon hydrogen.

Green Freeport Geography – Designated Sites and Outer Boundary

4. Prospective applicants for Green Freeport status can use flexibilities in the model to best apply the Green Freeport opportunity to their local economic context. This allows local coalitions to propose the Green Freeport’s mix of tax and customs sites, along with its outer boundary to meet the local opportunity and maximise collaboration between ports, businesses, and wider stakeholders. This flexibility is balanced with controls and conditions applying to tax or customs sites respectively (e.g. in respect to location, size, alignment with core objectives), to help ensure the sites generate agglomeration benefits and control costs.

5. Further expanding on Figure 2, the below offers a brief summary of the Green Freeport geography:

• qualifying businesses and operators situated on designated tax sites can access tax reliefs. Tax sites are limited to 600 hectares of land – which must be underdeveloped
• qualifying businesses and operators situated on designated customs sites can access customs easements
• as demonstrated in Figure 2 above, sites can be designated as only a tax or a customs site, or hold both tax and customs site status, enabling access to both types of incentives
• the outer boundary denotes the wider area the Green Freeport seeks to impact, and provides a wider economic geography where seed capital funding and retained non-domestic rates may be spent
• existing areas within the outer boundary which are not designated as a tax or customs site do not receive any change in status and are not entitled to Green Freeport incentives

6. Proposals for the outer boundary, as well as tax and customs sites, are tabled by a local Green Freeport coalition during the initial bidding process and then developed during the business case process. Proposals are assessed by Scottish Government and UK Government in accordance with eligibility criteria. Where proposals meet requirements, tax and customs sites are legally designated in regulations, and incentives become available to qualifying businesses.

7. Aside from the specific incentives available on tax sites and customs sites respectively, business operating within these designated Green Freeport sites will be required to adhere to all existing legislation, approvals, licences, consents, standards, regulations, and any other rules which would have been ordinarily be required of those areas before achieving Green Freeport status. They will also be required to adhere to a range of additional reporting requirements specific to Green Freeports, and set out in further detail below.

Options

8. The Green Freeport model has undergone refinement between 2020 and 2024 – both through negotiation between Scottish Government and UK Government, as well as through wider engagement (including public consultation, engagement with businesses and the wider public sector in Scotland). Considering the advanced nature of the programme at the point of publication of this BRIA, the options considered are the following: Option 1: Do nothing and Option 2: Implement Green Freeport model.

Groups / Sectors affected

9. The impacts of implementing the Green Freeport model are primarily aimed at business, although wider consideration is also given to impacts on other different groups. Where risks have been identified and mitigations introduced as part of consultation and policy development, these are referenced below.

A) Businesses within designated Green Freeport sites:

• by decreasing the cost of doing business in specific areas, viability barriers which have previously existed are removed, providing opportunities for businesses of all sizes to bring forward new investment
• businesses within designated Green Freeport sites are encouraged to expand their activity, while new businesses are also encouraged to enter onto the site
• on-site businesses accessing the incentives will be required to declare reliefs where accessed and comply with commitments in site-specific agreements agreed with the local Green Freeport operating company (including a Fair Work Charter, a Net Zero Charter, as well as providing financial contributions to support Green Freeport led programmes e.g. skills)
• businesses situated on tax or customs sites, or in receipt of seed capital funding, will also be required to submit reporting and performance data to government for independent monitoring and evaluation
• businesses situated on customs sites and accessing customs easements may be able to benefit from a range of activities including streamlined administrative processing and suspended import duties
• with the exception of the specific tax or customs incentives available on designated tax and customs sites, on-site businesses will remain subject to all other existing rules and regulations that apply to non-Green Freeports areas in Scotland (legislation, approvals, consents, standards, regulations)

Risks

• without controls, designated sites may fail to attract the level of desired interest and investment from the private sector. Or else, the incentives may be more likely to specific types of business (for example, supporting larger businesses, with less applicability to smaller businesses)
• i. identified mitigation: incentives have been configured to provide an appropriate value proposition – large enough to be compelling for business to incentivise additional economic activity, but must also be proportionate to represent value for public money. Careful consideration has been given to the design and value of incentives, informed by consultations, engagement with industry, and learning from previous interventions
• ii. identified mitigation: international evidence suggests larger firms may be more able to take advantage of enterprise zones than smaller ones. It was a consideration as part of the selection process to ensure that Green Freeport plans are capable of supporting small and medium sized activity, as well as that of larger firms
• without controls, designated sites may attract business activity, but this activity may not be aligned with the target sectors identified by the Green Freeport and with government’s core policy objectives (e.g. promoting decarbonisation)
• i. identified mitigation: new investments onto Green Freeport sites will be subject to tests, administered by the local Green Freeport Governing Body, to ensure new investments are within relevant target sectors identified by the Green Freeport in their business cases. Businesses will be accountable to the Green Freeport Governing Body, and the Green Freeport Accountable Body will be accountable to Government (see Section 4) to ensure activity aligns with the Green Freeports target sectors, as outlined in the business cases
• without controls, businesses on designated sites may claim incentives but not translate new activity into the full intended outcomes described in business cases (including high quality job creation, skills development, decarbonisation, community benefit)
• i. identified mitigation: as part of the Green Freeport setup phase, accountability arrangements are put in place to ensure that Scottish and UK Government can hold the locally-led Green Freeport Governing Body to account on delivery and performance, and likewise the Green Freeport Governing Body can hold its businesses operating on site to account to ensure their activities are in line with Green Freeport objectives. Businesses operating within a designated site must sign legal site-specific agreements with the Green Freeport Governing Body, which enshrine core commitments onto that business. For example, by entering into the agreement, the business joining the Green Freeport commits to a range of activities, including providing financial contributions to support the Green Freeport operations (e.g. skills programmes), adhering to the conditions of the Green Freeport Governing Body’s Net Zero Charter and Fair Work Charter, and providing monitoring and performance data at regular intervals. Progress against these commitments is monitored at regular intervals through government’s monitoring and evaluation framework and through annual performance reviews. Should an issue of poor performance be identified by either the Green Freeport Governing Body or by government, a range of penalty measures are available to both parties to ensure appropriate action is taken (see Section 4)
• Green Freeports carry a displacement risk. Without controls, activity on designated sites may not be new and additional, and could be displaced from other areas
• i. identified mitigation: during the Green Freeport selection process and the subsequent business case process, Green Freeports are required to demonstrate how their plans will avoid displacement and ensure new additional activity. Potential mitigations are context specific, but likely mitigations could include targeting investments which build on the existing areas of strength and opportunity in their particular location. It could also include targeting nascent sectors positioned to attract high levels of foreign direct investment [note: 85% of the Inverness and Cromarty Firth Green Freeport tax site land is dedicated to floating offshore wind, a nascent sector in the UK, where therefore the displacement rate is expected to be close to zero]. Such plans and their ability to appropriately mitigate displacement risks are assessed by Scottish and UK Governments before approval
• ii. identified mitigation: during the delivery phase, controls administered by the locally-led Green Freeport Governing Body and Accountable Body to mitigate the risk of displacement further. New investments in Green Freeport sites will be subject to tests, administered in local Green Freeport governance to ensure the activity is new and additional. This will include local authorities performing a displacement test for their award of discretionary non-domestic rates relief
• iii. identified mitigation: in the event a Green Freeport Governing Body identifies that, despite the controls in place, some displacement has nevertheless occurred, one of the uses of retained non-domestic rates income, as set out in the Setup Phase Guidance, will be to mitigate any displacement or other negative externalities associated with the Green Freeport
• iv. identified mitigation: through the monitoring and evaluation approach, government will perform analysis to understand the extent of displacement from the Green Freeports

B) Businesses in close proximity to designated Green Freeport sites (e.g. within the Green Freeport Outer Boundary but not within a designated tax or customs site).

• businesses situated in close proximity, but not within a designated Green Freeport tax or customs site would:
• i. not be able to access the available tax or customs incentives
• ii. not be subject to any additional operational, administrative, reporting requirements (which apply to businesses located within a Green Freeport designated site, who have entered into site specific agreements with the Green Freeport Governing Body)
• iii. remain subject to all other rules, regulations, standards, approvals which apply in Scotland

Risks

• without controls, Green Freeport incentives could encourage existing businesses already in operation in the region to make minor relocations into designated sites in order to access the incentives - for no additional economic contribution
• i. identified mitigation: Green Freeport incentives have been designed to support initial setup costs (in particular, capital costs), rather than business as usual costs. It is unlikely to make commercial sense for a business to make the considerable investment needed in order to benefit materially from the reliefs purely to relocate existing operations (rather than establishing new operations or expanding existing ones). Nevertheless, should a neighbouring business seek to move into the tax site, the range of displacement controls outlined in the Part A above would apply. Investments will be subject to tests in local Green Freeport governance structures, including a local authority displacement test for award of discretionary NDR relief. Should it be determined a minor business relocation had taken place with no additional activity, then the local authority would not grant said business the NDR relief
• without controls, Green Freeports sites could create uneven competition at the local level, whereby there are different operating costs for competitor businesses in designated and non-designated sites in close proximity
• i. identified mitigation: the sector-based entry requirements embedded in local Green Freeport governance - which businesses must meet before accessing the incentives – guard against the risk a business in an unrelated sector could enter onto a designated Green Freeport site and access incentives. With controls on the types of investment coming into sites, this mitigates the risk a local business of an unrelated sector (e.g. retail) based in close proximity to a designated Green Freeport site would be at risk of a rival business moving onto a designated site, accessing the incentives, and placing them at a competitive disadvantage
• ii. identified mitigation: sector-aligned businesses in close proximity to (but not within) the Green Freeport sites would potentially have some disadvantage against incoming businesses within the site (by virtue of the reliefs available) but overall would stand to potentially gain from major anchor investments relevant for that business and sector, which would support the growth of sectoral supply chains and innovation, as well as the planned skills investments and potential infrastructure reinvestments from retained NDR within the region, as well as the seed capital investments. This, combined with the inherently regional economic vision at the heart of the Green Freeport policy, would enhance wider opportunities for such local businesses in relevant sectors
• iii. identified mitigation: the risk of uneven local competition is also mitigated by the limited spatial availability of the incentives – e.g. tax sites are only available for up to 600 hectares per Green Freeport – and this scale is unlikely to distort the market for a regional economy

C) Businesses not in close proximity to the Green Freeport:

• businesses in other parts of Scotland – not in close proximity to a Green Freeport – would also not be subject to any additional administrative, financial or reporting requirements which apply to businesses located within a Green Freeport designated site

D) Sectors:

• government does not pre-determine sectors for individual Green Freeports. It is for the local coalition of Green Freeport public-private partners to propose its mix of target sectors for its sites, based on local strengths and alignment with the policy’s core objectives (including promoting decarbonisation). Government then assess and where appropriate approve the strategic focus of a Green Freeport’s proposals during its setup phase
• throughout the course of delivery, Green Freeports remain required to apply their incentives in a highly sector-targeted manner, based on strategic visions for individual sites. Should a Green Freeport wish to adjust its target sectors into delivery, a formal change request would require to be submitted to government for approval
• in practice, based on submitted full business cases [as of Spring 2025], the two Green Freeports in Scotland have identified key sectors including: offshore wind, alternative fuels, advanced engineering, life sciences, marine sciences, shipbuilding, creative industries, logistics and warehousing. Assessing the implications of the Green Freeport subsidies within the identified strategic sectors of interest was considered as part of separate assessment for the Green Freeport Subsidy Scheme which was formally referred to the Competition and Markets Authority (CMA) in Spring 2024. The CMA produced its independent advisory report on this assessment shortly following the referral. This is discussed further in Section 3

E) Local authorities

• setup of a Green Freeport requires the involvement of a host local authority [where the Green Freeport sites cover more than one local authority, each of these local authorities must be represented]
• local authorities voluntarily choose to be involved in a Green Freeport coalition of public and private delivery partners. Thereafter, local authorities fulfil a variety of functions in the effective governance and operational delivery of the Green Freeport. These include:
• actively developing and signing off the outline and full business cases
• sitting within the Green Freeport’s governance structure,
• administering the non-domestic rates relief available on Green Freeport tax sites. (Local authorities will be reimbursed by government for the relief awarded)
• retaining non-domestic rates growth on Green Freeport tax sites above an agreed baseline, guaranteed for 25 years. Retained rates can be used for investment in local priorities in line with Green Freeport objectives
• such responsibilities and benefits apply only to local authorities directly involved in Green Freeport delivery. The local authorities with involvement in Green Freeport delivery are City of Edinburgh Council, Falkirk Council, Fife Council, The Highland Council
• for each Green Freeport, one local authority must operate as Accountable Body – i.e. being accountable to the Scottish Government for the expenditure and management of public money. Falkirk Council is the Accountable Body for Forth Green Freeport; The Highland Council is Accountable Body for Inverness and Cromarty Firth Green Freeport

F) Local labour market

• the local labour market will benefit from the Green Freeport, not least in terms of additional new jobs and apprenticeships created, and an increased supply of training and skills provision
• all activity occurring within designated Green Freeport sites will be required to adhere to Employment Law – as would be the case in any other part of Scotland. In addition, as an additional local control specific to Green Freeport sites, each business within a Green Freeport site must sign up to a Fair Work Charter which will require them to adhere to a range of progressive best practices, including payment of the Real Living Wage, fair working hours, and access to training and development opportunities

G) Skills Providers

• local skills providers in the Green Freeport areas will benefit from dedicated skills funds which the Green Freeports will administer (funded by contributions of on-site business). This will help to ensure linkages between the growing activity of the Green Freeport and the growth of a well-paid and well-skilled labour force in the local area