Agenda item

To ask Cabinet to support the submission of the Freeport East Full Business Case, to approve the Council’s participation in the governance of Freeport, the approach to business rate retention set out in the report, and to recommend to Full Council seeking approval that Freeport East is consistent with the Council’s priorities and policy framework as set out in the Corporate Plan 2020-2024, in particular a growing and inclusive economy.

That Cabinet -

 

a)     formally supports the Freeport East Full Business Case to be submitted by East Suffolk District Council to the Government;

 

b)     agrees to the approach to local business rate retention, as set out in the Full Business Case and summarised in the Leader’s report;

 

c)      agrees that the Leader of the Council and Officers can participate in the governance proposals set out in the Full Business Case on the principle that Tendring District Council becomes a member of the body set up to govern the Freeport;

 

d)     notes that any decision to formally become part of the governing body will be taken by the Leader of the Council, in accordance with previous delegations, following consultation with his Portfolio Holder Working Party;

 

e)     approves the Leader of the Council appointing a Member representative to that governing body;

 

f)       assigns £160,000 to pay for projects in support of Freeport East to be agreed through the Freeport governance structure and notes that the Full Business Case sets out the expectation that this sum should be repaid to the Council from future retained business rates; and

 

g)     recommends to Full Council that Freeport East be confirmed within the Council’s Budget and Policy Framework, and included as part of the Corporate Plan 2020-2024, as previously adopted by Full Council.

 

Cabinet gave consideration to a detailed report of the Leader of the Council (A.8) which sought its support for the submission of the Freeport East Full Business Case; to approve the Council’s participation in the governance of Freeport; the approach to business rate retention set out in the report; and to recommend to Full Council that it confirms that Freeport East is consistent with the Council’s priorities and policy framework, as set out in the Corporate Plan 2020-2024, in particular, a growing and inclusive economy.

 

It was reported that, on 13 December 2021, the outline business case had been formally approved by Government and that the three tax sites in Felixstowe, Harwich and at Gateway 14 near Stowmarket had been agreed, published on GOV.UK and the necessary Statutory Instruments laid to enshrine them in legislation. 

 

Freeports

 

Members were reminded that the Government aim for Freeports was to attract businesses that imported, processed and add valued to goods, and then to re-export those goods. At a Freeport, imports could enter certain sites with simplified customs documentation and without paying tariffs. Businesses operating inside designated areas in and around the port could then manufacture goods using the imports and add value before exporting them, again without full tariffs or customs procedures. If the goods moved out of the Freeport into another part of the UK, then they had to undergo the full import process, including paying any tariffs.

 

It was proposed that Freeports would be part funded by retained business rates, which was the share of business rates retained by central government.  Government had proposed that, for Freeports, the retained business rate scheme would offer the opportunity for billing authorities to retain more business rates than they otherwise would have.  This was effectively extra funding for the area.  Money would be available to be spent supporting the development and delivery of the Freeport sites themselves, and to deliver on the wider Freeport policy objectives of improving infrastructure, skills, innovation, investment, trade and net zero initiatives, benefiting residents in the area surrounding the Freeport, including almost all of the District of Tendring.

 

Freeport East

 

Cabinet was aware that Freeport East was based around the Port of Felixstowe and Harwich International Port, and included the Gateway 14 Site in Stowmarket, Suffolk.  It comprised 275 hectares of space and facilities across three sites eligible for tax relief (”Tax Sites”) at Felixstowe dock, Bathside Bay in Harwich, and Gateway 14 in Stowmarket.  Those sites were also eligible for customs duty relief, and there were four additional sites also eligible for customs reliefs (“Customs Sites”). 

 

Members recalled that the Harwich Tax Site was intended to be developed as a Clean Energy Hub and thereby create 1,900 jobs. The tax site was largely comprised of areas to be reclaimed from the sea in order to provide a development platform.  Significant third party funding in the region of £80m would be required for this site in addition to funding from the Port, the potential future users of the site, and £7m of seed capital funding provided by HM Government.  Two additional Customs Sites were proposed in Essex including the site at Horsley Cross, which had not been allocated in the Local Plan and which required planning permission. The sites in Suffolk, although of much smaller scale than Bathside Bay, were ready for development.

 

Cabinet was reminded that the Ports of Harwich and Felixstowe were both owned and operated by companies owned by Hutchison Group Ltd. The Gateway 14 Site in Stowmarket was owned by Mid Suffolk District Council which was also the billing authority for that site. As part of the operation of the Freeport, the lead authority and the billing authorities had to work together to monitor the site. Responsibility for giving tax exemptions remained with HM Revenue and Customs.

 

Redistribution of retained business rates

 

It was reported that, to accompany the Final Business Case, all partners had been asked to support the high-level arrangements for business rates retention, under which the retained business rate monies would be divided into three pots.  The proposed pots were all funded from Retained Business Rates as follows:

 

·         Pot A was the existing rates funding calculated on the same basis as would currently apply to the distribution of rates. Pot A was distributed to local authorities to ensure they did not lose out from Freeport. Councils allocated this funding to their general fund and could spend it as they saw fit.

 

·         Pot B provided funding from retained business rates to support or accelerate development of a Tax Site if it was required. An application for funding from Pot B by Hutchison Group Ltd could assist with the development of Bathside Bay. At present the detailed approach to distributing Pot B was yet to be determined. 

 

·         Pot C provided a fund for economic development within the sub-region, aligned to achieving the wider Freeport Policy objectives including investment in skills, innovation, levelling up, trade, investment, infrastructure, security and net zero carbon.

 

Members were informed that the Pot C fund would be administered by the lead authority, East Suffolk Council, and decisions on its use would be determined by the Freeport East Supervisory Board, of which it was proposed Tendring District Council would be a member. Projects would need to impact on the area within the Freeport boundary map. The funding within Pot C would be defined by the scale of funding required by Pot B to develop the Freeport sites, and the time taken for the Tax Sites to be delivered and occupied and so to begin to generate business rates.

 

Funding requirement - capital

 

Cabinet was advised that the Council was not being asked to commit capital funding to the Freeport East programme. It was being asked to support a change to the redistribution of rates in a way which did not affect its current financial position but which reduced the amount of retained business rates which could in future be available under any rate retention scheme. 

 

Work was ongoing with partners to address the identified funding gap for Bathside Bay, including the potential use of retained business rates, provided modelling continued to demonstrate sufficient future income to allow this, as well as wider ‘Pot C’ investment to deliver the economic development objectives of Freeport East.

 

As part of those ongoing discussions, local authorities, including Tendring District Council, would not be asked to provide any direct funding or take on any financial / borrowing risk.

 

Cabinet was made aware that the retained rates modelling for the Freeport East tax sites had been revised for the Full Business Case. The modelling used a methodology commissioned and approved for the Enterprise Zones in Norfolk and Suffolk, modified to estimate rates for the Freeport. This revised modelling indicated that there would be sufficient funding from retained rates to make development of the full Harwich tax site at Bathside Bay viable.   

 

As a result, Freeport East would work with the Freeport Hub and other governmental agencies such as the Department for International Trade and the UK Infrastructure Bank to provide upfront funding on the basis that, in principle, some, or all, of the retained rates in Pot B generated from the Harwich tax site would be allocated to repay this upfront funding. The Council would be party to those negotiations as the rates billing authority for the Harwich tax site in control of rates. The Council would explore appropriate mechanisms in order to allow the Pot B income to be transferred to another party over the lifetime of the Freeport to repay the upfront funding into the tax site.

 

In relation, to any funding requirements for transport or other infrastructure, the detailed investment needed for the proposed green energy hub at Bathside Bay, Harwich would become known as further details regarding the proposed uses were developed. Infrastructure requirements directly related to the green energy hub could be addressed through developer contributions as part of the planning process to gain, or vary, the necessary planning consents. Wider infrastructure provision could be funded through 'Pot C' retained business rates.

 

Funding requirement - revenue

 

It was reported that the revenue costs of the Freeport East Delivery Team were being met from the £1m Government capacity funding until they could be supported by income from a top-slice of retained rates. However, around £400,000 a year from 2022/23 would also be required over, and above, Government funding for revenue projects to meet the Freeport East policy objectives, primarily skills, innovation, and net zero carbon targets. Those revenue projects were not set out in the Full Business Case and would be proposed and agreed by the Freeport East supervisory board once the Freeport East entity was formed.

 

In total, the commitment could amount to £0.8m-£1m of revenue prior to rates income being received in 2024/25 to cover Freeport policy objectives. This funding was to be undertaken on a one-fifth share for each of the five authorities, equating to £160,000 in totaleach, £80,000 in the financial years 2022-23 and 2023-24. In the Financial Year 2024/2025 projected rates income would mean there would be no need for further forward funding for that year, with rates income increasing to the point where it was expected that forward funding would be repaid by 2026-27.

 

Governance

 

Cabinet recalled that the Outline Business Case had proposed a Company Limited by Guarantee as the vehicle for decision making. However, an options appraisal process was currently underway on the best future model so that the form of the entity that governed Freeport East could best follow its functions. The current draft Full Business Case referred to the “governing entity” rather than specifying a company.

 

A shadow board was currently established and included a number of partners including:

 

·      Tendring District Council

·      Essex County Council

·      Suffolk County Council

·      East Suffolk Council

·      Mid Suffolk District Council

·      University of Essex

·      Hutchison representative

·      New Anglia LEP and South East LEP

 

Members were informed that, under current proposals for the governing entity, Tendring District Council would be a member, and would appoint a Director to the board, along with East Suffolk District and Mid Suffolk District Council and Hutchison Port. Essex County Council and Suffolk County Council and the Local Enterprise Partnerships (LEP) would be members. Each County Council would both have permanent representation on the governing entity but the LEPs would rotate members annually.

 

Cabinet was advised that the Terms of Reference for the governing entity within the Full Business Case currently proposed that decisions will be taken by unanimity, which sought to overcome the larger number of Suffolk than Essex authorities, and the imbalance between public and private sector partners.  Partner authorities would continue discussion of the proposed governance model. The Leader of the Council would consider the risks and issues before making a final decision on participation in the governing entity.

 

Skills

 

Members were made aware that the Full Business Case would include a Skills Plan, currently in draft. This was expected to include innovation hubs at Bathside Bay focused on clean energy and at Gateway 14, more widely scoped. A focus for the skills work would be retraining people made redundant through the pandemic to work at tax and customs sites, and also careers aspirations for children in schools.

 

Having duly considered all of the information and advice contained in the Leader of the Council’s report and in order to enable this matter to continue to be progressed:-

 

It was moved by Councillor Stock OBE, seconded by Councillor Talbot and:-

 

RESOLVED that Cabinet -

 

a)     formally supports the Freeport East Full Business Case to be submitted by East Suffolk District Council to the Government;

 

b)     agrees to the approach to local business rate retention, as set out in the Full Business Case and summarised in the Leader’s report;

 

c)      agrees that the Leader of the Council and Officers can participate in the governance proposals set out in the Full Business Case on the principle that Tendring District Council becomes a member of the body set up to govern the Freeport;

 

d)     notes that any decision to formally become part of the governing body will be taken by the Leader of the Council, in accordance with previous delegations, following consultation with his Portfolio Holder Working Party;

 

e)     approves the Leader of the Council appointing a Member representative to that governing body;

 

f)       assigns £160,000 to pay for projects in support of Freeport East to be agreed through the Freeport governance structure and notes that the Full Business Case sets out the expectation that this sum should be repaid to the Council from future retained business rates; and

 

g)     recommends to Full Council that Freeport East be confirmed within the Council’s Budget and Policy Framework, and included as part of the Corporate Plan 2020-2024, as previously adopted by Full Council.