Agenda item

To update Cabinet on progress with Freeport East, and draw Cabinet’s attention to the obligations placed on Tendring District Council (TDC) by the Freeport East Memorandum of Understanding (MoU).

 

To recommend that authority to agree the final Freeport East MoU, on behalf of TDC, acting as Billing Authority, be delegated to the Deputy Leader of the Council & Portfolio Holder for Corporate Finance and Governance.

 

To set out the new TDC Business Rates Retention Policy for Freeport East and to agree a Freeport Business Rates Relief Policy.

RESOLVED that Cabinet –

 

(a)       notes the progress made with the Freeport East Programme as set out in the joint report of the Leader of the Council and the Portfolio Holder for Corporate Finance & Governance (A.2);

 

(b)       delegates the authority, acting on behalf of the Council as Billing Authority, to agree the final Freeport East Memorandum of Understanding (MOU) to the Deputy Leader of the Council & Portfolio Holder for Corporate Finance and Governance;

 

(c)       approves and adopts TDC’s Freeport East Policy for Managing Retained Business Rates, as attached as Appendix B to item A.2 of the joint report of the Leader of the Council and the Portfolio Holder for Corporate Finance & Governance;

 

(d)       approves and adopts the Freeport Business Rates Relief Policy, as attached as Appendix C to item A.2 of the joint report of the Leader of the Council and the Portfolio Holder for Corporate Finance & Governance;

 

(e)       delegates authority to the Assistant Director (Finance & IT) to implement and administer the Business Rates Relief Policy as adopted; and

 

(f)        delegates authority to the Assistant Director (Finance & IT), in consultation with the Portfolio Holder for Corporate Finance and Governance and the Portfolio Holder for Housing to amend the scheme to reflect any emerging Government guidance / legislation.

 

Cabinet considered a joint report of the Leader of the Council and the Portfolio Holder for Corporate Finance & Governance (A.2) which:-

 

updated it on progress with Freeport East, and drew its attention to the obligations placed on Tendring District Council (TDC) by the Freeport East Memorandum of Understanding (MoU);

 

recommended that authority to agree the final Freeport East MoU, on behalf of TDC, acting as Billing Authority, be delegated to the Deputy Leader of the Council & Portfolio Holder for Corporate Finance and Governance; and

 

set out the new TDC Business Rates Retention Policy for Freeport East and sought Cabinet’s agreement for a Freeport Business Rates Relief Policy.

 

Business Case

 

It was reported that during 2022 Freeport East had responded to the ‘critical actions’ to refine the business case requested by Government. The final version of the Full Business Case with the response to those actions had been assessed by HM Treasury at the end of November 2022. The Full Business Case had been approved on 10 January 2023, with a number of outstanding actions for completion. Following that approval, a Parliamentary Reception event had been held by Freeport East Ltd to engage partners with the local MPs, officials and the Government Minister and a Freeport East local launch event was planned, expected in February 2023.

 

Company

 

Cabinet recalled that the Leader’s Freeport East Working Party, at its meeting held on 31 August 2022, had recommended that the Council joined the Freeport East Company as a founding Member; that the Council entered into a Members’ Agreement with other partner organisations in Freeport East; and that the Leader of the Council (Councillor Stock OBE) joined the Board of the Company as the Member representative Company Director from Tendring District Council (TDC). Freeport East had been formally incorporated as a company on 6 December 2022 and Councillor Neil Stock OBE had been appointed to Freeport East’s board of directors, in line with the Cabinet’s decision, with the Chief Executive (Ian Davidson) as his alternate, in line with Full Council’s decision.

 

Senior roles and groups

 

It was reported that Freeport East had appointed a Chief Executive Officer, Stephen Beel, who had started in this role on 21 September 2022, and a new Chairman, Mark Lemmon, who had chaired the first meeting of the new company Board on 7 December 2022. The company was now implementing aspects of the business case, such as setting up a Management Committee, to be chaired by Stephen Beel, and the first of the Theme groups, which would develop future proposals for Freeport East. Those included skills, innovation, and trade and investment. TDC would be represented by officers on the Management Committee and Theme Groups.

 

Investment Zones

 

Members were made aware that an Expression of Interest (EOI) had been submitted by Freeport East in response to the Government’s call for submissions for Investment Zones, which included the Freeport East area. However, since the Autumn Statement on 17 November 2022 the Government’s Investment Zone policy was unclear, and there was no expectation that submitted EOIs would be considered.

 

Memorandum of Understanding

 

The Working Party was aware that the Government required TDC in its role as a Billing Authority to sign up to the Memorandum of Understanding (MoU) with them. The MoU governed the relationship between –

 

the Secretary of State for Levelling Up, Housing and Communities;

East Suffolk Council as the Accountable Body for Freeport East;

Freeport East Ltd as the Governing Body responsible for the delivery of the Freeport; and

East Suffolk Council, Mid Suffolk District Council and Tendring District Council as the Billing Authorities responsible for collecting business rates in Freeport Tax Sites.

 

The MoU contained generic clauses across all eight Freeports. However, the final version of the MOU was bespoke to each Freeport, based on the feedback from the assessment of the Full Business Case by HM Treasury. The final draft version of the MoU had been shared by Government with Freeport East on 5^th January 2023. 

 

The MoU was not legally enforceable, however, the Working Party noted a number of key obligations that would be put on to TDC following the approval of the MOU:-

 

·           Section 1.1.8: Following FBC approval, DLUHC provided Freeport East with a list of outstanding actions that should be achieved within the agreed timeframes. One of those actions was to provide a more detailed funding plan for the Harwich tax site. Seed capital for this site would be withheld until this funding plan was developed.

 

·           Section 2.2.5: TDC would be accountable to DLUHC for the management of the retention of business rates and would be responsible for allocating all business rates collected on the Freeport tax sites to the decision-making process and purposes outlined in the FBC.

 

·           Section 2.2.7: all parties were required to manage any disputes in relation to the above through a locally agreed process.

 

·           Section 2.2.6: All parties were expected to work collaboratively and proactively to manage any action or perceived conflicts of interest. The Governing Body, Accountable Body and the Billing Authorities were required to manage any disputes in relation to Section 2.2 through a locally agreed process.

 

·           Section 3.2: The Governing Body committed to the Freeport being no longer reliant on HMG Capacity Funding and self-funded by FY2025/26, enabled by Capacity Funding available from FY2021/22 through to FY2024/25. It was noted that if the Freeport did not become self-funding at the time stated, further funding from additional sources would need to be identified and secured.

 

·           Section 5.4.1 (h) responsibility of delivery of tax sites (including Bathside Bay) rested with Freeport East Ltd. This included the stipulation that delivery of the tax sites should be completed prior to October 2026.

 

·           Section 6.1: DLUHC would carry out ongoing monitoring of Freeports to assist with delivery, assure the use of public funds and evaluate the impact of the programme.

 

·           Section 7: This MoU would come into effect upon signature by the Parties and would remain in effect until it was terminated by the Parties by full mutual agreement in writing. Section 7.2.1:  In the event of a dispute arising as to the interpretation or application of this MoU, the Parties would commit to discussion aimed at resolution. Section 7.3: Freeport delivery would be managed through the processes set out in the Freeports Framework. Should an issue arise, DLUHC would first attempt to resolve it in collaboration with the Governing Body and if applicable the Accountable Body. For persistent issues which were recorded at the annual review or were the result of other assurance activities DLUHC would seek to agree a tailored improvement plan with the Governing Body and the Accountable Body as outlined in the Freeports Framework.

 

However, the MoU also identified a number of opportunities which aligned with TDC’s priorities, as follows:- 

 

·           Section 5.3.1. The Governing Body committed to owning, updating and devoting appropriate resources to the delivery of the Net Zero strategy.

·           5.4.1. The Governing Body committed to owning, updating and devoting appropriate resources to the delivery of the Innovation strategy.

·           5.5.1. The Governing Body committed to reasonable endeavours in owning, updating and devoting appropriate resources to support the delivery of Regeneration and Levelling Up objectives.

·           5.6.2. HMG would work with Freeports to deliver their skills delivery ambition.

 

Freeport Business Rate Retention Policy

 

Members were aware that the business rates were split into three ‘pots’.

 

·       Pot A: to ensure local authorities did not lose out from the local tax reliefs available to businesses through Freeport. Councils allocated this funding to their general fund and could spend it as they saw fit.

·       Pot B: to fund the Freeport infrastructure to develop the sites, for example to pay for land reclamation or other required infrastructure.

·       Pot C: to support public benefit in the sub region, including economic development, skills and innovation. This fund was administered by the lead authority, East Suffolk Council, and decisions on its use would be determined by the Freeport East Company.

 

Cabinet was informed that TDC’s Freeport Business Rates Policy would codify those proposals. It included the proportional split between the pots: Pot A, local authorities, received 5 percent. Of this, four percent would be for TDC and one percent for Essex County Council (ECC). Pot B, infrastructure, received 70 percent; and Pot C, regeneration, received 25 percent. 

 

Members were advised that without Freeport East, very limited development would come forward on the Harwich Tax site, so the Council was not losing out by taking a lower share (5 percent) than was typical (20 percent) for Pot A. The Government expected councils where development was not planned before Freeport to forgo Pot A.

 

Pots B and C for all three Billing Authorities could be spent across the whole of the Freeport area, so it could be that funds raised in Essex were spent in Suffolk, and vice versa. Flexibility was especially important on the split between Pots B and C, as the business modelling for the Harwich Tax site continued to develop as the commercial proposition matured. The Council remained open to reviewing this policy as further information on the Harwich Tax site developed.

 

Freeport Business Rate Relief Policy

 

The proposed policy reflected the associated Government guidance, with no additional local discretionary elements proposed. The ‘cost’ of the scheme would be fully met by the Government via associated grant funding.

 

The key principles of the rate relief policy were summarised as follows:

 

·      Business rate relief would be available to new businesses moving into the Freeport tax site after the date on which the relevant Freeport tax site was formally designated (and on or before 30 September 2026), and occupying both existing and new hereditaments on the rating list.

 

·      Business rate relief would be available for 5 years from the date it was first claimed. Businesses would be able to claim the relief, where eligible, from the date on which the Freeport East tax site was formally designated (and on or before 30 September 2026).

 

·      New businesses which expanded after moving into the Freeport site (whether into new or existing buildings) would, in addition to any existing relief, be eligible for relief on any additional hereditaments they occupied in the Freeport tax site.

 

The recommendations above provided for the flexibilities to administer the policy along with making any necessary changes that might emerge as the wider project developed, which would include responding to the new Subsidy Control requirements that came into force on 4 January 2023.

 

Members’ attention was drawn to Section 3.6.1 of the MOU, which stated: “Before releasing public funding associated with the Freeport Programme to end users in the Freeport, the Body granting the subsidy will satisfy itself that doing so is compliant with UK legislation on subsidies.” The new Subsidy Control Act 2022 (“the Act”) had come into effect from 4^th January 2023 and would need to be considered at the appropriate time, as the legislation provided a new framework and regulated the award of financial assistance, as a subsidy, by public authorities and their agents to organisations which were engaged in economic activities.

 

Members were informed that Statutory Guidance for the United Kingdom Subsidy Control Regime had been issued by the Secretary of State for the Department for Business, Energy and Industrial Strategy (BEIS) under section 79 of the Act.  Under section 79(6) public authorities must have regard to this guidance (so far as applicable to the authority and the circumstances of the case) when giving a subsidy or making a subsidy scheme.  The guidance explained the legal obligations on public authorities under the domestic subsidy control regime and provided a framework for designing and awarding subsidies in a way which was consistent with the Act. This guidance was designed to help public authorities award subsidies in a way which minimised any negative impacts to competition and investment, as well as promoting the effective and efficient use of public money. 

 

The Statutory Guidance referred to Streamlined Routes and primary public authority schemes in paragraphs 12.42 12.43.  Streamlined Routes (referred to Streamlined Subsidy Schemes in the Act) were a particular type of subsidy scheme, made by Government for the benefit of public authorities.  Transparency requirements applied to Streamlined Routes and they would therefore appear on the database alongside other subsidy schemes and would have associated subsidy awards.  Primary public authorities could also create schemes for the use of other priorities in accordance with Chapter 2 of the guidance.  Through the consultation period on the draft guidance, submissions had been made for Freeports to become a ‘streamlined route’ due to their policy objectives and could therefore apply to other Freeports nationally. Currently, this was not the case, with the four streamlined routes under consideration by the Government however, there was always the potential for a streamline route to be added in future, or for a subsidy scheme to be created. Further work on this with other local authorities and the Freeport East company was required prior to any financial assistance being given.  In the form of a tax measure (that is, a relief or exemption from a specific tax), it was given at the point at which the taxpayer became entitled to the subsidy.

 

Harwich Tax Site

 

Cabinet was reassured that the Harwich Tax Site at Bathside Bay remained a key focus of the Council. Previous financial modelling within the Outline Business Case for the Harwich Tax Site had indicated total gross retained rates income in the region of £70m over 25 years. As a result the Harwich Tax Site would generate too little business rates income to cover the capital investment required to develop the site (given the expected level of private investment). The updated modelling for the Full Business Case demonstrated the potential for over £100m of business rates income from the site, which would make the site viable. Therefore, the Council was working on the mechanism for a public body to put sufficient funding into site development up front, and be repaid by future business rates income over a likely 25 year period.

 

The Council’s Freeport East Policy for Managing Retained Business Rates set out how retained business rates in Pot B could be used to pay for development costs of the Harwich Tax site. However, the Council was not in a position to borrow against this Pot B income to invest in the site, given the scale of the Council’s resources and the scale of the project. 

 

The ‘cost’ of awarding business rate relief via the proposed Freeport Business Rate Relief Policy would be fully reimbursed by the Government with no ‘cost’ therefore falling to the Council.

 

It was assumed that the above will be administered via the existing annual Business Rate forms and returns processes with the Government.

 

An additional risk relating to the Harwich Tax site was that seed capital funding for this site would be withheld until a detailed funding plan for the site had been provided to DLUHC by Freeport East Ltd.

 

It was reported that the Government intended to offer Stamp Duty relief on land purchases within Freeport tax sites in England where that property was to be used for qualifying commercial activity. It was intended that this relief would apply from 1 April 2021 until 31 March 2026. For the Harwich Tax Site, Bathside Bay the forecast was for units to become live commencing in 2024/25 and full build out in 15 years. The aim was that from 2025-2026 business rates would flow for local investment so from 2027 onwards the cost of site infrastructure could be repaid and potentially proposals for regeneration could be developed and funded. From September 2046 business rates from Freeport East sites would flow to central government, rather than locally.

 

The Leader of the Council thanked the members of his Working Party for their many helpful and useful ideas and suggestions that had been offered up in a constructive and apolitical manner.

 

Recognising that –

 

the Council was required to sign the Memorandum of Understanding for Freeport East to progress, and for the £25m capital seed funding to be released to the programme and that delegating that decision to the Portfolio Holder for Corporate Finance and Governance ensured that the Council would not be responsible for any delay in the process of establishing Freeport East’s day-to-day operation until the next Cabinet meeting;

 

it was considered appropriate to request the Portfolio Holder for Finance and Deputy agree to the MOU in order to provide a separation from the Leader of the Council as he also occupied a position on the Freeport East Company Board and given that the Council was required to enter into the MOU as a Billing Authority for the area; and

 

the Council was required to develop policies in conjunction with the other Billing Authorities in Freeport East, to agree on the use of the rates retained, and to assist with the development of the Freeport sites.

 

It was moved by Councillor Stock OBE, seconded by Councillor P B Honeywood and:-

 

RESOLVED that Cabinet –

 

(a)       notes the progress made with the Freeport East Programme as set out in the joint report of the Leader of the Council and the Portfolio Holder for Corporate Finance & Governance (A.2);

 

(b)       delegates the authority, acting on behalf of the Council as Billing Authority, to agree the final Freeport East Memorandum of Understanding (MOU) to the Deputy Leader of the Council & Portfolio Holder for Corporate Finance and Governance;

 

(c)       approves and adopts TDC’s Freeport East Policy for Managing Retained Business Rates, as attached as Appendix B to item A.2 of the joint report of the Leader of the Council and the Portfolio Holder for Corporate Finance & Governance;

 

(d)       approves and adopts the Freeport Business Rates Relief Policy, as attached as Appendix C to item A.2 of the joint report of the Leader of the Council and the Portfolio Holder for Corporate Finance & Governance;

 

(e)       delegates authority to the Assistant Director (Finance & IT) to implement and administer the Business Rates Relief Policy as adopted; and

 

(f)        delegates authority to the Assistant Director (Finance & IT), in consultation with the Portfolio Holder for Corporate Finance and Governance and the Portfolio Holder for Housing to amend the scheme to reflect any emerging Government guidance / legislation.