Update on Progress of Inverness and Cromarty Firth Green Freeport
3rd October 2023
A meeting (3 October 2023) of Highland council today approved the latest recommendations towards progressing the Freeport project.
Inverness and Cromarty Firth Green Freeport is a partnership of public and private sector organisations - including The Highland Council - which aims to ensure the Cromarty Firth and wider region becomes a major global hub for green energy and deliver transformational benefits to Highland communities and the decarbonisation agenda.
Freeports aim to create economic activity - like trade, investment and jobs - near shipping ports or airports.
Goods imported into freeports are exempt from taxes, called tariffs, that are normally paid to the UK government.
It means manufacturers in freeports can import raw materials tariff-free, only paying tariffs on finished products leaving the site for elsewhere in the UK.
Or the goods can be re-exported overseas without UK duties being paid.
Companies inside the sites will also be able to claim lower property taxes, including on new buildings they buy.
Firms also benefit from lower rates of national insurance - a tax paid on employees' wages - if they take on new staff.
This could be huge benefit to the Highlands although there are many sceptics with regard to the freeport sucking in investment and detracting from other areas but this will only be seen one way or the other over time.
A useful summary was published in the report today -
Strategic Case
The UK and Scottish Governments have ambitious net zero, innovation, trade and investment, regeneration and levelling-up objectives which require large scale public intervention. This includes providing the support necessary to remove barriers to the creation of world class manufacturing hubs focused on achieving the net zero transition in a just and sustainable manner.
Inverness & Cromarty Firth Green Freeport (ICFGF) is the best place in the UK for the Governments to intervene to enable a world class floating offshore wind (FLOW) manufacturing agglomeration and to make the most of synergies with green hydrogen, maritime technologies and advanced manufacturing, by unlocking parallel, co-located investment in these sectors. This is because ICFGF is:
• the most advantageous place for these interventions from a UK net growth, productivity, energy security, decarbonisation and terms of trade perspective, and
• the location where investment delivers most from a social outcome, levelling up and regeneration perspective.
While the Highlands can be a fantastic place to live for those with the right opportunities, since the end of the oil boom, the local economy has not been creating enough of the right kind of opportunities and the region's young people have sought employment outside of the region. A Green Freeport here offers a unique mechanism for addressing the challenges that are currently holding the Highlands back and have resulted in years of working age population decline and a downward dependency spiral.
In response to this opportunity, the ICFGF programme has been painstakingly designed to deliver on the collective impact that Green Freeport measures can have for the region. The primary building blocks of this proposition include:
• A tax site proposition that has been refined and improved since the bid, now totalling around 520 ha of land and comprised of:
• 325 ha on the Cromarty Firth, where existing legacy facilities and expansion opportunities create the ideal conditions for FLOW manufacturing to deliver additional net national economic growth and jobs in areas of high deprivation, accelerating a just transition to net zero and improve energy security.
• 150 ha at Ardersier, one of the largest unused brownfield sites in the UK, where the port will be restored and re-opened, providing facilities to support FLOW manufacturing with the potential to create thousands of jobs and reskilling opportunities for the local community, and support the energy transition in Scotland and around the world.
• 45 ha in Inverness, designed to address a critical shortage of developable industrial land in the city, allowing its port to expand, a significant hydrogen scheme to come forward and the expansion of our innovation campus for SMEs in life sciences and advanced engineering.
• Deployment of £25m of seed capital where it will maximise the wider benefits of the Green Freeport package by de-risking and accelerating investment in critical pre-development works on tax sites.
• A plan for utilising the local retention of incremental non-domestic rates (NDRs) growth generated on Green Freeport tax sites, using a process that preserves both the public-private 'dual key' approach and democratic accountability for the expenditure of
public funds. Retained NDRs are forecast to be worth around £500m over the next 25 years, and provide a huge opportunity to facilitate further investment in skills, infrastructure, decarbonisation initiatives and innovation.
•Engagement with prospective operators on the potential benefits of customs site status. A pipeline of potential sites has been developed, with Global Energy Group expected to be in a position to use customs site status first, at its site at the Port of Nigg.
• Significant and collaborative efforts to help developers navigate planning challenges, including via integration with the Council's Place Based Approach, dedicated up-front advice and work with statutory Key Agencies and other external stakeholders.
• A plan to harness the transformative and once-in-a-generation opportunity for the Highlands to be a global leader in innovation, with particular focus on offshore wind, hydrogen, maritime & port innovation and life sciences. This will be achieved by accessing expertise from the existing innovation ecosystem, from new entrants attracted to ICFGF sites, and co-ordinated by our PowerHouse function, which has been established to grow innovation capacity, co-ordinate innovation support and lead on skills development.
• A trade & inward investment strategy, to attract investment to the ICFGF and wider region. The strategy, which will have dedicated resources, will complement, but not duplicate, support mechanisms already available by public sector agencies and departments, and involve work in partnership with the UK and Scottish Governments, Highlands & Islands Enterprise and the Highland Council.
• A Ten Point Plan for Skills to ensure we fully realise the jobs and skills opportunity by addressing gaps in labour supply and mitigating the risks of employers experiencing skills shortages. National Insurance Contributions (NICS) relief will be reinvested into a training and skills development fund, the total size of which may be up to £30m. A Green Freeport Fair Work Charter has been developed and all owners of tax site land will be required to adopt it.
• A draft Decarbonisation Plan, setting out how ICFGF can exploit opportunities to address the climate and ecological emergency to significantly accelerate sustainable economic growth whilst increasing local and national resilience. This includes a target to achieve a carbon payback outcome by 2032-33.
These actions and interventions represent a coordinated, deliverable strategy to realise ICFGF's key objectives: regeneration & high-quality job creation, decarbonisation & a just transition to a net zero economy, hubs for global trade & investment and an innovative environment.
They also support the delivery of two SMART targets that ICFGF has set for itself: the first around delivering the Government's UK 60% content target for at least 1 GW per annum of FLOW capacity (which, at 2022 prices, implies annual GVA of some £2bn p.a., with operations and maintenance activities on top), and the second relating to creating sufficient high quality long-term jobs to halt and then reverse the historic and forecast decline in the Highlands' working age population by the mid 2040s.
Finally, our plan builds on the Highlands' core strengths and address its challenges, both today and in the future, and ensures the benefits of a Green Freeport will be realised across the ICFGF geography and more widely across the Highlands, Scotland and the UK.
Economic Case
An economic impact assessment has been carried out on a range of ICFGF options, including different amounts of seed capital, and the impact of an extension to the tax window equivalent to what is being explored in England. These have been compared against a ‘no Green Freeport' reference case.
Options in which the Green Freeport is progressed with a maximum seed capital ask (£25m) are demonstrated to offer best value for money at an acceptable level of affordability and risk. Under this option, £3.4bn of investment (in present value terms) could be delivered in 25 years, a figure that could be around £1bn higher with a 10 year tax site designation.
Without a Green Freeport, depopulation would continue and many on-site jobs would be fulfilled by contractors rather than permanent staff. Green Freeport measures, including seed capital, makes growth much more inclusive, delivering many more permanent and higher income jobs.
The potential pipeline of development on tax sites could attract around 16,500 long-term jobs for the UK, 10,250 of which would be in the Highlands. These figures focus on jobs created through the delivery of the proposed tax sites. With broader initiatives in the area connected with the growth in green energy it is hoped that the levels of job creation will go further still. These estimates include all operational jobs on tax sites, construction employment, their indirect supply chain impacts as well as the induced impacts from the spending of wages and salaries in the wider economy.
Financial Case
Tax sites measures will be the primary driver of investment across the Green Freeport. Following extensive work with tax site landowners and potential developers, it is estimated that over £3bn could be invested in core propositions on tax sites within the Green Freeport over 25 years. It is reasonable to expect that the overall investment figure will increase significantly beyond this time frame.
The £25m in Green Freeport seed capital funding will be deployed to support this, complemented by £12m in further public funding and over £200m in private sector funding, contributing to a total spend in excess of £260m on these specific projects.
For its part, ICFGF Ltd has developed a robust and cost-effective budget which reflect the activity needed to meet its objectives and the requirements of the UK and Scottish Governments. The funding strategy to meet these costs falls into two phases:
• Prior to tax site designation, short term set-up phase support is provided in the form of government capacity (RDEL) funding and contributions provided by consortium partners.
• Thereafter, mature term ongoing revenues will be sourced from levies from landowners via Tax Site Delivery Agreements (TSDAs), topped up where necessary by contributions from incremental retained NDR.
The capacity (RDEL) funding from Government provides funding to resource the ICFGF team and, alongside the contributions being made by our consortium partners, is critical to help meet Setup Phase costs in the period prior to the receipt of the ongoing landowner levies and the build-up of retained NDR.
These arrangements will ensure that the Government's capacity funding is deployed in a prudent manner to meet genuine Green Freeport Company costs in the critical early years of operation. This will also help the Green Freeport protect its pool of retained NDR so that it can be utilised for its primary purpose which is to fund programmes and initiatives such as regeneration, local skills, innovation, Net Zero, trade and investment as well as infrastructure upgrades.
Commercial Case
As most of the land within ICFGF tax sites is owned by private parties, a mechanism is required to:
• provide landowners, operators, end-users and investors with incentives and structures to deliver additional net growth and other outcomes in return for the tax benefits on offer, and
• give the UK and Scottish Governments confidence that a robust strategy is in place to ensure that public investment will realise the intended economic and social potential of the Green Freeport offer.
The first step has been designing a tax site proposition that will avoid displacing investment from elsewhere by targeting propositions with clear evidence of net additional inward investment.
Going forward, ‘Tax Site Delivery Agreements' (TSDAs) are the key mechanism for ensuring delivery of outcomes on tax sites. Through TSDAs, which must be in place before a tax site is designated, landowners will commit to using reasonable and commercial endeavours to ensure that their land is, as soon as reasonably possible, developed for uses that generate genuine additional economic activity.
TSDAs also include a mechanism for contributions by landowners to the Green Freeport Company to support its sustainable operation and wider supporting programmes (such as the Skills Fund) also addressing potential value leakage. Finally, it commits them to signing up to our Fair Work and Net Zero and Sustainability Charters.
Management Case
Opportunity Cromarty Firth was established in March 2020 and initially operated as an informal partnership of public and private sector stakeholders working together to develop the proposal for ICFGF. Following the award of Green Freeport status in January 2023, it transitioned into an incorporated entity, responsible for the governance and management of the Green Freeport.
The Company's Board currently consists of representatives of 5 of the 6 Company members, a director nominated by the final member, Highland & Islands Enterprise, plus an independent Chair. Following the submission of the OBC, the Board will evolve to ensure participation of a broader representative group. Consortium members shall have the opportunity to become members of the Company and will have a role in the appointment of two of the directors on the Board.
The Highland Council fulfils the role of Accountable Body for ICFGF, meaning it is accountable to Government for the expenditure and management of centrally funded public money - including capacity (RDEL) funding, seed capital investments and retained NDR.
An experienced Chief Executive Officer has recently been appointed and is putting together a compact and dedicated team of five full time members of staff, with the potential for a further two roles within the PowerHouse in subsequent years. Amongst the many activities that this team will be responsible for are:
• stakeholder engagement and communication (including identifying key partners and continuing to develop key messages and branding for ICFGF),
• identifying, assessing, mitigating and managing risk, and
• complying with the UK and Scottish Governments' monitoring, evaluation, reporting and assurance requirements.
Read the full paper from 3 October 2023 Highland council meeting
Minutes of Green Freeport Monitoring Group August and September 2023
More news about the Freeport development on Highland Council
Freeport paper 29 June 2023
