Welsh and UK governments blame each other for failure to make progress on a freeport

The session was split into three:

• In part one a senior executive from Stena Line, who are bidding to set up a freeport at Holyhead, told the committee that trade was still down post-Brexit and talks on Welsh freeports with the two governments have gone quiet.
• In part two Welsh Government finance and economy ministers criticised the UK Government for not giving Wales the data it needs on freeport impacts and for the failure of the process for agreeing to devolve new taxes to Wales. The ministers repeated their wish for air passenger duty to be devolved to Wales, but would not say yet what use, if any, they would make of the power.
• In part three UK Government Wales Office ministers blamed negativity from the Welsh Government for the lack of progress on a Welsh freeport, and defended giving Welsh and Scottish freeports a smaller subsidy than English ones.

Part one – Stena Line

The only witness on this panel was Ian Davies, Head of UK Port Authorities, Stena Line. He was asked about trade across the Irish Sea from Welsh ports into the Republic of Ireland. Davies said Northern Ireland to Holyhead trade is probably in the region of 25 per cent to 30 per cent down on where he expected to be versus 2019.

He said traditionally, in Holyhead roughly 30 per cent of goods would be destined to or originate from Northern Ireland. It was a natural economic flow. Those flows appear to be displaced and are going Northern Ireland to UK direct or the goods from the Republic of Ireland are taking direct continental routes to the EU. Welsh ports have been severely affected by Brexit to date.

He went on to tell Committee Chair Stephen Crabb, Conservative, that Holyhead has lost 80 per cent of its tourist traffic and at least 30 per cent to 35 per cent of freight traffic.

Davies told Conservative Simon Baynes that Stena’s aim is to bid for a freeport in Holyhead. He said that ferry ports, particularly west-facing ferry ports, have been hit hard, so we need to broaden our business to bring in new business to the ports. But Davies complained that the Government has ‘gone quiet’ about a Welsh freeport recently. He also asked why Welsh ports should not have the same level of seed funding in relation to freeports as their counterparts in England. The longer we do not have certainty on freeports, businesses will make up their own minds, he worried.

Plaid Cymru MP Ben Lake asked about prospective customs arrangements at Welsh ports. Davies said it was evident fairly early on that some of the infrastructure would not fit into the ports. For example, Holyhead port did not have the land space to do things such as border control points. Some developments that Holyhead – and Fishguard in south Wales – could not do are being undertaken by HMRC and the Welsh Government outside the ports. However, given a lack of progress to date, “I think it is quite evident that things [such as new inland facilities] will not be ready physically for 1 January 2022 in north Wales or south Wales,” he concluded. (The UK government has announced that it is extending the existing post-Brexit import customs declarations deferment from 1 July 2021 until 1 January 2022.)

If we do not have a fair playing field, we could potentially end up with trade being distorted again, Davies worries, and we still do not have clarity on the charging regimes of these facilities. He went on to say the danger is that freight customers will always look for certainty, and perhaps they will look to facilities that they believe exist or are nearly ready and change their trade flows accordingly. Having an inland border facility in Holyhead is preferable, in Stena’s view, to having a facility off the island.

Davies told the Chair that even pre-Brexit there was a shortage of HGV drivers but it has now become critical if you speak to some of the customers. The driver shortage will perhaps slightly increase the focus towards the unaccompanied trailers but just-in-time delivery, retail, logistics and so forth need to be accompanied and they need drivers, he said: “I know that it is of huge concern to all our freight customers.”

Part two – Welsh Government ministers

The witnesses on the second panel were Vaughan Gething MS, Minister for the Economy and Rebecca Evans MS, Minister for Finance and Local Government, Welsh Government.

Gething told Dr Jamie Wallis (Conservative) that current negotiations with the UK Government regarding a freeport are ‘frustrating and entirely uncertain’. Evans was clear that the Welsh Government are constructive partners in delivering a freeport but it wants joint decision-making such as an equal role in setting the bid process criteria and in making decisions around the location. The Welsh Government also wants any freeport in Wales to not disrupt its ‘environmental agenda’, and a fair funding settlement, saying a Barnett share of a freeport in England would not be appropriate in Wales because there is no rationale for treating a freeport in Wales differently from one across the border.

A slightly sceptical Gething told Virginia Crosbie, Conservative, that it is a challenge to stop freeports simply transferring activity from one part of the UK to another. Evans added that the UK Government has been unable or unwilling to provide the Welsh Government with data that shows the economic impact that a freeport or freeports in Wales could have. But Crosbie said: “Isn’t it the reality that we are going to see displacement from freeports like Liverpool, which will be booming and sucking investment from Wales, and investment that we should be having in Wales will be going elsewhere? At best case, we will be at least one year behind the eight freeports in England.”

Geraint Davies probed the witnesses about their engagement with HMRC, the arrangements for Brexit and how good relations are with the UK Government. Evans replied: “We have good and regular discussions with HMRC but, of course, less so on the ministerial side, unfortunately.”

Ben Lake asked about the lack of progress from HMRC on an inland border facility in South Wales. Gething said the real risk is that we do not see how those facilities will be in post for the end of the calendar year, when SPS checks are due to start. He said that we either need to have an agreed position on delaying the start of those or an interim answer, which will require expenditure to deliver an interim solution. He is angry that the Welsh Government have to deliver the physical infrastructure on the non-HMRC elements when the UK Government was supposed to deliver the physical infrastructure.

Committee Chair Crabb was interested in whether the Welsh Government still want to secure the devolution of long-haul air passenger duty (APD). Evans explained that this is something she would still want to see devolved to Wales. She said: “It does not make any sense that we would be treated differently from Scotland, for example, in this particular scenario. It is something that we continue to press the UK Government to deliver. But it is not just us, it is well supported by business in Wales and, as you say, your predecessor committee came out very strongly in support of the devolution of air passenger duty. It is something we continue to press with the UK Government. We would be keen if this Committee decided to go down the same lines as the previous one, because your cross-party support is very helpful in terms of helping us continue to make that argument.”

But Evans was less forthcoming when asked by Crabb if the Welsh Government would seek to lower APD if the tax was devolved. Evans said the Welsh Government will not set out its policy intention at this point. “This is because the Wales Act says there is a specific process that we need to go through with the UK Government to devolve additional powers over taxation. We have been trying to do it for the last two years on a vacant land tax. That is a relatively uncontroversial, relatively smallish tax, but we have not been able to make the system work. We do not think the Wales Act and the process that is set out under the Wales Act in this respect is fit for purpose at the moment.”

Evans continued: “We would still seek the devolution of this power, but the way in which the system has not worked for the devolution of another power, which is relatively small, does not make us awfully optimistic about the way forward. The point is that part of the system sets out that we should not say what our policy intent is until the powers are devolved, because that should not be a material consideration for the UK Government when deciding whether or not to devolve that power.”

Baynes asked if we should lower air passenger duty for all smaller airports, rather than devolving it to Wales, but Evans was insistent that is ‘not incumbent on us to have this debate here and now today, because it is incumbent on the UK Government and the Welsh Government to make the process work’. Evans suggested the UK Government may be reluctant to devolve the tax because they are concerned about a potential impact on Bristol Airport. The Welsh Government’s independent report showed that there would not be the kind of impact that they are fearing, but it ‘could mean shorter journeys for people to get to airports and so on’.

Evans went on to say it is ironic that the UK Government recently said they are planning to look at introducing a vacant land tax. If it is good enough for the UK Government to be looking at, it is certainly something on which we should be able to come to a ‘mature arrangement’ with the UK in terms of devolution of that tax, she said.

Part three – UK Government ministers and officials

The witnesses at the final session were Simon Hart MP, Secretary of State for Wales; David T C Davies MP, Parliamentary Under-Secretary of State for Wales; Zamila Bunglawala, Director - International Education Directorate, Department for Education; and Stephen Webb, Director of Infrastructure, Border and Protocol Delivery Group, Cabinet Office.

Ben Lake asked about the preparedness of some of the border control posts and customs checks.  Hart replied that the UK Government is prepared to fund £30 million for the development of sites at Fishguard and Pembroke. Webb said he has a high degree of confidence in the ability to deliver customs checks at the borders but the UK Government is working closely with Welsh Government to understand what sort of interim processes we can put in place in South Wales while a border control point for the SPS checks is built.

Hart said it is clearly ‘quite early days’ to be able to make an assessment of the long-term effects on whether freight will choose to avoid Wales because of Brexit. Webb responded to Stena’s citing a 20 per cent to 25 per cent ongoing reduction in trade at the moment, saying: “That is reflected in our analysis. Clearly there was a bigger drop early on, and it has recovered to an extent, but it is still some way behind what it had previously been.”

Committee Chair Stephen Crabb is concerned about trade flows and whether there is any long-term displacement that undermines the viability of the two ferry ports operating out of Pembrokeshire. Hart said ferry operators seem to have an underlying ambition to remain loyal to the existing routes for commercial reasons.

Virginia Crosbie, regarding the Holyhead inland border facility, said HMRC had exchanged last week on a truck stop that will create more than 200 jobs. Hart agreed this would be significant for the local economy, but he could not guarantee the jobs would go to local people or that local businesses would have the chance to tender for the project, as he had not spoken with HMRC on the issue.

Webb remains confident there will be an inland border facility up and running on 1 January, albeit in temporary sheds.

Crabb complained about the continuing lack of clarity on a Welsh freeport. Hart, the Welsh Secretary, explained that the UK Government could not reach agreement with the Scottish Government or the Welsh Government with regard to some of the detail – hence freeports only being announced in England. He thought that if the Welsh Government’s previous Economy and Infrastructure Minister, Ken Skates, who had been more positive about freeports, had still been in post then a Welsh freeport would have been delivered by now.

Hart went on to explain why England gets £25 million for each freeport and Wales and Scotland get only £8 million. “Part of the reason for that difference in figure is down to the fact that, of course, a freeport in Wales will produce numerous advantages to the Welsh Government by way of tax receipts and inward investment, income tax arising out of job creation, and so on.” He said the delays in getting a freeport in Wales risk job displacement from Wales to England.

Hart said if we can demonstrate that a single freeport in Wales has been a resounding success there is a very strong argument for launching a process for a second freeport in due course – but he insisted he wants to push ahead with the support of the Welsh Government.

Hart continued: “We are all in danger of agreeing with each other, and I do not think it would take much to get this over the line. What would be tragic is if it failed to get over the line, not because of economic differences but because of some sort of underlying concern on the devolution settlement or something like that. It should not be about that. This is something we can all agree on.”

Closing the day’s debate, Crosbie said, regarding freeports, that the Welsh Government are focused on seed capital, which is important, but the real focus should be on all the investment and jobs coming to Wales that we would not have if we did not have freeports in Wales. She said: “I have companies like Tratos, Rolls-Royce and Bechtel all interested in investing in Anglesey, should we get freeport status. The real question here is: is Wales open for business? What is the signal that freeports give to the rest of the world for investment?”

Hart replied that if the bureaucratic hurdles look more difficult to negotiate than they might in other parts of the UK, we risk losing these investors to other parts of the UK.

The transcript of the session can be read here.

By Hamant Verma