The Future Fund and Freeports – Winners and Losers

The amount of money made by the rich, while ordinary people suffered disproportionately in terms of their health and economic wellbeing during Covid, has been commented on regularly in this column.

We know that Britain’s richest people increased their wealth significantly in 2020, when it rose by £106.5 billion to £597.2 billion. The UK now has a record 171 billionaires who saw their wealth grow by close to £31 billion in 2023.

One of the main vehicles for the transfer of public money to the rich, due to its lack of scrutiny, was Rishi Sunak’s scheme the ‘Future Fund’, intended to support startups in 2020.

As a result, many of the fund’s loan recipients were neither startups nor fast-growing. Some had connections to Sunak and the Conservative party, while others had wealthy investors, such as the Duke of Westminster or EasyGroup tycoon Stelios Haji-Ioannou. Four businesses with links to Akshata Murty, Rishy Sunak’s wife, received grants/loans of up to £250,000 for each of the businesses associated with her, one of which went into administration almost immediately after receiving the loan.

A freedom of information request by the Observer reveals that, of the £1.14bn ploughed into Future Fund companies, nearly £90m had been lost as of 13th February 2023. The data shows that 92 companies received a total of £78.4m but went into liquidation before the loans could convert into an equity stake. A further 12 loans, worth £11.3m, did convert into a shareholding, but the company in question went into administration afterwards.

It is then perhaps no surprise that another idea of Rishi Sunak’s, the creation of Freeports announced on 10th February, 2020, has been greeted with suspicion and seen as another gravy train for the rich.

The new Freeports are supposedly designed to boost the economy by creating hubs of business and enterprise across the country. They benefit from not only reduced customs measures, but also a range of tax reliefs, enhanced support for trade promotion and innovation, seed capital to help pay for infrastructure of up to £25 million and other enabling activities. This makes them more substantive than previous UK Freeports and more akin to Special Economic Zones (SEZs). Versions of Freeports in other countries (such as the US and United Arab Emirates) have created areas with fewer workers’ rights and limited union activity.

There is also doubt as to whether the relaxation of regulations and huge benefits in terms of grants will result in improvements for anyone other than the shareholders of the companies involved. Research by the University of Sussex says there is a risk that Freeports could displace good, unionised jobs in one area and create jobs with lower workers’ rights in a freeport zone.

Freeports will also require considerable investment in the infrastructure as demand for certain public services will increase to support the needs of new businesses and workers relocating to the Freeport areas.

The TUC is therefore calling on the Treasury to reimburse councils for lost tax revenue resulting from five-year business rate relief to businesses locating in Freeport zones and provide financial support to pay for any additional burdens to local authorities incurred by their introduction.

The Office for Budgetary Responsibility predicted in 2021 that tax breaks in England’s Freeports will cost the UK government £50m a year.

Just as importantly, it says historical evidence suggests their ‘main effect’ will be to move economic activity from one place to another. There will be no overall economic benefit.

On past experience though, the real risk will be the lack of transparency in the operation of these zones, ensuring that the only beneficiaries will be the companies investing in these areas. The lack of openness also opens the door to the risks of money laundering and other criminal activity.

There cannot be a better example as to what happens when public scrutiny is relaxed than the evidence from the Future Fund. The opportunity to make a fast buck appears to attract avarice and corruption in equal measures. We don’t need a crystal ball to know who the winners will be.

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