BBC News - Freeports: What are they and will they make the UK money?

 Creating around 10 "freeports" across the UK could help boost trade and manufacturing after Brexit, according to the government.

Chancellor Rishi Sunak - who is expected to announce the location of some freeports in his Budget on Wednesday - says they could "turbo-charge" the economic recovery in the wake of Covid-19.

But critics insist they do not benefit the economy overall, and increase the risk of tax dodging and lower employment standards.

What are freeports?

Freeports are areas, usually around a maritime port or airport, where goods can be imported without having to pay import taxes, called tariffs.

These taxes only become payable when the goods leave the freeport and are transported somewhere else in the UK.

Otherwise, they are re-exported without having to pay the relevant UK tariff.

They are allowed in the EU - and the UK had seven freeports at various points between 1984 and 2012.

After this the UK phased them out, although a number of so-called enterprise zones - which have similar aims - were set up.

• Post-Brexit free ports plan unveiled
• Are free ports the future?

Why are they being brought back?

Following Brexit, the UK wants to bring back freeports to regenerate deprived areas.

In England, companies inside the sites will also be offered temporary tax breaks, mostly lasting five years.

These include reductions to business rates as well as stamp duty, a type of land tax. Employers will also pay reduced national insurance for new staff.

Ministers say "at least" seven freeports will be set up in England. Each one can be up to 45km (27 miles) across.

Scotland, Wales and Northern Ireland will set their own freeport policies.

How will sites be chosen?

More than 30 areas in England have reportedly bid to become a freeport, with the winners due to be announced in the spring. The freeports will then be set up later this year.

Bids in England will be ranked according to their potential to drive innovation, the involvement of the private sector, their importance to the economy, and how quickly they can be set up.

But the government says the most important factor will be how they help deliver its ambition to "level up" the country by reducing regional inequality.

Officials will draw up a "longlist" of candidates, with ministers then making the final decisions and publishing their reasons afterwards.

The government says it will consider other factors - such as the impact of Covid-19 on local areas, and ensuring freeports are "spread fairly" across England.

Ministers have faced scrutiny in the past over how winners from such "levelling up" projects are chosen - including how grants from a £3.6bn fund for struggling towns were awarded.

A committee of MPs said the contest lacked transparency and could "fuel accusations of political bias," although ministers defended the process as "robust".

Will freeports benefit from Brexit?

There are currently around 80 freeports dotted around the EU.

But some Brexit-backing politicians argue their potential is limited by the bloc's rules on business subsidies - such as government cash payments or tax breaks.

They want the UK - now that it's no longer in the EU - to pursue a more generous policy.

Jonathan Branton, a partner at law firm DWF, said the UK does have more flexibility in this area now it doesn't have to follow the EU's subsidy rules.

He also points out that such tax breaks offered to freeport firms would no longer require prior sign-off from the European Commission.

However, he adds that the Brexit trade deal - agreed by the UK and the EU - still requires subsidies to be justified. Otherwise, they could be challenged in UK courts.

In more extreme circumstances, the EU could ultimately respond to UK subsidies by introducing tariffs on some UK goods deemed to be damaging EU trade or investment.

Furthermore, the UK will still be subject to World Trade Organization rules - which say you can't introduce subsidies linked just to export performance.

• Scottish government unveils 'green ports' plans
• Brexit: Is the EU stopping the UK having free ports?

There are also questions over Northern Ireland, whose goods trade with the EU will stay bound by the bloc's subsidy rules under the UK's withdrawal deal.

Treasury minister Steve Barclay has admitted the freeport model used in Great Britain will need to be "adapted" for Northern Ireland.

Northern Ireland's devolved government says it is working with the Treasury to find out how much of the model it will be able to follow.

Are they a good idea?

Supporters say freeports can help increase manufacturing and direct jobs and investment towards areas that would otherwise struggle to attract them.

But opponents say they don't boost employment overall, and diverting economic activity comes at a cost to the taxpayer.

The Labour-led Welsh Government says it has reservations about freeports, although it has not ruled out introducing them in Wales.

The SNP Scottish Government - which has previously been critical of freeports - now plans to introduce its own scheme, dubbed "green ports".

Exact details have not been set out - but bidders will be asked to promote "sustainable" growth, and pay the voluntary real living wage.

BBC News - China regains slot as India's top trade partner despite tensions

 China has regained its position as India's top trading partner despite a decaying relationship between the Asian neighbours.

The two countries were involved in a bloody border conflict last year and saw India ban 220 Chinese tech apps.

But that did not stop China leapfrogging the US in 2020 to become India's biggest trade partner.

Two-way trade between the long-standing economic and strategic Asian rivals stood at $77.7bn (£55.2bn) last year.

• India-China border dispute explained in 400 words
• China reveals soldier deaths in India border clash
• India continues to ban China apps amid standoff

Although this figure was lower than the previous year's $85.5bn total, it was enough to make China India's largest commercial partner, according to provisional data from Delhi's commerce ministry.

Global trade flows have been muted during the pandemic, although there has still been strong demand for medical equipment and supplies.

Despite efforts by India to become more self-reliant and curb trade with Beijing, it still relies heavily on Chinese-made heavy machinery, telecom equipment and home appliances.

Total imports from China stood at $58.7bn, which were more than India's combined purchases from the US and UAE - its second and third largest trade partners.

"The continuing dependence on Chinese imports is lack of availability of these at home," said National University of Singapore economist Amitendu Palit who specialising in international trade.

"Imports from China are cheap and available quickly in sufficient amounts. Imports from several other sources are not as cost-effective, and as easily available, as they are from China," he added.

The two nations were involved in a Himalayan border dispute last June that saw at least 20 Indian soldiers killed in a clash with Chinese forces.

Last week, China revealed that four of its soldiers had also died in the battle.

The incident was the first deadly clash in the border area for at least 45 years.

In response to the clashes, India's government banned TikTok, WeChat and more than 200 other Chinese-made apps in June saying they were a danger to the country.

In a statement, it said the apps were "prejudicial to sovereignty and integrity of India, defence of India, security of state and public order".

Reuters News - Analysis: How rich is Saudi Arabia? Kingdom does the math in balance sheet overhaul

 The kingdom is working on creating a consolidated balance sheet of its assets and liabilities which will include items currently kept off the oil-rich economy’s books, including the investments and debts of its powerful sovereign wealth fund.

“The main purpose of this programme is to have a financial equivalent of an MRI of the government balance sheet,” a Finance Ministry spokesman told Reuters, adding that it would include assets and liabilities that are currently “off-balance sheet”.

Saudi Arabia’s Crown Prince and de facto ruler Mohammed bin Salman has put Public Investment Fund (PIF), Saudi Arabia’s main sovereign wealth fund, at the centre of reforms aimed at diversifying the economy of the world’s top oil exporter away from fossil fuel.

Under the prince’s chairmanship, PIF has transformed from a sleepy sovereign wealth fund into a global investment vehicle making multi-billion dollar bets on hi-tech companies such as Uber as well as other equity investments and pledging tens of billions of dollars to funds run by Japan’s Softbank.

Its financial statements are not published and it does not feature in the kingdom’s budget, which is publicly available.

Gulf countries don’t typically publish information about their overall debts and assets but the PIF’s riskier investment profile and infusion of state funding have made its opacity an issue for some investors.

“Transfers of wealth from liquid pools of assets like central bank reserves into PIF’s less liquid (and less transparent) investments increases the overall risk profile of the public sector balance sheet,” said Kirjanis Krustins, a director in Fitch’s sovereign team.

“Debt investors would tend to see the government and its key government related entities such as PIF as representing substantially the same risk. Thus the levering up of the broader Saudi complex could at some point impact the government’s own borrowing costs,” he said.

The government media office did not respond to a request for comment.

ARAMCO BILLIONS

The government started working in the second half of last year on the so-called Sovereign Asset and Liability Management (SALM) framework and the spokesman said it was a ‘long-term project’ with no decision yet made on when and how its results would be disclosed.

“If we use benchmarks we will see countries spent a couple of years to implement the consolidation phase,” he said of the project.

The PIF’s finances are formidable.

Its assets have swelled to $400 billion as of 2020 from $150 billion in 2015, with the fund bolstered by an expected $70 billion payday from Saudi Aramco, the state oil company, for PIF’s stake in a petrochemical giant and a $40 billion transfer from the central bank’s foreign reserves.

It was also the recipient of nearly $30 billion in proceeds from Aramco’s initial public offering in 2019.

The fund has raised $21 billion in loans between 2018 and 2019, and is finalising a new facility expected to be over $10 billion in size, sources have said.

THE ‘NORMAL’ WAY

Despite Saudi’s oil wealth, creating enough jobs for the kingdom’s young population is one of the biggest challenges facing Prince Mohammed, known in the West as MbS.

The government has been pushing through economic policies since 2016 aiming to create millions of jobs and reduce unemployment to 7% by 2030. But fiscal austerity to contain a yawning deficit has slowed investment, and the coronavirus crisis last year pushed unemployment up to a record 15.4%.

To get the deficit down from an eye-watering 12% of GDP last year to a shortfall of 4.9% by the end of this year, Riyadh has slashed capital spending.

It is relying instead on the PIF to fund some of the major infrastructure projects to help boost growth, including NEOM, a $500 billion high-tech business zone, and the recently announced “The Line”, a 1 million inhabitants carbon-free city in NEOM, expected to cost between $100 billion and $200 billion.

PIF plans to inject at least 150 billion riyals ($40 billion) annually into the local economy until 2025, and to increase its assets to 4 trillion riyals ($1.07 trillion) by that date, Prince Mohammed has said.

“MBS understands that unless the economy grows at a rate above 6.5-7%, the youth unemployment rate will stagnate or grow – and that is a ticking time bomb,” said Khaled Abdel Majeed, MENA fund manager at London-based SAM Capital Partners, an investment advisory firm, commenting about transfers of state funds to PIF.

“Doing things the ‘normal’ way through ‘normal’ channels will take more time than is available.”

Reporting by Davide Barbuscia, additional reporting by Tom Arnold; editing by Carmel Crimmins

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BBC News - Retail sales slump in January amid lockdown

Retail sales fell sharply last month with many stores closed amid the latest coronavirus lockdown restrictions, official figures have indicated.

Sales sank 8.2% in January from the month before, the Office for National Statistics (ONS) said.

Department and clothing store sales were particularly affected last month, the ONS said.

However, the share of online sales hit a record high and accounted for over a third of total spending.

"The latest national lockdown led to a sharp monthly fall in January's retail sales, with April 2020 the only month on record to see a bigger slump," said the ONS's deputy national statistician for economic statistics, Jonathan Athow.

"However, the decrease seen this time was not as large as that of the first lockdown, as some stores have adapted to the current circumstances, with services such as click-and-collect helping to cushion the fall."

Online spending hit a record proportion of 35.2% of all sales, he added, while sales at food stores were boosted by the lockdown closures of pubs and restaurants.

Feedback from retailers suggested that the closure of the hospitality sector had boosted sales of food and alcohol, the ONS said.

'Step-change'

Restrictions to non-essential retailers have hit the non-food sector worst during the coronavirus pandemic.

Sales in the sector plunged 24.4% in January, although this was not as severe the fall seen during the first lockdown in March 2020.

"There are signs that retailers have adapted better to the latest lockdown," said Lisa Hooker, consumer markets leader at accountants PwC.

"While non-grocery stores took the brunt of the pain, with sales volumes declining by a quarter, they were still over 50% higher than in the first lockdown last April."

She added that while the first quarter of the year is traditionally quieter for retailers, "stores will be hoping that a rapid re-opening will allow shoppers to spend the estimated £10,000 that households have saved on average during the lockdowns".

Richard Lim, chief executive of Retail Economics, said he thought the pandemic has "driven a step-change in online shopping".

"A new wave of digital shoppers have broken down the initial barriers of setting up online accounts, entering payment details and overcoming issues of trust," he said.

Consumers now "seamlessly transition" to online sites and apps discovered during previous lockdowns, Mr Lim added.

"It's inevitable that some of these behaviours will become a permanent feature of the industry as consumers embrace a new way to shop and the industry boosts online capacity."

BBC News - House prices up 8.5% in 2020 amid tax holiday

 

UK house prices climbed 8.5% in 2020, the highest annual growth rate since October 2014, according to official figures.

The average UK house price reached a record high of £252,000 in December 2020, the Office for National Statistics said.

The North West had the highest growth of 11.2%, while London rose just 3.5%.

The stamp duty holiday due to end this March contributed to the rise, the ONS said.

Spending more time at home in the pandemic meant some people also decided they needed more space.

That was reflected in the average price of detached properties climbing by twice as much as flats and maisonettes during 2020, up 10% and 5% respectively.

Meanwhile Wales experienced the fastest price growth, with property values rising 10.7% to £184,000.

In England, prices climbed 8.5% to £269,000, in Scotland, 8.4% to £163,000 and in Northern Ireland 5.3% to £148,000.

"Recent price increases may reflect a range of factors including pent-up demand, some possible changes in housing preferences since the pandemic and a response to the changes made to property transaction taxes across the nations," the ONS said.

Regional variations

The UK housing market is made up of lots of local markets, with different factors affecting property prices such as the performance of schools and the availability of jobs. The ONS figures are based on sale completions.

Although average London prices were up by 3.5%, over last year, prices fell in the capital by £5,000 between November and December, despite a UK-wide price increase of 1.2% over the month.

But the city still has the highest average house price in the UK, at £496,000.

The North East continued to have the lowest average house price at £141,000, and has become the final English region to surpass its pre-economic downturn peak of July 2007.

Cheap debt

"2020 was the year that fundamentals came home to roost," said Nicky Stevenson, managing director at estate agent Fine & Country.

"There was no escaping a lack of space for households who suddenly found they were living on top of each other with little respite. That has powered annual growth that reached a six-year high."

There were four major drivers of overall house price rises in 2020, said Anna Clare Harper, chief executive of asset manager SPI Capital.

"The temporary stamp duty reduction and cheap debt as a result of very low interest rates, which give buyers a 'discount'; the release of pent-up supply and demand and desire to improve surroundings amongst existing homeowners; and the 'flight to safety', since in times of uncertainty, people want to keep their money in a stable asset with low volatility.

"But looking to the future when the temporary stamp duty reduction ends, we're likely to see a slowdown in house price rises," she said.

"However, there is still some life in the market as lockdown helps to concentrate many potential buyers and sellers' minds as far as moving is concerned," said north London estate agent Jeremy Leaf.

"Intense speculation remains as to whether the 31 March stamp duty deadline will be extended and we can't help but have sympathy for many who have started the process several months ago who have been unavoidably delayed by a backlog in searches, surveys, conveyancing, or all three, to say nothing of problems in the new-build industry."