The Economic Case
Demonstrating that the intervention provides Value for Money
The Economic Case provided a detailed assessment of the potential options for taking the development forward covering:
- Do-nothing – in which no seed funding would be sought;
- Option A – utilising the £25m seed capital available;
- Option B – minimum viable (representing a smaller intervention in which less of the Langage site would be developed and the Sherford site was not included within the Freeport); and,
- Option C – exceptional funding ask (representing a larger intervention would further expand the footprint of the South Yard site behind the wire of MOD land).
In order to establish the preferred option, each of these is assessed within the economic case in terms of:
- The Benefit Cost Ratio (BCR) – which provided a quantitative VfM assessment; and,
- The Qualitative Benefits – which were defined as the ability to unlock land, strengthen high value sector specialisms/clusters, deliver inclusive growth, deliver clean growth, drive research and innovation and strengthen trade and investment.
The BCR for each option as calculated within the FBC is shown below.
|Total Net Additional Benefits||Do Nothing||Option A (max £25m seed capital)||Option B (minimum viable)||Option C (exceptional funding ask)||Preferred Option (NPV, 2022/23 prices)|
|Land Value Uplift (LVU) – Direct (£m)||£0.000||£12.759||£3.999||£14.740||£12.759|
|Land Value Uplift – Adjacent (£m)||£0.000||£2.141||£7.548||£2.141||£2.141|
|Labour Supply Benefits (£m)||£4.505||£111.441||£39.375||£117.234||£111.441|
|Skills Uplift (£m)||£14.018||£336.427||£116.995||£356.017||£336.427|
|Freeport Policy Funding (capital seed funding) (£m)||£0.000||£25.000||£10.470||£34.752||£25.000|
|Co-funding local authority cost (inc. borrowing) (£m)||£0.000||£39.076||£22.375||£39.076||£39.076|
|Total cost (Freeport Seed Funding + Co-Funding (£m)||£0.000||£64.076||£32.845||£73.828||£64.076|
|Private sector cost (£m)||£3.818||£249.670||£92.299||£299.754||£249.670|
|COSTS (adjusted to exclude inflation, include optimism bias and discounting)|
|Freeport Policy Funding (capital seed funding) (£m)||£0.000||£31.471||£13.606||£43.570||£31.471|
|Co-funding local authority cost (inc. borrowing) (£m)||£0.000||£46.518||£27.344||£46.518||£46.518|
|Total cost (Freeport Seed Funding + Co-Funding (£m)||£0.000||£77.989||£40.950||£90.089||£77.989|
|Private sector cost (£m)||£4.311||£262.679||£97.396||£283.800||£262.679|
|Benefit: Cost Ratio for BCR||n/a||2.57||1.72||2.29||2.57|
Based on the above and taking a broader range of critical success factors into account, the Economic Case concluded that Option A was the preferred option.
|Critical Success Factors|
|Do Nothing||Option A (max. £25m seed capital) PREFERRED||Option B (minimum viable)||Option C (exceptional funding ask)|
|Strategic fit with wider policy objectives||Very limited fit with national or locally defined objectives||Will make a significant contribution to national objectives and scores 17.2 on the locally defined qualitative benefits analysis||Will make a less significant contribution to national objectives and scores 13.1 on the locally defined qualitative benefits analysis||Has the potential to make the greatest contribution to national objectives and scores 21.5 on the locally defined qualitative benefits analysis|
|Potential VfM||N/A||BCR: 2.57||BCR: 1.72||BCR: 2.29|
|Capacity and capability||N/A||Capacity and capability in place to deliver||Capacity and capability in place to deliver||MOD may slow the pace of development|
|Achievability/risk profile||Least risky but will not deliver government objectives||Presents moderate risks but with significant benefits||Presents fewer risks but with fewer benefits||Presents the highest risks but potentially most significant benefits|
|Affordability/cost||N/A||Affordable option from seed capital/ match/ retained rates||Affordable option from seed capital/ match/ retained rates||Dependent on securing additional funding|
|Alignment with net zero agenda||Neutral – but missed opportunity to accelerate and pioneer new solutions||Facilitates significant space for attracting clean growth/net zero tech and supply chains||Facilitates less space for attracting clean growth/net zero tech and supply chains||Facilitates the most space for attracting clean growth/net zero tech and supply chains and also unlocks the most space and facilities for trialling new clean growth solutions|
In order to make a compelling case for Freeport designation, the business case that was submitted to Government followed a prescribed template that was by necessity very detailed and also contained a range of commercially sensitive information. These summaries provide a more digestible overview of the business case with commercially sensitive information removed. It should also be noted that the material presented, including all cost assumptions, was accurate at the time of submission (April 2022). The summaries have not been updated since then. We have moved forward on a number of core activities through our mobilisation phase which are not reflected in the summaries, with the Freeport Company and associated board structures having now been established. This has enabled us to start building on the hard work that went into securing Freeport designation, working with our partners to leverage exciting new opportunities for the area.