On the 21st July, a little under a month after the announcement of the UK’s EU referendum result, we gathered a dozen leaders from the Isle of Man’s public and private sectors in a room at Boston HQ. The goal was to discuss the possible impact on the Isle of Man economy and how to respond. This is the second of four blogs unpacking the discussions and comments from that day. You can also read the full transcript of the meeting here.
There are still a huge number of unknowns in terms of what may come from Brexit negotiations, and there was a general air of caution amongst our attendees when it came to making predictions as to the future. They were agreed, however, that it is essential to spot possible threats early, and there were several potential areas of concern raised.
One of these areas was immigration. Whereas the balance of opinion in the UK may have symbolically voted in favour of immigration controls in June, our participants were concerned that the Isle of Man has such a low unemployment rate that it requires more immigration if the economy is to continue to grow. Greg Jones, of KPMG, rightly commented that the Island relies heavily on European citizens for the smooth operation of its health service, as well as the hospitality and leisure sectors. Brain drain out of the UK and Isle of Man was also a worry highlighted by the panel, given the Island’s growing need for high-tech talent.
Perhaps the most widely voiced concern was that Brexit would cause a shift in the UK’s attitude towards greater market liberalisation, positioning itself as an ‘offshore’ centre. Whilst this was not considered an inherently bad thing, it was felt that in the medium term it could have a disruptive impact on the British offshore centres by eroding their traditional areas of competitive advantage. Particular threats that were identified included the reduction or elimination of UK capital gains tax, corporation tax, and VAT. In particular, cuts to either the headline rate of VAT or effective cuts through exemptions and zero ratings could directly impact on the Isle of Man government’s revenues, as the Island shares an indirect tax agreement with the UK.
Concerns were also expressed regarding international legislation targeting ‘tax havens’. Although the Isle of Man is a transparent and compliant jurisdiction – arguably more so than the UK – there were nevertheless concerns that it could be caught up in punitive anti-avoidance legislation. This concern came in two forms. The first was that the Isle of Man and other Crown Dependencies could be “thrown under the bus” by the UK as part of the negotiations process, although this was strongly opposed by our public sector representatives who were keen to stress the excellent relationship the Island has with Whitehall. The second was that regardless of the UK’s position regarding the offshore centres, a leftward-leaning European Union could choose to legislate in a way that targets the British territories, without the traditional resistance from the UK that might otherwise have constrained them.
It’s extremely important to note, however, that despite recognising the potential for these threats, the leaders at the Boston Brexit Forum were almost unanimous in their opinion that Brexit is likely to be net positive for the Isle of Man. A number of opportunities for the Isle of Man economy were identified, which we will be writing about further in part three of this series, released next week.
Are you interested in more detail? You can download the full transcript of the Boston Brexit Forum here.