S T A N D I N G C O M M I T T E E O F T Y N W A L D C O U R T O F F I C I A L R E P O R T

R E C O R T Y S O I K O I L B I N G V E A Y N T I N V A A L

P R O C E E D I N G S D A A L T Y N

ECONOMIC POLICY REVIEW COMMITTEE

CHIEF MINISTER AND CHIEF SECRETARY

HANSARD

Douglas, Thursday, 28th April 2016

PP2016/0083 EPRC-CM No. 1/15-16

All published Official Reports can be found on the Tynwald website:

www.tynwald.org.im/business/hansard

Published by the Office of the Clerk of Tynwald, Legislative Buildings, Finch Road, Douglas, , IM1 3PW. © High Court of Tynwald, 2016

STANDING COMMITTEE, THURSDAY, 28th APRIL 2016

Members Present:

Chairman: Mr M R Coleman MLC Mr G R Peake MHK Mr J R Turner MLC

Clerk: Mr J D C King

Contents Procedural ...... 3 EVIDENCE OF Mr A Bell, Chief Minister, and Mr W Greenhow, Chief Secretary ...... 3 The Committee adjourned at 3.31 p.m...... 16

______2 EPRC-CM/15-16 STANDING COMMITTEE, THURSDAY, 28th APRIL 2016

Standing Committee of Tynwald on Economic Policy Review

Chief Minister and Chief Secretary

The Committee sat in public at 3.30 p.m. in the Legislative Council Chamber, Legislative Buildings, Douglas

[MR COLEMAN in the Chair]

Procedural

The Chairman (Mr Coleman): Good afternoon. Welcome to this public meeting of the Economic Policy Review Committee, a Standing Committee of Tynwald. I am Mike Coleman MLC and I am the Chairman of this Committee. With me are Mr Juan Turner MLC and Mr Ralph Peake MHK. Also with us is our Committee Clerk, Jonathan King, who 5 will participate as a part of the Committee. If we could first of all ensure that mobile phones are switched off. Failing to do so will cause interference to the recording equipment. Also, for the purposes of Hansard and the Tynwald Listen Live facility, I will endeavour to ensure that we do not have two people speaking at the same time. 10 The Committee is taking evidence today from the Chief Minister, the Hon. MHK, and the Chief Secretary, Mr Will Greenhow. This is their annual oral session, the previous session being on 15th April 2015. Good afternoon, Chief Minister; good afternoon, Will.

15 The Chief Minister (Mr Bell): Good afternoon.

Mr Greenhow: Good afternoon.

The Chairman: We intend to hold the final part of the oral session in private, simply because 20 we just do not want to harm anything generally. Welcome, Chief Minister; welcome, Chief Secretary.

EVIDENCE OF Mr A Bell, Chief Minister, and Mr W Greenhow, Chief Secretary

Q1. The Chairman: First of all, I think you have had a rough idea of what we want, the schedule we would like to go through, and the first thing I think we would like to have is a sort of 25 end of term report – well, a getting towards end of term report! – from the Chief Minister, and if he could cover the highlights of what he thinks has been achieved and the things that perhaps he looks back on and says, ‘Well, I wish we could have done that better,’ or something like that. So I hand it over to you, Chief Minister. ______3 EPRC-CM/15-16 STANDING COMMITTEE, THURSDAY, 28th APRIL 2016

The Chief Minister: Okay. 30 I have to say I apologise first of all, I have not had a chance to go through all this. With the pressure we have been under the last few days, frankly, I have really not been able to do any research or give any real thought to the questions, so this is a few off the cuff comments. At the start of this administration we drew up our priorities and started to develop our strategy, but I think I made it very clear at the start that the scale of the work which we needed 35 to carry out would need to be spread over at least two terms if we were actually going to be able to achieve it. I still believe that and it will be for the next administration to pick up the baton and, I hope, carry on with many of the initiatives which are on the way. As you know – and it seems to have been very easily forgotten at times – we started this administration having lost a third of our income: £200 million a year had gone. We were still in 40 the midst of a world recession from the banking crisis. We were still suffering from the impact of that and the new VAT agreement had not been completed, so we were still unsure of where we were going with our income. It was a very difficult birth to this administration and – I have said this on a number of occasions – I have been in every Council of Ministers since it was formed at the end of 1986- 45 1987, and by some distance this has been the most challenging administration, in terms of problems which we have had to confront, that I can remember at any time during that period. It has been a very difficult challenge for all of us. At the start we set three main priorities, which I am sure have been well recorded by now. That is, the priorities were to balance the Budget, grow the economy and protect the vulnerable. 50 Balancing the Budget was absolutely fundamental and has informed, really, most of what we have had to do over the last four and a half years. Unless we can get some control over our finances – having lost £200 million per year – then our ability particularly to protect the vulnerable was always going to be in jeopardy. A great deal of work has been carried out to that end and we, last year, managed to create a 55 small balance surplus in our revenue budget. That was well ahead of where I expected to be and unfortunately there was a fair degree of pain to get to that point, but we did at least begin to stabilise the finances there. That, though, I freely admit, was only part of it and we still have a £75 million, or thereabouts, structural deficit which we have to deal with. That will continue over the next five 60 years and I am hopeful that we will be able to achieve full rebalancing within the next term. So we have laid the foundations, I think, for getting our fiscal stability back and established. Alongside that, the growth in the economy obviously has been the other key point, because without economic growth we are not going to generate the new revenues we need to deliver that balanced budget. We have been very fortunate, I think, in the sense that we have 65 strategically, over many years, planned for a diverse economy. We have some 21 different economic sectors now, and because of that diversification we have been able to maintain growth over all in the economy, whereas other jurisdictions more focused just on financial services over the last few years have been in recession for a number of years. With that diversification we have been able to maintain economic growth – and I think currently it is 70 around about 4½% net, which is, by all comparisons, a very healthy growth figure. However, there is no question that the growth in the economy does not necessarily reflect growth in Government revenues. Particularly when we had to introduce the zero rate of corporate tax in 2006, there was a gradual detachment from the growth in the economy. That link between the growth in the economy and growth in Government revenues was broken and 75 the Government revenue growth has not been at the same rate as economic growth, and I fully accept that. We have, though, also maintained very low levels of unemployment. I think on average over this period unemployment has been at or below 2%. I think currently it is at 1.8% which is, again, a very healthy position for us to be in. We are pursuing other initiatives to bring down the 80 numbers of long-term unemployment, to tackle youth unemployment. To help us alongside all

______4 EPRC-CM/15-16 STANDING COMMITTEE, THURSDAY, 28th APRIL 2016

that, we have introduced – or are in the process of introducing – our new economic development fund, the Enterprise Fund – £50 million – which is really just about to be rolled out as we speak, and we are hoping now to use that to build on the success and the expansion and diversification we have enjoyed over the last few years. 85 So a great deal of work has gone on within the economy and will need to continue to go on, but, again, to enable us to deliver that, we have had to be very focused on the international debate which has taken place on tax transparency and tax co-operation. Currently, as we all know, we are in the of the firestorm related to the Panama Papers. It has been absolutely vital that over these five years we have been very active off-Island 90 promoting the Isle of Man politically, in Westminster, at the European Union, further afield, the OECD, to ensure that the Island’s reputation is protected and that we are not damaged by the changing international attitudes towards offshore. That has been absolutely fundamental and the events over the last three or four weeks have brought everything to a head and highlighted very clearly that the steps we have taken over the last four and a half years have been absolutely 95 the right ones to take to protect the financial services industry and everything that flows and is linked into that. We have been very successful on that front. Without going into endless detail about what we have achieved, we have balanced the revenue budget – there is still work to do and we have to obviously address the issue of reserves and replenish the reserves. We have maintained 100 economic growth in the economy: 4½% currently. The average net economic growth that the Isle of Man has enjoyed now over 20 years has been 6% net annually, which I think can match just about any country we would like to compare ourselves with. The international reputation of the Isle of Man is stronger than it has ever been, certainly in my experience, and I think we are currently benefiting from that in the current debate which has 105 been triggered by the Panama Papers release. But achieving the stability that we have tried to, fiscally and with the economy, we have been able to take steps to protect the vulnerable as well. I know that we get criticised that we are not doing enough for that and we can always look at areas where we could do better perhaps, but we have been quite concerned to ensure that, wherever possible, we have been able to protect 110 those on the lowest income or most in need from whatever cuts are brought in. Whilst I am sure there will be criticism of some of the things we have done, I think in the main, we have been able to maintain the support for those on low income and I would expect that to continue for the future. We have raised the minimum wage, which has helped a large number of people. The Treasury Minister has recently taken 2,000 people, I think, out of the tax 115 net. Most of the benefits have been protected. The budgets for things like the Health Service have been protected as well for those who are most in need, and we have put a lot of support into providing housing support as well: new houses, new refurbishments. So, without going into all the detail of what has taken place, Mr Chairman, I think we have followed those three priorities: growing the economy, balancing the Budget and protecting the 120 vulnerable very closely. I do believe, if we step back and scrutinise what has been achieved, we have had a good success over this period. But it has been exceptionally difficult and we are far from being out of the woods with some of our problems yet. And, as we know, we have coming out of that, as well as the issues I have raised, things like the public sector pensions issue has to be dealt with. We are also facing long- 125 term strategic issues now to do with state pensions and how we maintain that. We have an ageing population; we have greater demands on health and social care than we have ever had before. We need to look at how to provide long-term sustainability for all these areas. So although we have made good strides forward in the first five years, there is a great body of work to be done in the time ahead. 130 Q2. The Chairman: Thank you, Chief Minister. I would just like to make a couple of comments about some of the things you said.

______5 EPRC-CM/15-16 STANDING COMMITTEE, THURSDAY, 28th APRIL 2016

Government income must be hit by the fact that the base rate has (The Chief Minister: Yes.) basically stayed where it has for just so long, and income from personal savings and stuff like the 135 tax on personal savings has gone down. In addition to that, one would presume that the return on our reserves has gone down for similar reasons. I mean, if you are in long-term bonds, some of those have matured and then you have not been able to get into as good a deal with the next lot – so Government reserves have been going down. One would imagine that the reassessed VAT arrangement that we are going to have for the next few years is going to provide us with a 140 little bit of relief there. (The Chief Minister: Yes.) But until the base rate starts moving again – maybe we can suggest to Mr Carney that he gets sympathetic! – things are going to be very difficult, aren’t they?

The Chief Minister: This has been a major problem that we have had to deal with. Interest 145 rates have been very low. In fact some areas now are in negative territory, which is almost unheard of in recent memory. That has damaged Government income quite substantially. It has reduced Income Tax receipts considerably. It has damaged income that many of our residents previously have enjoyed; they have seen a dramatic reduction in their own personal income because of the collapse of interest rates. Sadly, I think interest rates are going to stay at a very 150 low level for a long time to come yet. There is no easy solution to this. We have successfully now renegotiated our VAT agreement, so that gives us some stability in indirect taxation. It will need to be reviewed periodically and as part of the new agreement, but at the moment at least it is stable and we can look forward over the next few years with more confidence than we have had in the past as to what our indirect tax take will be. 155 But the impact of low interest rates on the individual, on Government income, on pension returns, on equity returns: all these things are having a damaging effect on Government’s ability to raise the sort of revenues that we need to. But it is something I think we will have to get used to. I cannot see interest rates being raised to any meaningful level for the next several years, I would think. 160 Q3. The Chairman: I think obviously the pension comes into this as well, (The Chief Minister: Yes.) because we said … well, in the figure of 25% of what we raise with additional pension is going to be … Well, whatever we get in an increased income, 25% of that could be used, depending upon the outcome of the pension arrangements, into funding the pension fund. So a 165 part of the growth: 25% is going to be straight into the pension fund.

The Chief Minister: Yes, public sector pensions are the biggest internal, domestic issue we have got to deal with; there is no question about that. We have been working to find the solution to this now for a number of years. The original series of projections that were given to 170 us by our advisers … The external events which you referred to have knocked those projections off course, which means we are currently reviewing it to try and find an alternative way forward. It does make life more difficult, because we have this commitment which we have to resolve one way or another. We have to be fair to those people working for Government: they have a right to the pension, they have contributed to their pension, but, equally, we have to recognise 175 that we cannot place an unfair burden on the Manx taxpayer over and above what we already place on them simply to fund public sector pensions. So there is a real challenge there for the next few years for Government to get its house in order and try to get back on track again. But a small island and a small economy like the Isle of Man is always going to be vulnerable to external factors. We often talk about the independence of the Isle of Man. The reality is we are 180 not independent at all in so many different areas. We are always going to be at the mercy of international economic circumstances, international interest rates. We do not have control of our own interest rates in any way at all. Economic growth worldwide is itself bumping along the bottom at the moment; it is not in the buoyant state it was a few years ago, so that in itself is having an additional restraining impact, I think, on our ability to grow.

______6 EPRC-CM/15-16 STANDING COMMITTEE, THURSDAY, 28th APRIL 2016

185 I do think – and I am repeating myself I know – the progress we have made over the last few years in the face of much of this adversity is something we can be proud of in the Island. I think we have done very well to hold everything together. But the challenges over the next five years, if anything, are going to be greater than the ones we have just experienced.

190 Q4. The Chairman: I just ask one more question before I will hand over to Mr Peake who has a question for you. When the pension debate was withdrawn, were you basically disappointed with the reaction of Tynwald Members?

195 The Chief Minister: Sorry, the resolution to …?

The Chairman: Not the resolution to withdraw, but the wanting to bring it forward. (The Chief Minister: The amendment?) Yes.

200 The Chief Minister: Yes, I was. Every single one of us – I am sure no Member is any different – and certainly the Council of Ministers is concerned about public sector pensions and finding a way forward. The main reason that the amendment was withdrawn the way it was, was not in any way to duck the issue at all. It was to give more time to talk to backbenchers. You are aware I held a 205 meeting with most backbenchers on Tuesday of this week to give everyone a chance to comment on the proposals which we have put forward. If Members have alternative views or ideas that they think need exploring further, I am more than happy to encourage a further review of those ideas. That was the whole point of having that meeting in the first place. I do not believe something as hugely important as the public sector pensions issue is 210 something which should be used as a political football, and I cannot see how we could actually end up negotiating a new way forward for dealing with public sector pensions on the floor of Tynwald in debate. It is something we need to talk calmly about, where we have more time and we can get external advice and external input into that meeting to try to identify the right way forward. It is very difficult to do that in the heat of debate on the floor of Tynwald. 215 I do believe public sector pensions are so hugely important to everyone they should not be used as a political football. We need to get a measured agreement as to what the best way forward is. My view was that, by holding back on the amendment which was due to come forward for a month or two, to give us time to talk to backbenchers, to listen to what their concerns were and, where necessary, to act on it, that would have been a better way forward 220 than just rushing straight into a debate. That is the only reason it was handled the way it was. Some Members seem to have taken it as a sign of discourteousness. It was quite the opposite; it was to try to give Members a chance to talk to us. None of us in Tynwald are pensions’ experts, so we have to collectively get the best advice we can, and that really is what was behind the move. 225 The Chairman: Okay. Mr Peake.

Q5. Mr Peake: Thank you, Mr Chairman, and good afternoon, Chief Minister. 230 Just to follow up on what you have just said there, I do agree with you that the workshop idea is a good way forward. It will be a better forum to have a frank debate and explore solutions that we can agree with, so thank you very much for that. Just going back to the statement you made on the five years, you mentioned about trying to protect the banking industry or the financial sector here – which is a reactive way. I was just 235 wondering: opportunities to be more proactive …? Are these sorts of strategic decisions formed

______7 EPRC-CM/15-16 STANDING COMMITTEE, THURSDAY, 28th APRIL 2016

in Departments like DED, the Cabinet Office or are they formed in the Chief Minister’s and Chief Secretary’s Office?

The Chief Minister: The steps we take – and I make reference to protecting the Island’s 240 reputation. This policy has been in place for many years and certainly I was very involved in it in the early days when I took over in Treasury, so I have been directly involved in it for the last 15 years; I can speak with first-hand experience. We have spent many years, and I have spent a great deal of my time travelling – particularly to Westminster, to Brussels, to further afield – to talk to politicians, to talk to opinion-makers, to 245 talk to business leaders, the media, to persuade them and to inform them, basically, as to what the Isle of Man is all about: how the economy works, the steps we take to co-operate with the international agenda on regulation. And by and large, we get a good response when we are off- Island. The steps we have taken recently are no different to what we have done for those 15 years. 250 The pressure and the issues have been a lot more intense and a lot more immediate over the last few weeks, but it is a continuation of what we have been doing for a long time. So it is not a reactive position on the part of myself or the Council of Ministers. It is part of a long-term strategy of engagement with the international community. We absolutely have to protect the Isle of Man’s reputation, not just for financial services but for any other economic activity that 255 passes over our shores. The Department of Economic Development is charged with developing new initiatives to both protect the existing structures – we have 21 different sectors in our economy now; the Department is charged with developing new initiatives there. More recently, in the light of the pressure we have been under as a result of the Panama 260 Papers, I have, through the National Strategy Group, asked for a whole new strategy to begin to try to identify where financial services in particular will be in 10 or 15 years’ time; what will they look like? Because the one thing we can be absolutely clear on is that the financial services industry we know today – which currently contributes about a third of our GDP – will be very different in 10 years’ time. 265 So, whilst we are reacting or responding to the current debate which is going on, it is quite clear now that the time has come to recognise that Panama is an absolute game changer in terms of financial services. We know that on 9th September there is going to be a second release of Panama information which is likely to be even bigger than the first lot. We have the Anti-Corruption Conference in London three days later. The pressure on the offshore world is 270 going to be immense over these next few weeks. My view has been very clear – and I think we have been proven right in all this – we have responded to the international community, we have responded to new regulations, we have seen the way the international debate is going; it will be speeded up in the next two or three weeks. The time has come now to say, ‘Right, we know financial services are going to change. 275 We have to change with them and we have to try to identify working with the industry, working with the best advice we can get, not just through DED but across Government. We have to now see what the economic landscape will look like in 10 or 15 years’ time.’ It is not going to be an easy piece of work, but it is something I think we absolutely have to start on now. Financial services are still very important. Many thousands of jobs on the Island are 280 dependent on financial services and therefore we have to do our best to not just protect it but also to grow and diversify that industry for the future.

Q6. Mr Peake: Will that give you a clear vision of where we want to be, so people can work towards that? 285 The Chief Minister: That is the aim in the end, yes.

______8 EPRC-CM/15-16 STANDING COMMITTEE, THURSDAY, 28th APRIL 2016

We are already working on new initiatives: alternative banking, for example; cryptocurrency, various other initiatives in a small way of starting off. There will be no opportunity for, I do not think, for example, a new e-gaming industry to appear overnight. If we pursue the initiatives 290 which have been presented to us to date, in due course we will see new sectors emerge, but there will be no new Barclays Bank coming into the Isle of Man, no Lloyd’s Bank coming into the Isle of Man, with 500, 600, 700, 800 employees. It will be a long incremental change. But I think that by laying the foundation, reviewing what we are doing now, recognising that change is going to happen and there is no point in playing Canute and hoping the tide is going to 295 go back – it will not – but we will be starting to lay the foundations for a stronger future. The other thing which is absolutely certain, which is going to happen as a result of what is going on at the moment, is internationally there will be a flight to quality. Those jurisdictions that have a high-quality reputation and a good reputation for probity and transparency will survive and eventually they will thrive. Any jurisdiction which believes it can still trade in the 300 shadows, on the margins, will not have a long-term future at all. And I do believe a number of the smaller jurisdictions, in particular, who are involved in financial services at the moment will not survive over the next decade because the pressure of transparency, of compliance, and all the other regulations will be too much of a burden for some of them to carry. The type of business that they carry out will no longer be acceptable. 305 So we have to make sure the Isle of Man is positioned over the next decade or so to be at the forefront of the new industry which will evolve from this work that is going on at the moment, and it will possibly mean that some elements of business activity which we enjoy on the Island at the moment may not be with us too much longer.

310 The Chairman: Thank you. Mr Turner.

Q7. Mr Turner: Yes, thank you. I was going to build on that really and say is Panama the beginning of the end for offshore 315 jurisdictions when the bigger countries clearly, no matter what you do, do not like them? No matter how many regulations you bring in, it will not be enough for some of the bigger countries who will continue to dislike them. Do you feel that we are maybe a little too quick to react when we are not exactly seeing a lot of movement from some of the Caribbean countries who are continuing to sit back and do, on the surface, very little, but still seem to be prospering, whilst 320 we are bending over backwards bringing in regulation, much to our detriment at times with losing business? (The Chief Minister: No.) Are we being overly cautious?

The Chief Minister: No, not at all. If you look at the obvious ones … When the UK government want something, we become the 325 ‘British family’. When they do not like us, we are ‘tax havens’. At the moment, we are the British family. It is interesting. So, if you look at the British family, in the main, I think everything we have done has been mirrored by the other jurisdictions. The only issue where we have gone ahead of the overseas territories, in particular, is the most recent commitment to automatic exchange of information 330 on beneficial ownership. Now, we did not have to do this. We were invited to join the initial pilot scheme which has been set up by G5 – which is the UK, France, Germany, Spain and Italy. Eventually, this will link into the OECD. Now, we could have held back and said, ‘No, we are not going to join; we are going to stand on the sidelines and wait and see what happens.’ I do not believe that was the right strategy. There are times and places where you can choose to fight 335 your battles and, if you are going to fight a battle, you need to fight one you know you are going to win and not just go in it for the sake of it. The jurisdictions which have not signed up to this agreement will be under huge pressure over the next couple of weeks, and I think the great majority of them will have signed up by the Anti-Corruption Conference on 12th May.

______9 EPRC-CM/15-16 STANDING COMMITTEE, THURSDAY, 28th APRIL 2016

The initial pilot scheme currently, I think, has something like 32 countries already signed up 340 to it, so it is growing very quickly. But the real concern I have on this is not so much signing up to automatic exchange of information – which I know we have had to rush through and we have not had time to consult in the way we normally do with the industry – is to position the Isle of Man in such a way that we will be able to deflect any further attacks on us which might develop out of the G5 intention to set up an international blacklist of tax havens – which we know is in 345 the pipeline, which they are working on at the moment and is likely to be based on aggressive tax rates. Now, transparency is a very difficult thing to defend against. There is, in the international arena these days, demand for greater transparency, greater openness in business dealings. The Isle of Man has got to accept that and go along with it. Where we have to draw a line has to be 350 in defence of our tax rates, and that is the approach I have adopted on this one. If we make enemies at the first step – which is on automatic exchange of information, which we know is going to happen anyway – we will have less friends if the focus turns on tax rates further down the road. So I think we have got to think strategically about this. I know it is uncomfortable for businesses which have been affected by it, because we have not always had chance to consult 355 the way we would like, but I think the evidence speaks for itself. If you look back over 15 years – more than that, in fact – to when we were first on the OECD blacklist at the end of the 1990s, the steps we have taken and the leadership we have shown the industry over that time, in signing up to things like tax information exchange agreements, FATCA, all the various initiatives which have taken place over the years pretty well were met 360 with some reservations by the industry. But looking back now, if we had not taken the steps and taken the lead when we did, the Isle of Man would not be in the fortunate place it is at present. So there will be occasions, I think, where we have to move quickly. The pace of this last two weeks, following on what has happened in Panama, has been the most frenetic two weeks I have ever experienced in all the years I have been involved with it. It has been absolutely torrid. 365 But I do think the Isle of Man is in the strongest place it could possibly be that the moment. But, sometimes we have to take a lead and sometimes some people will be miffed because we have not been able to consult, but I think it is the right thing to do.

Q8. Mr Turner: And is this ultimately going to mean there will be casualties, then, in terms of 370 businesses?

The Chief Minister: Yes. I think we have to be honest with people and recognise that there may … I am not saying there will be, but there could be casualties, depending on the type of business that some of the enterprises trade in, but I have to say that is not just in the Isle of 375 Man, that will be right across the offshore world. It is changing and it will change permanently. It will not go back to the type of business which has been acceptable in the past. The interesting thing is – sorry to digress slightly, but – people have forgotten: there is a great deal of adverse comment about Panama and the papers that have been released, and some of the stories do make lurid headlines, but those papers actually go back to 1977; those papers are 380 40 years old. We must not lose sight of the fact that the business environment of 40 years ago was very different to the one we enjoy today, and it is very difficult, sometimes, to judge behaviours from 40 years ago on today’s more transparent standard. So things do move on and, yes, there will be casualties.

385 Q9. The Chairman: Can I just ask a little bit more about the exchange of beneficial ownership? Will it be automatic: every time you set a company up, you will send the information out to the five other counties? Or will it be, if they want it, they can ask for it and (The Chief Minister: No.) then we will send it?

______10 EPRC-CM/15-16 STANDING COMMITTEE, THURSDAY, 28th APRIL 2016

390 The Chief Minister: It is automatic; we would send it out. The details of the whole scheme though are still at a very early stage. We are not quite sure how it will work yet. What we have been asked to do is sign up to the principle of a pilot scheme to develop an international system of automatic exchange of information. Now, we – and I do not think, to be fair, G5 themselves are fully conversant with how this new process might work. By signing up to 395 the pilot scheme, we will get in at the ground floor and we will have a better idea of how it is going to develop and hopefully have some ability to influence it, based on our own experience. Now, the previous week – the speed things have been changing – we committed to establish a central register of beneficial ownership, which was not for automatic exchange of information. I signed the agreement with David Gauke, the UK Treasury Minister … (Interjection by Mr 400 Greenhow) Yes, three weeks ago – whenever it was – two or three weeks ago. But that gave access to this information, on request, from tax collecting authorities and law enforcement bodies, and those are the only two agencies which are being discussed in any of this. It is to do with law enforcement and it is to do with the tax collecting. It is tax evasion, criminality and – more urgently lately – terrorist financing which is driving all this. 405 They are looking for those two agencies to have access to this information and, in particular, they are looking to have access in a timely manner. ‘Timely’, in a general sense, will probably be 24 hours, but in certain circumstances it would be one hour. But they are now moving this onto ‘automatic’ and we are not quite sure yet – it is too early to say – how this is going to work. But the important thing is to recognise that this particular initiative is as much political as it is 410 practical, at this point in its development anyway, and it is important that the Isle of Man is very much on the inside track on this, otherwise we will be damaged later on. I am sure you will find, closer to 12th May, when the Anti-Corruption Conference takes place, there will be a lot of pressure – a huge amount of pressure – put on those jurisdictions which have not committed to this at that point. So we will all be, ultimately, in this together, but the Isle of Man I hope is in a 415 stronger position because we committed to the pilot early.

Q10. The Chairman: Thank you. Just a point from my own personal experience: although Jersey and Guernsey are theoretically our competitors, the financial business mix is actually quite different between the 420 Islands –

The Chief Minister: It is, yes.

Q11. The Chairman: In Jersey, it tends to be a lot of fund management, both investment and 425 unit holder accounting. In Guernsey it tends to be multinational ex-patriot pensions; there is a lot of that down there. I would just like to hope that, if they are trying to poach our business, we are trying to poach that business as well!

The Chief Minister: We could not possibly comment on something like that. (Laughter) 430 No, the three islands will always be in competition for economic sectors and economic benefit, but the point you make is a valid one: first of all, the three economies, generally, are very different in so far as ours, in particular, is much more diversified than the other two, which is a big plus for the Island, a huge benefit. But even with financial services, it is very easy to treat it as a one-size-fits-all, but it does not work like that at all. All three islands have different areas 435 of expertise and that is really why we have been able to live reasonably comfortably alongside each other for a very long time. I am sure that will continue – and that is a very comfortable way.

Q12. The Chairman: But a lot of their business has been there a long time. (The Chief 440 Minister: Yes.) They were probably the ones that people went to maybe 35, 40 years ago, when the Isle of Man really was not on the map that much.

______11 EPRC-CM/15-16 STANDING COMMITTEE, THURSDAY, 28th APRIL 2016

The Chief Minister: They had two or three decades’ lead on us, really, and that is why they have always had a bigger financial services industry than we have, but we have made inroads in other areas: insurance, for example. The Isle of Man has had great expertise in the insurance 445 industry which barely touches Jersey and Guernsey.

Q13. The Chairman: I think I am saying we should not just rest on what we have got; let us go and get some of theirs! (Laughter)

450 The Chief Minister: The trouble is there will be people sitting in similar rooms in Jersey and Guernsey saying the same thing about the Isle of Man, so we need to be aware of that too.

Q14. The Chairman: Anything else?

455 Q15. Mr Turner: I was going to – in the opening statement – if I may? Because I know we moved on to talking about the Panama Papers. Just to go back to the opening statement: Chief Minister, you were talking about the issues with the £200 million a year in falling revenues. I just wonder, having come to the end of this term now, do you feel the role of Chief Minister is actually powerful enough, because there is a tendency – a thought – that the Chief Minister is in 460 charge and can wave the magic wand and do anything. But, if I give you an example, we have one Department, namely Treasury and the various agencies, almost taxing people to breaking point with charges; then we have another Minister in charge of the DOI in the paper this week saying, ‘Well, we have resurfaced the Sloc at hundreds of thousands of pounds, because we had to spend the money on something.’ 465 Do you not think that this sort of message sends out the wrong message to the people who think, ‘Well, what is going on? The Chief Minister is in charge.’ Is the Constitution right that the Chief Minister really is in charge or do you have Ministers that effectively could act as loose cannons?

470 The Chief Minister: The Chief Minister – certainly this Chief Minister – gets accused of being a dictator, an emperor and everything else you can think of. These are descriptions I only dream of, frankly! (Laughter) The Chief Minister is nowhere near as powerful as many people like to think. The Chief Minister has a Council of Ministers, but in practical terms the Chief Minister is chair of the 475 Council of Ministers. I can move things forward by persuasion, by argument, but I cannot necessarily direct Ministers to do it if they are determined not to do it. The only residual power, in many ways, that the Chief Minister has if a Minister regularly flouts either the Chief Minister’s policy or Council’s policy is to sack the Minister. And you might do that once or twice, but it gets a bit careless if it goes beyond that. So that is a nuclear option 480 that you would not really want to enact. My view of my own role as Chief Minister has been one to be collegiate; to try and get the Council of Ministers to work together as a team. You may well remember at the start of this administration, it was my ambition to have a ‘Government of national unity’, because I did believe and I still believe that the issues that we have had to grapple with have been the biggest 485 the Island has faced for decades and I had hoped that we could have had a Tynwald working together, supporting each other and working to the common end of resolving many of these issues. Now, I still think my approach has been the right one, bearing in the mind the circumstances that we are living in. We have to work as a team, and I do think the future Chief Minister’s role 490 could be strengthened, where he has more powers of direction in some areas without having to fall back on the option of sacking a Minister for not going along with it. But, if we are going to get the best out of Tynwald and especially out of the – not forgetting we have only got 24 Members to draw from to run what, in effect, is a billion-pound business. Our gross

______12 EPRC-CM/15-16 STANDING COMMITTEE, THURSDAY, 28th APRIL 2016

income is about £1 billion a year; we employ 8,000 to 9,000 people; we have 24 people to fill all 495 those key roles. That is a very limited resource to draw on, with a very diverse range of talents across those 24. So we need to actually get people working co-operatively together, rather than under the threat of a big stick, because that, frankly, in this small community does not work either.

500 Q16. Mr Turner: I think that was the point I was making: the nuclear option is to sack the Minister, which you cannot do every time there is something that you do not like, (The Chief Minister: No.) but do you not think the role of Chief Minister – whoever he or she may be – should have more powers? Because people are putting their faith in a leader for the term and they are asking the questions, ‘Well, how come this Department is doing that?’ ‘How come this 505 Department is doing the other?’ And what it does is the Chief Minister elected on their polices for the term is finding that the Ministers they are appointing are going off on their own in their own direction. And it is not the most coherent because, unlike the UK, where people are voting for a party, where they know what they are going to get for the next five years, they do not under the current system. That is when they look to the Chief Minister, whoever he or she is, to 510 say, ‘Come on! You are our leader. You are doing this on one hand and doing this on the other’, but you have got not powers to sort it, other than pushing the button and firing the Minister.

The Chief Minister: I freely admit – and I have done on a number of occasions over this term – there have been actions that certain Ministers have taken which I would not necessarily have 515 done myself. We try to accommodate that; we try to live with that. I am not saying the Chief Minister is always right either. There are issues where – surprise, surprise – I might be wrong. It is a combination. The Chief Minister has to get the Council of Ministers, as politicians, working together to deliver a consistent policy and consistent within the overall policy objectives that we set 520 ourselves. Equally, the Chief Secretary has a role in all this as well, because the Chief Officers are the ones who are engaged in the day to day implementation of many of those policies. For the first time ever since the start of this administration, we have regular meetings between the Council of Ministers and the Chief Officers’ Group to develop policies. In the past, Chief Ministers have made their policies and it has largely been handed down to the Chief Officers’ 525 Group to interpret and implement, as they feel fit. I felt that was wrong and, by engaging the officers in the policy development stage, they can better understand what the political imperative is on any particular issue and therefore better understand how it should be implemented at the end of it. We have not got it right yet; there are still problems – I will be the first to admit – but I do 530 think we are going in the right direction. We have got a much better understanding between officers and Ministers. They do work, in the main, as a team; they do understand each other. But there will always be issues which will crop up which a Minister … It might be his pet issue; something he personally is committed to – after all, we do not have party politics over here – or it could be a constituency issue which he has a particular interest in. There will be issues from 535 time to time that crop up which might appear to go against the central tenet of the Government of the day. But, I think – and I do take your point – looking back over the last four and a half years, I think, in the main, we have been fairly consistent, but I do accept there have been occasions where, if I had more, I would be tearing my hair out as well – but there we go.

540 Q17. The Chairman: Okay. If we could just move on to what is another major factor going to be affecting the economy, and that is the referendum in the UK. Now, I know that Jonathan here wishes to ask a question on this one. Where do you want to be?

Q18. The Clerk: Thank you, Mr Coleman.

______13 EPRC-CM/15-16 STANDING COMMITTEE, THURSDAY, 28th APRIL 2016

545 I think it would be interesting for the Committee to hear from the Chief Minister, in the event of a Brexit vote, if the UK does vote to leave the European Union, what would be the Isle of Man’s objectives in any subsequent negotiations?

The Chief Minister: We have put a huge amount of work into this over the last few months. I 550 have spent a lot of time in London with the Chief Secretary, the Director of External Relations – the three of us in particular – talking to people of all views: the ‘remainers’, as well as the ‘Brexiters’, to try and get a feel as to what the future landscape, politically and economically, of the United Kingdom and the British Islands, in fact, might look like, depending on the various outcomes. 555 Now, as far as the remainers are concerned – and bearing in the mind the Prime Minister has renegotiated four keys points, which triggered the referendum – from what we have been able to tell, there will be very little impact on the Island one way or the other; it will be more or less business as usual. So, for the moment, we can park that. Our focus now is very much on what the UK might look like should there be a vote to leave. 560 Now, you should all by now have had the report which I commissioned some time ago. Again, it is a report that has never been done before, so it has taken a little while to bring it altogether, to more clearly understand how each individual Department might be affected; what areas we should be concerned about and, should there be a Brexit, what areas would we need to perhaps consider renegotiating or reviewing in some way. That report went out on Friday, I think, so I 565 hope people have taken the chance to begin at least to read it. It is a very good quality report. I have to say, I am very impressed with the work that has gone into that.

Q19. The Chairman: Chief Minister, I have read it, and I thought it was one of the best reports that I have seen coming out of Government. The way it is laid out is extremely good. I 570 would commend everyone to read it.

The Chief Minister: Anyone who has a question about, first of all, what our relationship with Europe is and how a change in that relationship might affect us, certainly the background information that we need is in that document, I think. And I am with you on that; I have 575 congratulated the officer concerned. I think he has done an excellent job on it. But we have met a whole raft of politicians in London, to try and get a clear idea from them how they see the landscape, should Britain leave. I think it is fair to say, out of all the people we have met, we have yet to meet two who actually agree on what the future landscape would look like because, frankly, we have had all sorts of different assessments: from the UK simply being 580 able to snip the umbilical cord and the UK will float off into the sunny uplands of universal prosperity and happiness ever after, down to a ten-year hard slog to disentangle. So it has been very difficult to get any clear idea from the politicians actually arguing for an exit exactly how they see the outcome. Some weeks ago the UK government released a copy of what is known as Article 50, which is 585 an Article which was drawn up by the European Union as a road map, really, for disentanglement for any country that wanted to leave Europe. For anyone who reads that Article, it is almost impossible to see how the UK can disentangle itself in a clean, easy way without having several years, at least, of probably quite fraught and hostile negotiations, because the terms of disengagement are going to be set by the remaining 27, not by the UK who 590 has already left, so they are not likely to get very favourable terms. Nevertheless, that really is for the United Kingdom itself to sort out. The Isle of Man, as you know, is linked to the European Union through Protocol 3, and that is largely for trade purposes and agricultural purposes. If the UK leaves, then Protocol 3 will fall – we know that much – and we will have to work through the United Kingdom, because the UK 595 will have to negotiate on our behalf a new relationship with Europe. At this stage, we will have to consider whether, in fact, they would be prepared to do it, and also what a new Protocol

______14 EPRC-CM/15-16 STANDING COMMITTEE, THURSDAY, 28th APRIL 2016

3 might look like and, indeed, whether European Union would be prepared to continue it. It is within their power to say no. The three islands: Jersey, Guernsey and the Isle of Man, the three Crown Dependencies, are 600 working closely together on this. I met my counterparts: the Jersey Chief Minister and Guernsey – time is moving so fast – I think it was last week. (Interjection by Mr Greenhow) Week before, was it? It was to consider joint action on that and we are working very closely to identify what steps we should take should a break materialise. We cannot really, though, anticipate too much at this stage. It is actually only until the 605 outcome of the referendum is complete that we can then step back and see what the opportunities might be for the Island. We have met the key decisions makers, particularly the Minister for Europe – we met him on several occasions – because my fear was, in the turmoil which an exit might generate, we would be overlooked and we would become collateral damage in a broader renegotiation. We have had reassurances that will not happen and we have had 610 expressions of support from quite a wide range of politicians. So I think we are in a stronger position on that. But until they leave and until we know what their own position is going to be, what they are going to renegotiate, how the process is going to work, it is difficult for the Isle of Man to get in. I know some people are looking for us to have a clearly defined set of objectives for 615 renegotiation. We have a good idea what we do want or would like to see, but until we know what the UK’s position is going to be, it is very difficult at this stage to be too specific and say, ‘This is what will happen …’ The important thing, though, if the UK does vote to leave, we need to get in contact with the UK government. The referendum is on 23rd; we need to be knocking on the door on the 24th with Jersey and Guernsey, looking to find out what that new 620 relationship might be. My worry about a lot of this is I think a Brexit is going to be very messy. I do not think it is going to be the quick and easy issue that it is sometimes painted by the some of the promoters of it. That, in turn, is going to lead to a lot of uncertainty as to what the future trading relationships, in particular with Europe, are going to be. I think it will push a lot of potential 625 investors to put their investment decision on hold for the time being until they know clearly what the future relationship is going to be. And that applies to the Isle of Man as much as it might do in the UK, because I am sure people who might want to invest in the Isle of Man or invest in Jersey will be reluctant to do so until they know what the future constitutional link with Europe is likely to be. 630 Q20. The Chairman: So that means, as soon as possible, if there is a Brexit vote, we need to have a strategy for people who are considering investing in the Isle of Man, for them to be able to say, ‘Yes. They are going to be all right. They will there in two years.’ I think the Article 50 minimum period is two years. 635 The Chief Minister: They allow for two years. Technically that might be achievable, but much of the information we have would point to a break period of anything up to 10 years, if it was to take place, especially if that included negotiating new trade agreements, as we heard recently with the US and with other countries around the world. That is not going to happen overnight; 640 that will take a number of years for these new arrangements to fall into place.

Q21. The Chairman: How long did it take Greenland? Greenland pulled out, didn’t they?

The Chief Minister: It did. I cannot remember now. 645 Q22. The Chairman: Then they went in the European Economic Area, didn’t they?

The Chief Minister: Yes.

______15 EPRC-CM/15-16 STANDING COMMITTEE, THURSDAY, 28th APRIL 2016

One of the cases which has been quoted is that the UK could leave and negotiate agreement 650 with the European Union the way Canada did. Well Canada did, yes, but it took seven years to negotiate that and that did not include financial services.

The Chairman: And that was just a trading relationship.

655 The Chief Minister: That was just a trading relationship, absolutely. If we were dealing with a political party – the Conservative Party, for example, the party of government – they would have a manifesto and you would be able to follow, quite clearly, the various steps that they propose to take. The problem with this is that there is no manifesto as such; there is no clear line of objectives or outcomes being projected at all. It is very difficult to 660 follow. As I was saying, everyone you talk to, even though they are united by a common desire to leave Europe, there is no agreed strategy between them as to what steps they need to take to disengage. They all have different interpretations of it. So it could be two years – that is what the Article says – but it could be many, many years beyond that, and, sadly, because we are not 665 a sovereign state, we have to depend on the UK finalising its own position, its own relationship with Europe before we can be clear what our linkage into Europe is likely to be beyond that. So we could be in for a period of considerable uncertainty for maybe even a number of years, in the worst case scenario, if there is an extended period of friction between the UK and the remainers after that. 670 Of course, the other problem is more domestic in the United Kingdom, depending on the outcome: the future of the Prime Minister himself. If the UK vote to leave, it is quite possible that the Prime Minister will resign. There will be a new Prime Minister; there will be internal turmoil within the Tory Party and, indeed, if they vote to stay, we may get the same. There will be a lot of very angry and very disappointed Brexiters in the Tory Party who will want to take 675 revenge on the Prime Minister. So the UK could be in for a protracted period of political turmoil in the government as well as the problem of actually negotiating a new relationship. Politics in Britain is going to be very interesting, I think, because you have also got to watch very carefully the relationship of the devolved assemblies – Scotland in particular – and how that reacts to whatever the outcome might be. 680 So we could be in an almost unique position. The British Islands, generally, will not have been in this position before if the result particularly goes towards the UK leaving Europe.

Q23. The Chairman: Do you think the Scots will be so keen on leaving at the moment or will they wait for the oil price to go up? 685 The Chief Minister: Well, it is a problem. Of course, if you look back to when the referendum took place, it was predicated on an oil price of a certain figure. That figure has collapsed since that time, so all the economic and fiscal projections that they took at that time, completely – [Fire alarm sounds] 690 The Clerk: It looks like we are all finished. This is not planned.

The Committee adjourned at 4.31 p.m.

______16 EPRC-CM/15-16