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

DEPARTMENT OF ECONOMIC DEVELOPMENT

HANSARD

Douglas, Wednesday, 10th October 2012

PP116/12 EPRC-ED, No. 1

All published Official Reports can be found on the Tynwald website www.tynwald.org.im/Official Papers/Hansards/Please select a year:

Published by the Office of the Clerk of Tynwald, Legislative Buildings, Finch Road, Douglas, Isle of Man, IM1 3PW. © High Court of Tynwald, 2012 STANDING COMMITTEE, WEDNESDAY, 10th OCTOBER 2012

Members Present:

Chairman: Mr L I Singer MHK Mr D M W Butt MLC Mr R H Quayle MHK

Clerk: Mr R I S Phillips

Business Transacted Page

Procedural ...... 3

Evidence of Hon. J P Shimmin MHK, Minister for Economic Development and Mr C Kniveton, Chief Executive, Department of Economic Development ...... 3

The Committee sat in private at 4.11 p.m.

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Standing Committee of Tynwald on Economic Policy Review

Department of Economic Development

The Committee sat in public at 2.30 p.m. in the Legislative Council Chamber, Legislative Buildings, Douglas

[MR SINGER in the Chair]

Procedural

The Chairman (Mr L I Singer MHK): Can I welcome everybody here. The Standing Committee is taking evidence today on the matter… well, certainly to mention the development of the space industry in the Isle of Man and other matters relating to the responsibility of the 5 Department. I would like to welcome the Minister of the Department of Economic Development, Mr Shimmin and also the Chief Executive, Mr Kniveton. The members of the Committee are myself as Chairman, Leonard Singer; Mr Dudley Butt MLC; Mr Howard Quayle MHK; and our secretary, Mr Roger Phillips. 10 Can I ask, first of all, if anybody who has a mobile phone turns it off because they do in fact interfere with the recording for Hansard and can I also ask – I do not think it will happen today – members and witnesses not to talk over each other, because of the sound recording. The Committee covers the policies of the Department of Economic Development, Treasury and the Chief Secretary's Office and at least once a year, we do interview the Minister from each 15 of these Departments. We can see them as well during the rest of the year, if we wish.

EVIDENCE OF HON. J P SHIMMIN MHK AND MR C KNIVETON 20 Q1. The Chairman: So, in welcoming you today, Mr Shimmin, could I ask you, first of all, to outline to the Committee what you have been doing within the Department within the last 12 months? We know that you have got a great responsibility on your shoulders for economic development, for bringing in new business to the Island. Can you tell us what you have done over 25 the last 12 months, particularly relating to new streams of business and what are you looking to in the next 12 months, which is obviously a very important time of this Government session?

The Minister for Economic Development (Mr Shimmin): Thank you, Mr Chairman, thank you, Committee. 30 We are in unprecedented times and the Department that I am delighted to be heading at the moment has spent the last 12 months across a whole range of the 20-plus sectors that we are responsible for and much of that in the Isle of Man, like in other countries in the Western world, is going through difficult financial times. The ability in the past for the Island's private sector and indeed Government to benefit from a strong economy, has meant that we have had almost full 35 employment and that we have been successful in whole range of areas of growth. Our employment levels have been at record highs and indeed, there was a significant change since 2008 and increasingly again with the impact of the VAT, which means that Government, my Department and the private sector have all had to adjust their operations in order to deal with the effects and factors outside of our control. 40 The Department has strategically been attempting to ensure that our business that exists on the Isle of Man, whilst looking to rationalise its own propositions, makes sure that they see the Isle of Man being the centre of the whole of their business, which is particularly important in those businesses that have multi-jurisdictional operations and for that, you could think of the banking as

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a clear example, but indeed, many of our businesses have satellite or headquarter operations 45 elsewhere. So the priority from my side is to understand the issues affecting all the diversity of the private sector areas, to ensure the stability of those businesses that are already here, while at the same time attempting to grow and invest money coming to our Island by those wishing to develop business opportunities. 50 At the Liberal Democrat meeting that I attended last week at their conference, I was sitting at a table with Vince Cable and about 20 business leaders in the United Kingdom and it was very clear that none of them had solutions to the economic problems facing the UK in particular, but indeed the whole European area. There is no solution to the difficulties we find ourselves in. Businesses large and small are adjusting to a new regime, where their expenditures are constantly under 55 pressure and their income streams are being squeezed from a variety of factors. So it would be unrealistic for the Isle of Man to consider that we are not going to be impacted, as much of our business operates through and with the United Kingdom and therefore any of the economic challenges they have will have an impact on many of our businesses. What we have therefore been doing is developing and finalising our country strategy to 60 identify those opportunities that exist both in the United Kingdom, but almost globally to see where there is new business can still be successful and be attracted to the Island, to work with my colleagues in Treasury and the Chief Secretary's Office in order to ensure that there is working cohesion with the banking and financial services sectors on the Island to deal with the many international factors that are affecting us and we have been, we would argue, successful in 65 stabilising many of the situations in the Island, but also having a regular amount of contact with people on and off the Island looking to invest and to develop opportunities. The fruition of those will be the real acid test. Many of those are beginning to come forward already with regard to some of the movement of high-value individuals bringing business to the Island. There are areas within the clean tech, 70 biotech area that are very keen to centralise and headquarter in the Island and they are making progress. We have had success with one of our best coping sectors, which is engineering and we are again growing new business in that area. But each of these opportunities and challenges throw up risks and we can talk quite happily about many of those with regard to engineering and the demographics of the workforce. We have a 75 conference today, which is attended by 160 business and educationalist leaders around the Island to try and ensure that our education service provides employers with what they require to be successful and, indeed, to assist the schools, to ensure that they give young people the best chance and opportunity of getting on the ladder. So if I was to summarise – I could talk for hours as you are all well aware – the reality is that 80 jobs are the fundamental biggest challenge that we have on the Island at the moment. Protecting what we have already got, growing and finding ways of getting the skills necessary of our young people, and indeed attracting those skills that will develop the economy of the Island. So we are working closely with our partners inside and outside of Government to deal with the problem for those not in employment, education and training. We are working with the schools and with the 85 College, to try and ensure that we can provide and equip our young people with the opportunities to be successfully contributing to society, both for their benefit and also for the general economy. If I stop at that point, you can try and see if anything there was interesting enough to come back and ask me about.

90 Q2. The Chairman: So that was in the past, really. Tell us what you are now projecting for the next 12 months. If there is anything different or new streams etc.

The Minister: Yes, there are, but a number of these are at a sensitive stage and I will reflect on the successes, whenever the Committee calls me in, that we have actually achieved and landed 95 some of these. I do not wish to pre-empt certain aspects where negotiations are at a delicate level because it would be inappropriate and some of the companies, and indeed the sectors that we are working with, will be able to be identified. Therefore, we are working with… if I take it from the existing business on the Island, if I then talk about potential opportunities of inward investment from the UK and the areas of growth there 100 and then to a global scale, I will just try and give you five minutes of some of those issues. Stabilisation of existing business means that we are attempting to work with all parties in all working groups within those sectors, to identify what the Isle of Man proposition is for Isle of Man existing businesses to be successful. In the past, they have not needed to work as closely with Government or each other to develop the proposition which is attractive and it is fairly clear to me, ______4 EPRC-ED STANDING COMMITTEE, WEDNESDAY, 10th OCTOBER 2012

105 from my 12 months in the job, that on many occasions we are chasing business against our competitors, particularly Jersey, Guernsey, Malta and Gibraltar, but also further afield to the Virgin Islands, the BVI and the Caymans, where our offering is not that different or better than other jurisdictions’. So we are working with the local committees to ensure that our targeting of what we are good at and what we can achieve, an excellence, and to sell that commercially is the 110 focus of the attention. Many of the CSPs are finding times difficult at the moment. The changes in the United Kingdom's taxation levels have been ones that have had impact through VAT or through taxation, so our existing financial businesses are all feeling the pressure and we are working closely with them to try and ensure that they can maximise opportunities in the UK, but more importantly now 115 we are taking them further afield into Dubai, into China, and indeed further afield, to try and see if there is a proposition that we can offer which is attractive. Therefore, the United Kingdom's financial situation at the moment means that there is still business to be had, but quite often that is merely competing with the same competitive element that Jersey and Guernsey are having and it is fairly well accepted that, in many sectors, Jersey and 120 Guernsey are still leading us, with regard to their longer-term proposition in financial services. You have to also bear in mind that Jersey and Guernsey have a far less diversified economy and therefore they have more at stake and are throwing more money towards those areas in the financial sector; but we as a Government are working with the Jersey and Guernsey political and governmental areas and you will be aware of the announcement yesterday on the statement 125 regarding the Foreign Account Tax Compliance Act (FATCA), which is affecting all the Crown dependencies and overseas territories in a way which will have an impact which is outside of our direct control, but will impact on some of our businesses on the Isle of Man. Therefore, the propositions that we are taking towards China and Dubai and elsewhere mean that those factors are not as critically affected by changes in the United Kingdom or China. We 130 have delegations that go as far afield as America on clean technology, e-gaming down in Australia, insurance issues in Dubai and a range of others that I am sure we can talk about at general levels. So the target is to work with local businesses to identify the markets in the UK and beyond and to support them, and them to support us in travelling to those places to sell a common message of 135 why the Isle of Man has an excellent proposition.

The Chairman: Mr Quayle.

Q3. Mr Quayle: If I could pick up on a couple of your comments, Minister. I accept for 140 future… you declined to give us a list of businesses you were hoping to attract to the Island, for fear of putting them off, confidentiality and I can accept that, but I suppose really, it gives you carte blanche that, in the future, if anyone does decide to move to the Isle of Man, maybe because their family members are already over here, you can take the credit that it was part of the scheme you are working on! So I would maybe like to have a little bit of expansion, if you could, to give 145 me possibly an area that you see as growing. Second point is you said 'we are concentrating on what we are good at'. I am sure there are plenty of things we are good at, trying to chase business with our competitors, but should we not be working in areas where we need to be good at? There is no point, if we are any good at something, but no-one is particularly bothered about what we are good at; surely we should be 150 chasing an area where there is a gap in the market, shall we say, even if we are not good at, we need to position ourselves so that we are damned good at it, to then attract that business?

The Minister: As you would expect, I will agree with everything you have said. I think in the past Government and many Departments in Government have taken credit for things which would 155 have happened organically anyway, and that is never more so than in the Department of Economic Development. Success of the economy on the Isle of Man is driven by the private sector. The excellence that we have in certain areas in and outside of Government, such as shipping, aircraft registries and e- gaming are well recognized, I think, not just domestically, but internationally. The issue of 160 excellence in all that we do has got to be a blueprint for all factors inside and outside of Government. In areas where the potential growth is, we know that we have not had new banking licences on the Isle of Man for many years and that is something which we are actively pursuing, both as a level of confidence in investment into the Isle of Man, but also the benefit it brings.

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165 We are aware of the whole data protection, ICT, e-business opportunities which we are well- positioned to attract. Whether it be data-hosting centres, whether it be ICT development, it is an area that not just us, but all other countries are pursuing where the geographical location is less important than the skills and the excellence that the businesses provide. Our insurance continues to be strong. Our areas that we have identified in the meditech, 170 biotech areas are ones which every jurisdiction is chasing and we are working at why the proposition on the Isle of Man is attractive. We have to accept that Jersey and Guernsey do not have VAT, so for some offerings they have a head start. However, we have arrangements that we are beneficially positioned and our activities in China, in particular, are beginning to bear fruit, where we are identifying business leaders and bringing them to our shores, to actually discuss with 175 the local private sector and ourselves. We have had three delegations from China and these are not just random advisers; they are business leaders coming to the Island. Much of the identification of those people, and indeed those we meet in Dubai and elsewhere, are identified by our local business community, or indeed, Michael Charlton. We are working in areas of data protection. I think I might have mentioned to you once before, 180 but data protection changes in Europe are a massive area where there will be a requirement for enormous amounts of extra data storage, and that is an area that we believe the Isle of Man has some benefits in, communication-wise, but we struggle because of the cost of electricity in comparison to elsewhere. All of our competitors are, like us, looking to offer benefits and incentives for people to come, 185 by way of grants and support, so we are working with Treasury to try and actually build and develop on the National Insurance holiday and those types of things. Engineering is one of those areas I think that you would refer to: that is coming because of the work we are doing, but also because of the excellence that we have with the aerospace engineering cluster. So we are looking to try and build on that excellence of service by putting the customer, in 190 regard to Government or private sector, first. We are trying very hard to bring business to the Isle of Man which will grow job opportunities for our own people, as well as bringing people in. Those sectors I have already mentioned, e-gaming, shipping and aircraft registry are independently being assessed as being world-class and are continuing to bring in business to the Island. 195 The area of film is well reported in recent months over the Pinewood situation; but again, there is clear evidence that producers are now looking to the Isle of Man to develop it further and hence the film opportunities. The main sectors that I am concerned about are where the jobs are going to come from and whether we have the suitable skills, because there is an ageing population, who we will require to 200 have work and employment opportunities as they reach into their 50s and beyond, and some of those people will not be able to carry on doing possibly the physical work that they have been doing in the majority of their careers, to try and diversify into other areas, and for that we are working with partners in and outside of Government to actually develop skills that may not be high skill level, but have a requirement for employment opportunities. 205 With regard to other sectors that we are looking at, it goes across the board that our construction industry is underpinning everything that we do and there has been some positive moves in that regard in recent months, where there is an investment into developments on the Isle of man, which I believe will be beneficial to instil a level of confidence not just the construction industry, but in the Island as a whole. 210 I will allow my Chief Executive to come in because I am sure there are a hundred different areas I could waffle about and I will try and restrict some of my answers a little bit as I go forward. So, Chief Exec.

Mr Kniveton: I think it is quite difficult to add to what the Minister said actually. (The 215 Minister: Oh, good!) We do have a range of specific tasks ahead of us over the winter months. We do have trips to India and China organised. We have the Barcelona e-gaming conference next week. We are looking very closely at issues relating to Work Permit legislation to employment law, so that not only can we be a busy on our own account in developing business opportunities for the private sector, but also to provide the right environment for businesses to flourish here on 220 the Isle of Man and to ensure that we do maintain a competitive advantage here over other jurisdictions.

The Minister: If I can add something in more direct response. Occasionally, I will try and give a direct response, Mr Chairman. In those areas where there is obvious growth and evidence of 225 opportunities for growth and practical measures is the area of tourism. With regards to tourism, we ______6 EPRC-ED STANDING COMMITTEE, WEDNESDAY, 10th OCTOBER 2012

are positioning ourselves as an area that excels in extreme activities, which are not as weather dependent as our historic tourist industry. That is building on the TT brand, the Parish Walk, the End to End and many of the other things which we have organically grown over the years, but we are now working with parties who are bringing to the Isle of Man a wider proposition, which is 230 looking at a range of activities which will bring people through 12 months of the year. Our cruise offering is up to 18 cruise ships booked in for next year from less than 10, I believe, this year. We have activities that we support within the community, but we are also looking towards the branding of the currently Manx Grand Prix festival into a TT classic festival of motorcycling, which is gathering a great deal of support. We have the TT triathlon, which is in 235 June next year. We have activities that are trying to brand ourselves around what the Island is famous for, which is the TT and even considering looking at that to take that further off our shores into other areas where we can use that brand. It is clear from all information we receive that the TT is the figurehead of what most people around the world know of the Isle of Man and generates a great deal of interest. Therefore, we will be attempting to build on an aspect of that, such as with 240 Closer to the Edge and other marketing material which has benefited, but I see tourism has a real opportunity for growth and we will continue to push in that direction.

The Chairman: Mr Butt.

245 Q4. Mr Butt: Thank you. Some practical questions about the running of the Department. Traditionally, you have always supported local businesses with grants and loans. The aerospace industry, over the years, has been helped by Government and you also use grants that attract people to come here with new business. What funds do you have to keep that going? Do you have sufficient funds from the Treasury to maintain that sort of level, or do you have access to 250 other funds that we might need more of in these current times?

The Minister: You start; I will fill in.

Mr Kniveton: I think that the relative budgets – 255 Mr Butt: I presume you had a cut in your budget?

Mr Kniveton: We are subject, like all Government Departments, to reductions in our budget –

260 The Minister: But we remain optimistic that the amount of money that has been given, or proposed to give to us by Treasury, is adequate. However, we would obviously find that there are opportunities. We would like to be more generous, but we are working within the confines we have got, but I am optimistic that we do have sufficient funds available for those type of areas. More would allow us a greater degree of investment in business and we are working with 265 Treasury to achieve that, through some of the funds that already exist. Certainly, the real challenge is that the businesses that come forward to us to get grant support, particularly the domestic ones, we have to quantify the level of risk it involves and therefore all our grants and loans are linked into creation of job opportunities. As much as the funds there are adequate at present, if they are not topped up in the future, then that money will run out, a little bit like the capital schemes and 270 other areas. So we are conscious that other jurisdictions are offering incentives. We have to be competitive in the area of grants and loans. I am optimistic that we can do that and indeed support the sectors to go and travel, selling the Isle of Man message. Yes, we would love to have more, and any support your Committee gives us in that domain, then we would be delighted, but at present I am 275 confident that the Treasury and the Chief Minister and Council of Ministers recognise that our Department is generously supported. The challenges they are making for our income expectations in the future is challenging, but then we would not want it any other way. Therefore, we have found areas, like any part of Government that we have reduced in staffing and some of the levels of efficiencies we have driven in, are where the reduction in our budget has 280 come from, but that is not hitting the front line of grants and loans to attract business and to grow job opportunities, which is what the Chief Executive was about to say.

Mr Kniveton: I was actually!

285 Q5. Mr Butt: Thank you, Minister. It used to be that you would give money to businesses. They would not always work, there would be some failures on the way. I wonder, are we still ______7 EPRC-ED STANDING COMMITTEE, WEDNESDAY, 10th OCTOBER 2012

taking the risks we used to take, taking chances that a business might be prosperous, if we give them some money to help them along? In these times, there might be less risk taking.

290 Mr Kniveton: I think we are very fortunate that we have a very skilled group of people with a lot of experience in evaluating business. When we were challenged on this issue by another Minister recently, we were able to point out that, I think the record we have been supporting new businesses with grant assistance is probably better than any bank that you could name on the Island in terms of those funds that we provided that have not resulted in the outcomes we were 295 looking for. I think, as far as risk profile is concerned, we are in a situation where there are times it is necessary to take a greater risk than we might have done in the past, because we have a greater need at the current time to support businesses for the benefits that they might bring to the Island. One of the issues we face is that, in a public sector environment, you can never put your hand 300 on your heart and say that every time we back somebody, it will always be successful. On the other hand, if we take the risk averse view, then we would not offer grants to organisations that perhaps other jurisdictions will do. Therefore we lose the opportunity for that business. I think I am right in saying that the Minister is encouraging a calculated approach to risk, but one where we accept that, from time to time, there will be mistakes, but we have to do, obviously, 305 all we can to ensure that such risks are mitigated. I would say that, from an overall perspective the risk profile is slightly greater now than it may have been five or ten years ago.

The Minister: If I can add to that, one of the big difficulties is the money is being made available by banks and there is often a lot of discussion about this, but one of the earlier parts is 310 that a business has to have the confidence to invest and to try and grow, so we want to encourage businesses to have that confidence and if they need support, then we can do that by grants and loans, but we would expect the companies to actually be able to have a proposition that they would also get their own funding, either by private investors or by banks. What we are, I think, benefiting from in the Isle of Man are our relationships with not just the banks, but investors and people who 315 are looking to support local business and we are partnering that we will support, as long as others are supporting, so we are sharing that level of risk and are pursuing that with banks in a range of areas, whereby a bank that might be tempted, but is risk averse because of the level of support required. If we can come in and share that risk, then it means the opportunity for business to grow is increased, because they have access to funds. 320 In reality, the system is already in operation, managed extremely skilfully by our Director of Finance, meaning that most of those that come through to the Department have already been evaluated and even if we are not able at that stage to give them grant support, what we do give them is business advice. Therefore we are working with parties in order to build up their case so that they have got better success probability. We do not just say yes or no, but we will actually 325 work with these parties to identify where we think they could be improved in their business case and as much as business people are often optimistic in their ambitions, we tend to be more realistic that, if the business is going to grow, we do not require it to be massively successful, as long as it is going to give a return on the Government's investment – or the taxpayers' investment and create job opportunities. We are very keen and I would confirm what the Chief Executive said, I am 330 pushing for a level of qualified risk to be increased, rather than decreased. At these difficult times, we need to support entrepreneurs who are prepared to put their money and investment money on the table and they need some support. If banks are not prepared or able to do it at this stage, then I will take that calculated risk from the Department.

335 Q6. Mr Butt: Could I have one more? You mentioned the high net-value individuals who come here. What evidence have you got that that actually is a policy that is working? A tax cap on those individuals?

The Minister: I think you are responsible as well for the Treasury, who would give you the 340 latest figures, but certainly one site in the Isle of Man, which went through planning with no objections, was granted planning permission, at one stage had 168 workers on that site, on just one individual site. The individual involved, who is running numerous businesses through the Island and is looking to invest in areas of, potentially, outside of his core business to develop, because of the affection he has already for the Isle of Man. 345 We have other high net individuals who have a cash surplus that they are prepared to put into businesses, whether that be in the finance sector, where many of these people have made some of their money, or in development, but probably some of the wealthiest people are in development. ______8 EPRC-ED STANDING COMMITTEE, WEDNESDAY, 10th OCTOBER 2012

They understand that the movement in the housing market is fairly… well, is static. Therefore the only real opportunity to create development is at the high-end bracket and we are fortunate to have 350 some developers and architects in the Island and indeed people choosing to live in the Island who are interested in taking those measures forward. We have learned a lot since the days of the 1970s and early 1980s, where we would attract people to come into the Isle of Man to retire, effectively, and contribute very little. We are, certainly every two weeks, sometimes more frequently, meeting entrepreneurs and 355 business people who are looking for investment opportunities in the Isle of Man. Many of them are not dependent on bank loans and they are the sort of people who are inventive and creative in job opportunities. Therefore we benefit from the construction industry, we benefit from the heightened profile that it gives us, that we can sustain high-value individuals, but more importantly, those who do choose to live in the Island, do so because they fall in love with the Island and we have the 360 capacity in growth for space that many of these people require and are attracted by, which put us ahead of Jersey and Guernsey. What they will often talk about is the safety and security of the Isle of Man, the feel of the Isle of Man is something that attracts many people, but not all, and certainly the climate does not do us any favours. The level of entrepreneurs that we already have and high-values in the Island and the myriad of different businesses that they are involved in by 365 investment or ownership is an important part of our economic and employment regime on the Island. So I would argue very strongly that they bring benefits, the Treasury would have to quantify the number of those who are on the tax cap, but certainly I see their level of employment opportunities that they create is one of the major benefits that we need to build on in the future. 370 Q7. The Chairman: You told us about the delegations going out to far-flung areas – India, China, etc. Have you looked at the position now since a change of government in France, where you hear that tax levels are so high that businesses and high value individuals are actually leaving there? Is this a place where they could be attracted to, for the very reasons you have just spoken 375 about?

The Minister: Well, if they are not attracted by Mr Cameron's welcoming red carpet that he put out to the French, which went down differing levels with his European counterparts… We are aware that there is a lot of mood music within the United Kingdom about avoidance of taxation 380 that is high profile within the media and the party conferences. We are aware that historically France has been one of those areas that has used the places offshore, such as the Isle of Man, in criticism of the United Kingdom and therefore the model that is operating within France may be attractive for business entrepreneurs to leave, but would be actually identifying a very negative approach for them to come to places offshore. So we do not 385 have a target on France. It is not an area that we would want to necessarily identify and bring people in for those reasons. Some of our businesses, I am sure, are talking to people from France, but it is not one of our top agenda areas. I think that the days of attempting to attract people to the Isle of Man purely as tax avoidance measures is a shortsighted proposition and one which in the medium and long term we need to 390 ensure that people who come to live on the Island do so because of a range of factors, of which taxation levels may be one; but also we need to get the skills and the business regime on the Island to be one which they like and want to actually be a part of. So I think that the move to target those areas where high taxation will drive people away would actually be counter-productive on an international reputation level and therefore we will not 395 actively go looking for that, but that does not mean that our local business people have not seen the opportunity.

Q8. The Chairman: So they can go to Jersey then?

400 The Minister: Their natural home would be. Again, one of the interesting factors from Mr Butt's point about high values, one of the parties who I have spoken to suggested we almost draw a line across Birmingham in the UK, because anybody living south of Birmingham is more likely to have a different attitude towards the climate and the atmosphere in the north west and the Isle of Man. That is not actually as daft as it sounds, because those people in France would be looking for 405 a lifestyle more similar to what they are used to which means their natural home would be the Jersey/Guernsey areas. People who are used to a lifestyle in France are going to find it a bit challenging to come in November to the Isle of Man and see that it gives them what they want in their lifestyles. ______9 EPRC-ED STANDING COMMITTEE, WEDNESDAY, 10th OCTOBER 2012

However, we have quite a number of people who have come from Ireland, Scotland and the 410 North West who actually are not fazed in any way by the climate, but actually also have more in common socially with the lifestyle on the Isle of Man. People have used the expression, 'We don't do bling on the Isle of Man.' There is not really a culture of Ferraris and high-value showiness of their wealth on the Isle of Man. So some people do not like that approach, but others and the ones who come tend to be quietly happy, living on the Isle of Man under a low profile, and therefore we 415 have got to be sensible in who we can realistically target.

The Chairman: I want to come to the end of this section, but I think you have got some –

Q9. Mr Quayle: Yes, I have got a question on growth, Minister. Your Department is tasked 420 with growing our economy – the only Department that has that honour and an awful lot of us pin our hopes on you pulling the proverbial rabbit out of the hat. Given the fact that our main trading partner has had their growth forecast cut from plus 0.2% to minus 0.4%, do you think it realistic that to achieve the Treasury forecast per annum over the next three years, including this current year of a 6% increase in income for the Isle of Man, admittedly 2.5% of that probably will be 425 inflation, so we take off that 2.5% off the 6% Treasury forecasts, that is still 3.5% growth. Do you see that happening, as your Department is probably our number one provider of growth?

The Minister: I would prefer to have a challenging target like that, than to accept a lesser figure and be successful in achieving a lesser figure. Although we would be disappointed if we did 430 not reach those figures, we will still aspire to them, which will drive everything that we do. I think the impact I talked about earlier regarding the UK economy means that there is a lack of confidence in the UK and therefore that runs off into the Isle of Man. What we are looking for, and I believe are slowly gathering some momentum, is positivity on the Isle of Man, that people are fed up with being cautious and looking towards growth opportunities. If they see a government 435 and a parliament that is prepared to support that ambition, then I think there is a greater willingness for those people to invest. It is a challenge and it is one that I will reflect at the end of the year as to how successful we have been measured against it and indeed the indicators that we have are important, whether it be on unemployment, whether it be on inflation, whether it be employment – numbers in actual 440 employment – because quite often we do not have the up-to-date figures to assess how successful we are being. I am very concerned about some of the statistical information we have, with regard to whether that gives us a clear indication of how the economy is doing. If I use as an example, the employment figures, those persons in employment will include those who are in part-time work, rather than full-time work, so we do not easily have the ability to 445 strip out actually whether we may have more people in work, but working fewer hours. We have figures on banking deposits and the sectoral areas, but I think that that growth challenge will have to continue to come from those areas that we know continue to be successful, such as the e- gaming, aircraft and the elements that we have talked about. I think if we can redress some of the construction issues and if we can get our housing market moving, then I believe that those targets 450 are not too unrealistic, but even if we do not fully achieve the 6%, I think in comparison to most of our competitors, we will still have evidence that we are very much at the top of the pile of those who are growing their economies.

Q10. Mr Quayle: I think we should probably outstrip our competitors, and so I would agree 455 with you. What concerns me is that our Treasury have spent £93 million to balance the books from reserves based on a 6% growth. Should we not deliver that 6% growth, then we are going to have to eat into further reserves to achieve our targets for the business plan and that is why I have these concerns as our reserves are shrinking.

460 The Minister: I think we would share the same concerns internally within my Department where we have ambitious targets for the revenue to be generated from our registries. If we fail to achieve those, then it has a knock-on effect on what we are able to actually deliver and the same applies on the pan-governmental level, not just in my Department. Therefore, there is the responsibility and pressure on all of Government to assist us where possible to actually achieve 465 those growth levels and that means at times that other Departments will have to attempt to work with us, and they are doing, but to continue to work with us in order to achieve some of our targets for growth, which as you rightly point out have a knock-on effect on the money available across all Government Departments.

______10 EPRC-ED STANDING COMMITTEE, WEDNESDAY, 10th OCTOBER 2012

I reiterate, I am glad that there is an ambitious target and I will continue as long as I am in this 470 job to aspire to achieve those targets. Treasury are fully aware of the ambition within the targets they have set us and we are working with them continually through the year, so that if indicators appear that we are not going to achieve those levels, then the same argument could apply to the taxation revenues coming in if they are not achieved. Inevitably that creates a further decision for Council of Ministers and Tynwald as to whether 475 we squeeze Government even further or whether we elongate the level of reserves that have to be taken, but certainly the Chief Minister is quite clear that we will not, effectively, squeeze all the success out of the Isle of Man, just to achieve a rebalancing the budget. I think that the level we are at, at the moment, does give me confidence that we are getting the balance right, that we will reduce the scale and cost of Government, but at the same time grow the economy. Those two in 480 isolation are probably not going to be adequate to get us out of all the financial challenges ahead, but they are the starting point which we have got to all aspire to.

Q11. The Chairman: When we met last time, we met about the space industry and we had Mr Craine here. I must express on behalf of the Committee our disappointment that Mr Craine is not 485 here today. Obviously, he is the expert and we wanted to have some follow up and I only got to know a couple days ago that he was not going to be here. So we may well want to talk and meet you again in the future when Mr Craine is here, but we did talk about various items and suggestions, etc were put to you about the space industry and you said you would go away and think about them. Can you possibly give us any update as to your present thinking after the last 490 meeting as to some of the suggestions? Are any changes being made or suggested?

The Minister: If I can certainly apologise to the Committee. I was going from the invitation back in December that it was the Chief Executive and myself. I am aware that there was some correspondence that I was not party to, and Tim is a tremendously overworked officer and is 495 entitled to and had booked this holiday, and it was only last week that I realised that he was due to attend. So my apologies for a breakdown in communication on our side and no offence was intended, but certainly I was not willing to force Tim to give up a family holiday, which is long overdue. Certainly, the comments that you have made and we have read since your meetings with 500 ourselves and Mr Craine would indicate that we understand certain issues regarding the ManSat position is one that you questioned us and, I believe, ManSat on. We are currently in dialogue with the Treasury regarding how we move these things forward and I think it would be useful to have another meeting where Tim can possibly give you some of the detail, but the Chief Executive has got some knowledge that he would like to share now. If that does not adequately satisfy your 505 questions, then we are happy to come back with Mr Craine and if you can identify a series of questions in advance, then we will ensure that we can provide you with everything you need.

Q12. The Chairman: Certainly, one of the questions we asked you was about co-operation with the European Space Industry and we were told at that time that it had been thought about and 510 dropped, but as you say, we will have a relook at that. As I remember, with the European Space Agency that for every pound you put in, they respent that money back in your jurisdiction. Have you looked further at that particular position?

The Minister: You will all be pleased I am now going to pass over to my Chief Executive. 515 This time I will try not to interrupt! All yours.

Mr Kniveton: I am aware that further contact has been made with the European Space Agency since we last met with you. I cannot give you any specific information as to the progress of that, only that dialogue has been opened and we are looking to the opportunities with the European 520 space industry as part of a potential change in the thrust of the business development activities. It is actually very difficult at the moment, not just because of Tim's absence, because he would be in some instances unable to provide you with further particulars at this time, because we have put certain proposals to the Treasury which have been approved after some discussion, which are going on to the Council of Ministers and we are awaiting the view of the Council of Ministers 525 before making public to the parties who will obviously be subject to the outcome of those discussions in due course.

The Chairman: Anybody got anything specific on the space industry at this particular time or are you happy to wait, Members, until there are further discussions? ______11 EPRC-ED STANDING COMMITTEE, WEDNESDAY, 10th OCTOBER 2012

530 Q13. Mr Butt: We have some detailed questions, but they may be better for the future. You did say when you went away last time you were going to take account of the Committee's line of questioning and their view. Has the Department, as a whole, changed their view about their dealings with ManSat and the future with ManSat? 535 Mr Kniveton: I think it is fair to say that there has been a cognisance of the views that were expressed and those have been incorporated into the recent discussions with regard to future business development contracts. I think when the outcome of those is known, I think the Committee will be satisfied with the outcome that we have proposed. 540 Q14. Mr Butt: What is the timescale for that?

Mr Kniveton: It has gone from the Treasury to the Council of Ministers, so we are expecting in the next three or four weeks to have a response. Unfortunately, I have to say, for the last two or 545 three weeks, Council of Ministers have been quite preoccupied with issues relating to future Government Strategy and some of these items have been deferred pending the outcome of that. Once the October Tynwald is out the way, I think it will be back to business as normal.

The Minister: I think, as a general comment, the space industry has been extremely 550 reputationally beneficial to the Isle of Man. It has benefited us in a variety of ways, but we are looking more now at how we can create an industry which is not just internationally reputationally good, but is actually generating larger opportunities for work. That element of one of the parties on the Island, that is the main employer on the Island, is an area that we are looking at to see what are growth opportunities – in exactly the same way as my introductory comments about where the 555 growth opportunities lie, rather than it just being potentially for financiers to deal with these matters – and to actually create genuine business opportunities and employment opportunities on the Isle of Man. For that we had to build up an international reputation, which we have now succeeded. It is now exploiting that position we have internationally to actually create better revenue and jobs on the Isle of Man. 560 So our efforts are looking towards how we develop what we have created through ManSat and the years of investment from taxpayers and from the companies involved to actually see now how we build on that. I think some of the existing contractual arrangements that we have had have limited the amount Government could do in that regard and therefore that is part of the nature of what we are looking at, to see how we can free up and exploit better opportunities for wider group 565 of people to invest into the space industry.

Q15. The Chairman: Up to now, we have obviously discussed the problems you face and the important decisions that you have to make and business to chase, etc because of the economy and to boost the economy. Can I ask you, Mr Kniveton, why, at this critical time to the Island, did you 570 apply to go to Sark and leave your position?

Mr Kniveton: I think there is an implication that by leaving, the Department is going to be neglected and certainly if that was to be the case, I would not be going. It is only because the Civil Service, through the Chief Secretary and the Chief Secretary's Office, the Personnel Office was 575 able to put together a case that they believe would ensure that there was proper cover that will enable me to undertake the position I was offered in Sark. Having been granted permission to speak to the Sark authorities, following the advert that was put around the Civil Service through the Chief Secretary and Personnel Office, then I did not consider the actions to be inappropriate.

580 Q16. The Chairman: That was not the question. The question is, with your responsibilities as they are – and there are great responsibilities on the Department of Economic Development, you have the knowledge of what has been going on and what is intended to be going on – you applied to go to Sark and to leave that position.

585 Mr Kniveton: I was responding to what was put to me as being a role for the Isle of Man Government in helping the Ministry of Justice to resolve an issue they had and, by doing so, would create a favourable impression of the Isle of Man.

The Minister: I think that is an important point, Mr Chairman, the reality is that the post was 590 originally advertised internally on the Isle of Man, as well with other jurisdictions. The level of the ______12 EPRC-ED STANDING COMMITTEE, WEDNESDAY, 10th OCTOBER 2012

candidates that came forward was not deemed to be of a sufficient level and quality to actually take up that post. Anybody who understands the politics of the Island of Sark would realise that it is going to be an interesting challenge for whoever goes there. I think that the Island was requested to put suitable people forward and it would imply that either Colin's reputation goes ahead of him, 595 or there was a reluctance to possibly have Jersey or Guernsey civil servants who may be too close to the Island of Sark. I think that, from a Minister's point of view, it is regrettable, because I work and rely upon Colin enormously, but the deciding factor was that the opportunity for Chris Corlett to return to a Department that he has previously been the head of was an opportunity which afforded me, as a 600 Minister, the fact that somebody was coming in with knowledge already there. As much as people might be concerned about the timing of it, I am very encouraged that Chris Corlett is already well known within our business community and I would be looking to him to drive with me and my colleagues and the staff an optimism going forward that is very positive.

605 Q17. The Chairman: Can you tell me, Mr Shimmin, when you were made aware that Mr Kniveton was going to Sark, and when did you give your approval as Minister?

The Minister: I believe it was two weeks last Monday.

610 Q18. The Chairman: You got to know only two weeks last Monday?

The Minister: Yes, and I do not think that is unusual within these sort of situations. Had it been something where the opportunity for Colin to take this post had become public knowledge before that time, I think that would have been more damaging to the Island. It gave me the 615 opportunity to look at options and alternatives as to how the Department would go forward.

Q19. The Chairman: Do you have a Deputy Chief Executive?

The Minister: We do. 620 Q20. The Chairman: And that Deputy Chief Executive is obviously up to speed with what is going on in the Department, etc. Why is that Deputy not stepping into Mr Kniveton's shoes, as Mr Kniveton is only to be away from four to six months, instead of having to bring a chief executive from another Department and leave them without a chief executive? 625 The Minister: The regard I have for my Deputy Chief Executive is enormous, but within Government we have a range of skills, technical knowledge, personalities and professionalism which vary depending upon the positions that they are in. The current Deputy Chief Executive is, in my view, fully capable of becoming a chief executive in the future; however, at present his role 630 has been very much one which has been developing the evolving Department in covering a lot of those areas of corporate governance and corporate services, which has allowed Colin and myself to be more figureheads for meeting with business leaders. So the Deputy Chief Executive has not been in a position where he has been a high profile with the business community, and as you point out in your first question, now is a fairly critical time for Government to work with the private 635 sector. I have discussed with the Deputy Chief Executive opportunities for him to have further developmental roles within the future, both within the Department or elsewhere in Government, to maybe give him that step to the chief executive role, but I believe it is far more important, and it was my decision at this stage, that an experienced chief executive who has got knowledge and 640 respect within the business community would be of greater value to the Isle of Man economy than to bring somebody who would be stepping up from a position behind the scenes into front of house. Therefore, it is not reflecting in anyway negatively on my Deputy Chief Executive, but I think he was brought in to do a specific role, and the role of the Chief Executive at this time I think requires different skills. 645 Q21. The Chairman: Can I ask Mr Kniveton then, when do you expect to be back in your job?

Mr Kniveton: The initial leave of absence is four months. 650 Q22. The Chairman: It is reported four to six months, isn't it? ______13 EPRC-ED STANDING COMMITTEE, WEDNESDAY, 10th OCTOBER 2012

Mr Kniveton: That will be an issue to discuss during the term of the contract as to how successful I am deemed to be in Sark. It will not be longer than six months, but at the moment the 655 initial agreement is for four months only.

The Chairman: Mr Quayle, did you want a question?

Q23. Mr Quayle: Yes, I must admit… I am quoting from you now, Minister – in these 660 unprecedented times, if from our star Department we lose our top person… I would have liked to have seen a more junior person go there. I think the message it puts out is a worry. I can understand your reasons, but it is all hands to the deck, as I see it, as we all pull together to try and look after the Island's ship, not the Sark ship, but that is a different point of view.

665 The Minister: I think the less evidential area is the fact that the Isle of Man is seen off our shores as being a co-operative jurisdiction, and it is an important area for us, with the OECD and various international parties, that we are actually seen as being co-operative and supportive. I think our international reputation with regard to the Small Countries Financial Management course, along with our willingness to actually work proactively with regard to tax authorities around the 670 world, tax information exchange agreements and the like, is one where we have developed a reputation within the Ministry of Justice as being a co-operative and collaborative partner, rather than necessarily charting our own furrow, which some offshore jurisdictions tend to do. I think there is a subliminal benefit to the Isle of Man in actually having one of our senior officers being reputationally seen as being able to assist the Ministry of Justice with what is a very 675 significant political problem down there. If it were one that was going to destabilise my Department, I would share your concerns, but I remain, as I have said, optimistic that Mr Corlett comes in to a post that he thoroughly enjoyed for many years and with a wide knowledge of the local business community, which has embraced the opportunity for him to be coming in as much as there have been people expressing your view, Mr Quayle. Certainly I have been reassured by 680 the private sector's endorsement of Chris Corlett coming back into the Department at this time.

Q24. The Chairman: I think most people at this time and under our situation generally economically would say that we look after our own first. We look after ourselves first and I would have thought that the position in Sark is not that urgent that all this happens within two to three 685 weeks and we switch a chief executive, because we have got to remember that by doing that we are actually taking a chief executive from a Department which is the highest spending Department in the Government. It is also making such massive changes, the most massive changes over the next 40 years, and we are taking away the person who is taking us into that position. I personally cannot see that justification because it is paying Peter… What is it? 690 Mr Quayle: Robbing Peter to pay Paul.

The Chairman: Yes, robbing Peter to pay Paul, and that to me… I think a lot of people are quite astounded at what has happened, because of the economic situation. 695 The Minister: I can understand those comments. However, I would say that we are blessed with a Civil Service which has got strengths and weaknesses, like any organisation. I think one of the real issues, both at a political level, but in this regard in the Civil Service level, is to allow persons to actually step up to the plate and actually become our leaders into the future. Therefore 700 the opportunity arises occasionally, as has been seen by the current Chief Executive of the Department of Environment, Food and Agriculture, who has had a period of secondment elsewhere and has come back and then taken on a senior Chief Executive role. Therefore the opportunity for the Acting or Deputy Chief Executive of Social Care, and others who may be involved in opportunities that arise, is actually succession planning, which 705 Government has traditionally not been very good at. It is not something that I would have chosen at this time, but I do believe that the arrangements we have put in place, having talked with the Chief Secretary and the Minister of Social Care, is one which we believe that we have got all bases adequately covered and as much as people may speculate upon it, I actually think the Departments will continue. Those who are still on the Isle of Man, or indeed available by phone, are quite 710 capable of actually communicating in a way which will ensure that those things that are active and current will not slip through the net.

______14 EPRC-ED STANDING COMMITTEE, WEDNESDAY, 10th OCTOBER 2012

Q25. The Chairman: Who actually made the decision to permit Mr Kniveton to go to Sark? Is it Council of Ministers? Is it the Chief Minister? Is it just yourself? 715 Mr Kniveton: It is not a political decision, Mr Singer. It is actually a Civil Service Commission decision. So with respect to the Minister, he did not give me permission to go because it was not required that I had his permission. It was the Chief Secretary who gave authorisation.

720 Q26. The Chairman: So, in fact, even if Mr Shimmin had disagreed or the Chief Minister had disagreed, you could have gone.

Mr Kniveton: I could have done; whether or not I still would have done is obviously another issue, but I was under the impression that I was actually going with the blessing of the 725 Government and acting in a positive way on its behalf, and I am obviously concerned to learn that there are alternative views being expressed.

The Chairman: Absolutely, a lot of alternative views have been expressed. I think we have expressed them here today. 730 Mr Butt: Can I just express my view?

The Chairman: Yes.

735 Q27. Mr Butt: I actually wish you well in your appointment, Mr Kniveton. I think it is possibly a good move. I just want the reassurance from the Minister that his Department will not be affected by it, which I think he has given. Maybe the effect might be on Social Care rather than on the current Department, but I wish you well in your enterprise.

740 The Minister: You have my reassurance, as far as I am able to give it. My view is that Mr Corlett comes in very enthusiastically to come back to a Department that – or at least two thirds of the Department – he was previously Chief Executive of. I think he is very enthused by the opportunity. I did and do share your concerns about Social Care at this critical time and if the reassurance from the Minister and the Chief Executive had not reassured me that there were 745 positions in place and we do have to remember, once again, we are a population of 80,000 who all tend to work within half a mile of each other. It is not as if either Colin or Chris Corlett will be unavailable for further consultation. The reality of what I need at this stage is somebody who is able to understand what is going on in business. Before Colin leaves, we will get Chris up to speed with the vast majority of issues that 750 are new to him in this Department. I believe that the relationship between the Chief Executive and Deputy Chief Executive of Social Care is such that they will never be far away and if there are ongoing issues, I am not going to be precious about ensuring that Mr Corlett is there every day of the working week. When we talk about Government being joined up, I think this is another example where it will 755 evidence itself that actually we can join up, we can bring Departments together and indeed, I would say that Social Care has got a critical importance to my Department, both on the benefits side of things, but also on housing and how that affects the construction industry. I do believe at times we are shortsighted, if we leave people in posts for many years without moving them around. In other jurisdictions they would tend to move chief executives around after possibly, a 760 three- or four-year period, in order for them to cross-fertilise. This is an opportunity that has arisen, which is going to allow some of that to take place.

Q28. The Chairman: I want to make it clear that I am a Member of Social Care, so obviously – maybe I have views different from other people, so maybe my views are a bit coloured by that. 765 Maybe I should say that.

Mr Butt: The concern is about the future of Social Care rather than your Department, that is the impression we are trying to get over, but –

770 The Minister: And I will be cognisant of that when talking with Mr Corlett and the Minister of the Department and in the Council of Ministers. This is a public meeting so I can share this with Council of Ministers, just to express to them tomorrow the concerns that have been voiced today.

______15 EPRC-ED STANDING COMMITTEE, WEDNESDAY, 10th OCTOBER 2012

Mr Quayle: I would like to make it clear, I wish Mr Kniveton well on this trip away and I 775 hope it is a success, but the concern that we have received has been significant from other Departments about this at this time and it had to be asked.

Q29. The Chairman: Can I ask you – to change the subject – what is the National Strategy Group? 780 The Minister: It used to be known as PIF and the name was not great, so they changed it. It is a group of senior officers and politicians made up of the Chief Minister, Treasury Minister, Economic Minister, along with supporting officers. The reason for its origin as PIF I am not aware of, I was not involved previously, but I think 785 there was awareness by the Chief Minister that, in the past, the relationships between the three key ministry areas in these difficult financial times was not as close as it should have been. Therefore, the three of us who have overlapping responsibilities for the international status, the economy and the budget of Government have been brought together on a fairly frequent basis in order to look at some of the international financial matters, such as the FATCA that we made an announcement 790 about yesterday. We have issues such as the Vickers report in the UK, which affects both my Department and the Treasury and there is the international element of that which the Chief Minister needs to be aware of. So they are a range of areas of mutual interest, which bring the three Ministers and Departments together at a level, where we can attempt to come forward to Council with 795 recommendations, based on a greater level of knowledge and is a more efficient way of doing it than trying to brief 10 Ministers over many areas that are evolving, rather than determined. So it is possibly a think tank area to look at initiatives that are arising in the future, to come forward with collective views from the various officers and politicians and then they report back into Council of Ministers and, if any decisions have to be taken, they are still Council of Ministers, but are briefed 800 by the three Ministers.

Q30. The Chairman: Do you meet on a regular basis?

The Minister: It has normally been approximately every two to three weeks, but that obviously 805 in political terms… As you might imagine at the moment, in conference period, the Chief Minister is off Island today, so there have been cancellations of that and it can be called occasionally at short notice, if things need to be determined quickly. But as a general rule, we have been attempting to meet certainly every month throughout the last 12 months, and on occasions more frequently. 810 I hope I was allowed to tell you that – if not, do not tell anybody else!

Q31. The Chairman: I would think the majority of people are happy to think that these meetings are going on and you are up to date and hitting things as they need to be hit, as such, and making these recommendations. I think that is important and I would certainly – and I think the 815 other Members – are very supportive of that grouping.

The Minister: Thank you. I think the key issue to remember is experience born out of those who have been in politics for some years. You have seen it in the United Kingdom, in particular, where the importance of the Chief Minister in our regard and the Treasury Minister, now 820 Economic Minister to actually be singing on the same page is an important part of reassurance, not just to Tynwald, but also to the public and the business community. I think that is something which most of us, if we are honest, did not always happen in previous regimes and I commend the Chief Minister for attempting to bring us together, so that we can iron out any differences quickly, rather than allow misinformation to fester. 825 Q32. The Chairman: Can I ask you, on your announcement yesterday of the appointment of a Director of Financial Services. Can you tell us what is going to be his job?

The Minister: I might go to the Chief Executive who has been involved in this. We, for many 830 years, have been competing against jurisdictions which have much larger groups of people investing taxpayers', but also private sector money in Jersey Finance, Malta Enterprise, larger bodies than we have within our financial services area. Many of the people involved in those are coming from the private sector and bringing a private sector attitude towards the financial growth and development. ______16 EPRC-ED STANDING COMMITTEE, WEDNESDAY, 10th OCTOBER 2012

835 John Spellman is somebody who has been involved with Government for several years now and has an enormous amount of credibility and reputation within the commercial finance sector on the Island and further afield. Therefore, if we are to try and understand some of the factors and influences that go on within the private sector we need to get closer to them. We can do that by committees, but actually John working on the inside is enormously helpful to me and to Alan 840 Crowe, who heads up politically that area and is driving forward a level of change and evolution within the financial services area of Government, which I believe is essential in these current days. Can you talk a bit about his appointment?

Q33. The Chairman: What are his targets? 845 Mr Kniveton: His target is to reshape the Financial Services team. John is effectively picking up a position that he first took on when Isle of Man Finance was part of the Treasury, and he was the Chief Executive of Isle of Man Finance at that time. Due to other commitments when the restructuring took place, John was unable to devote the time that he previously had been. He 850 actually had a plan of action that he was about to implement whilst the Isle of Man Finance function was part of the Treasury, but he got derailed with the Kaupthing issue because he had to spend many months working on the group that was trying to resolve those particular issues. So the opportunity presented itself, John went through a procurement exercise, which was run through the Treasury, and was reappointed into his role as Special Adviser to the Financial 855 Services elements of the Department. When the Head of E-gaming left recently to take up a position in the private sector, we took the opportunity then to review the senior management responsibilities, and Tim Craine, who had been involved as Head of Financial Services… we took the view that Tim's expertise and specialities were not really totally suited to Financial Services, although he had done a sterling job during the interim period. 860 So Tim assumed more responsibilities for the e-gaming sector and John then basically resumed the role that he had had, and is now implementing some of the ideas that actually he has had for several years, which actually predate the Department itself.

Q34. The Chairman: Are we employing him? Is it a fixed-term contract? 865 Mr Kniveton: We pay him through the payroll. We have had quite long discussions with both the Treasury and Income Tax and also with the Personnel Office to ensure that all their requirements were met with regard to John's employment.

870 Q35. The Chairman: Is this his sole employment, or is he still involved with other –

Mr Kniveton: He has other – we have a register of interests that he has given us and he is very clear about ensuring that there is no compromise of those interests.

875 The Chairman: There will be no… right, okay.

The Minister: Can I come in on this, because it is quite an important one?

The Chairman: It is, yes. 880 The Minister: The reality is that there will be persons in political circles or, indeed, some in the private sector, who will raise a question mark alongside this and it is going to be the most damaging thing in Government, were we to lose the opportunity to bring in people such as Michael Charlton, such as John Spellman, such as Heather Smallwood, to supplement those skills 885 that we have in the Civil Service and in my Department. I would argue, more so now than ever, we require an understanding of the private sector and the commercial sector. As much as civil servants have many strengths and skills, many of them have not actually been responsible for generating the income and the growth that is necessary, or indeed the technical detail at an operational level. We can all look to people who have got the 890 theory, but not actually done it in practice, but what John Spellman, and others who we work with, bring to it is a rigour and a discipline and the knowledge and respect which is often lacking from civil servants. I think that there is a danger that politicians at times can criticise civil servants, but then also criticise when we try and bring partners in from outside. I think that the attitude of the private 895 sector, who are very well aware of John's other previous interests, would unanimously say that this ______17 EPRC-ED STANDING COMMITTEE, WEDNESDAY, 10th OCTOBER 2012

is a major step forward for Isle of Man professionalism and actually to bring forward a rigour into the whole country strategy and the international opportunities that we require at this stage. So, as much as we have had to reposition and jump through a number of hoops in order to find a satisfactory way of arranging this that is clear to John, to the taxpayer, the reality is, he brings an 900 enormous amount of knowledge, which I and my Department are grateful to have. I think there are times when the aspiration of living in a perfect world, where everything is whiter than white and people do not have conflicts of interest, in a small island, is actually going to hold us back enormously. I think we have had the same issue with regard to the Financial Supervision Commission that 905 you need to get people who understand and are active, but by doing so there can appear to be a conflict of interest. I would refer to the Deemster's judgment some years ago, where, inevitably on a small island, there is a need that there will be an overlap of potential conflicts of interest and that is the management of those conflicts, rather than their existence, which is most important and in this regard, I believe that both the professionalism of John and the way in which we have 910 structured the contract is such that it is in the Island's interests, and the safeguards are in place to ensure there is no inappropriate behaviour.

The Chairman: Thank you very much.

915 Q36. Mr Butt: The practical issue then is, to avoid criticism, this is not a new post; it is replacing, headcount-wise, the post of the Head of E-gaming.

The Minister: Yes, what has happened –

920 Mr Kniveton: Which was also a contract position, because Mr Kimber was not a civil servant himself.

The Minister: I tend not to be responsible for the staffing elements, as Colin just pointed out with regard to his position, but what we have attempted to do is try and ensure that the savings that 925 we have made through not replacing Garth Kimber as a consultant, there can allow us a degree of flexibility with regard to… For example, in the e-gaming world they are very keen to see European access for e-gaming. Therefore, rather than doing what we quite often do in Government – put all our eggs in the one basket, and if that person fails to have certain skills, then we have a weakness – what we have done is attempt to find those skills that are best available to us and a 930 degree of flexibility to buy in that business that we might need in order to use expertise in specialist areas. It would be unrealistic to expect one person to be an expert in everything, so we deal with generalitsts and buy in the expertise.

Q37. Mr Quayle: I have to say I mentioned on the floor of Tynwald that I thought at the time 935 you were putting too much on Mr Craine and if you fight on too many fronts, you get beaten. Just for the record, I thought your Head of E-gaming, from what I have been told before, had an excellent reputation and it is a real pity, from my point of view, that you had not managed to keep ahold of him, rather than lose him to the private sector, because I had heard nothing but praise for the gentleman and I hope that the replacement is as successful. 940 The Minister: Can I thank you for your comments about Mr Kimber, because it was before my time directly, but as an appointment, he was not a specialist in e-gaming and yet one of the biggest successes, in my view, is the Isle of Man can and will hopefully evidence that people can move smoothly between the public and the private sector more easily. So what you have with Mr 945 Kimber is somebody who has come in with skills, developed those skills to achieve the reputation that you allude to, Mr Quayle, and he has then gone and set up a business in the private sector, which will employ and continue to grow and bring revenue to the Isle of Man. On the other hand, we have John Spellman and other people coming into Government and I think that is entirely refreshing and welcome that the understanding between the two sides is not 950 us and them, but is actually growth and opportunities, just like Mr Kimber's predecessor, Bill Mummery, who is now running one of the more successful e-gaming companies employing many people. That is exactly what we should. It does not mean that they have in any way changed from the Isle of Man Government side. They are still our best ambassadors. The reality is that cross- 955 fertilisation is really beneficial, because whenever they are selling the Isle of Man and they are on business, there is mutual benefit. ______18 EPRC-ED STANDING COMMITTEE, WEDNESDAY, 10th OCTOBER 2012

So I think we really have to encourage this level of ambassador role that all of our business people can do for the Island and we will benefit enormously if Mr Kimber makes a great success of his private sector venture because that benefits the Isle of Man revenue, but also job 960 opportunities.

Q38. The Chairman: Minister, you know that I have had an interest. I have asked questions before and so has Mr David Callister about the position of the creation of a new five-star hotel and casino complex. You went out to tender, with nice glossy brochures. You had seven applications, 965 which is now, I understand, down to one. (The Minister: Yes.) Is that one still alive under the terms that were put out as to the needs that would be required for a new casino? Why, in fact, did the other six opt out?

The Minister: We can speculate on why the other six opted out. One or two of those were 970 based on a holding position regarding existing operators within the hotel or tourist industry who may have wanted an opportunity into the future. I will not go into the details of who they were, but they were ones that, as soon as the level of interest came in, it appeared to us that these were not realistic new opportunities; they were people already on the Island in existing situations who were ensuring that they covered all their bases. 975 The ambition, the massively wide opportunity to get somebody interested, and the whole of the American gaming industry and such like: what it evidenced is that this is not easy. The reality is that in most areas, they talk about the minimum for a casino to be successful, being a population in the region of quarter of a million. Therefore, the idea of actually having two for a population of 80,000 would be dependent upon bringing people into the Island, and as much as certainly any 980 five-star casino would bring people in, would it bring people in in sufficient numbers throughout the 12 months to make it a viable concern? Therefore, it is one party who has planning permission on the Isle of Man for an expansion to the hotel area. That is giving away enough that it is Mr Gubay that we are working with. He is the only one who, when requested to submit more information and serious intent to develop this, came 985 forward. He was interviewed. I have written to him only yesterday in response to a letter I received, I think at the end of last week, to try and discuss with him where the chicken-and-egg is. He would like us to issue him a licence now and we are looking into the suitability of that. So it is a partner that I would love to see coming forward with a business idea that would create and develop a five-star hotel. However, the party involved would have to satisfy themselves 990 that it would be commercially viable, and that is the challenge to the party now, to see whether or not they can bring in partners who consider that they could get a return on what would be a significant level of investment.

Q39. The Chairman: Is it not the fact therefore that the six that did not express any further 995 interest… it was because they realised that the demands of a 150-bed five-star hotel just did not add up on this Island, which I think I did say to you in the Keys at one time? The number of people, as I understand it, the average number is 400,000 you need for a viable casino. Was it a useful exercise, or was it basically a waste of money and time, because it just was never viable to bring anybody in to open a casino under those conditions? 1000 The Minister: I think that we are in danger, if we make presumptions about what is or is not commercially viable for the parties involved. The issue of ambition that Government has had for many years, fuelled by a number a backbench Members, that this was being seen as a solution to our problems – we need to go 1005 upmarket, get a five-star hotel with a casino, and the tourist industry will be saved – that was never a realistic position, but it is one that has continually returned to the political arena, and because there is a facility for a second casino licence, when times are hard you look at all the opportunities. Therefore, there is an opportunity for this to go forward. If the party involved determined that they wished to invest their own money in a five-star 1010 facility, that is their choice and I am not here to best guess business entrepreneurs to see how they might or might not make a business venture for go forward. So I think there is a danger at times that Government has presumed things are not viable, when actually the best determinants of that are the business people involved. The challenge is now down to the party to see if he can make it economically viable, and as I 1015 said to him when we interviewed him, 'Were we to pull the plug on you now, then that would be our fault; if you choose it is not economically viable in the future, then that is your decision,' and I

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would not like to pre-empt the ambition of individuals and entrepreneurs to have the right to invest their money in a way they believe is commercially viable. So I think the exercise was a necessary one at a time of best intentions. Am I surprised by the 1020 outcome? Not at all. Am I grateful there is still one party at the table? Yes. I remain optimistic, but I realise the figures that you have heard and I have heard would indicate that it will be a big challenge, but that a successful businessman has proven time and again that he is capable of making a success.

1025 Q40. The Chairman: Would you be concerned that you are not going to reduce the demands in order to get the second casino, as far as say the hotel accommodation and the five star is concerned? That is there in stone and are you not going to reduce that in order to get a second casino?

1030 The Minister: I think any entrepreneur will come back with a proposition which will be a variation on what was originally discussed and will argue that it is the only commercially viable way to incorporate x, y and z. We are not at that stage yet and we will have to be fair to those other parties that, if we put in restrictions, generally they are the ones that we believed were appropriate to the Island. 1035 However, we cannot afford again to make decisions two years ago and stick rigidly to them. If a proposition comes forward for a major investment in the Isle of Man, I and my Department would consider whether that is in the best interests of the people of the Island. If that throws up any difficulties, then I will have to take legal advice as to whether we have the powers to do that.

1040 The Chairman: Any questions on that, anybody?

Mr Quayle: Not on that topic.

The Chairman: Have you got any other matters to raise? 1045 Q41. Mr Quayle: I would like to go back to… we discussed NEETS and I have been concerned about apprenticeships. I have had quite a few constituents trying to get their children on apprenticeship courses and they are really struggling to find anyone and when they do find them, the story is there is ‘no room at the inn’, shall we say and the College of Further Education is 1050 overflowing with apprenticeships, or it just does not have any more room. In your Department, we are trying to have a workforce that is trained up to the new demands for the businesses that we are trying to attract to the Isle of Man and I was wondering, do you have any proposals in your Department, I should say, to help expand our apprenticeship schemes? Personally, I think it is a bad government policy of the UK to try to have forced all our children 1055 to go to university. Not everyone is academic and, at the moment, I feel it is a fact that, if you do not go to university, then you are not as good as a person who has gone to university. Our people, our children all have different skills; some are academic, some are more practical. I think there is just as much good money to be made for our children if they have a really good apprenticeship training for a modern industry that maybe we are trying to attract onto the Isle of Man, rather than 1060 pouring money into sending some of our children to university, who have not a clue what they want to do and end up doing one of the ‘-ology’ degrees just to say they have been to university.

The Minister: If I can remind the Committee, my background was education, specialising in age 13 to 16. The reality of what has happened during my time and in the last 16 years is a greater 1065 push from the UK government from educationalists and, I would say, from teachers and parents that see and have seen for many years exam success as a measure of a person's potential and ability. I think the seeds have changed since 2008, and particularly in the Isle of Man since the VAT issues, and there is almost a tangible change in the attitude of parents and young people and teachers that, now, it is no longer an automatic that people can aspire to go to university or to get a 1070 job on the Isle of Man, that getting a job and having the skills for that job are more challenging. The reality of school leavers aged 16 – and I heard the figures only this morning at the conference – is that, of just under 1,000 students who reached the age of 16 this May/June time, only 30 people left school at 16 and the remainder stayed on into sixth form or the College. You are right that the success of our College has been fantastic, but has meant that it is squeezing and 1075 overflowing with candidates for the number of spaces available. One of our targets is to treble the number of engineering apprentices that are able to go forward and that itself presents problems to the engineering companies as to how many they can absorb in ______20 EPRC-ED STANDING COMMITTEE, WEDNESDAY, 10th OCTOBER 2012

the workplace. We have an expectation from our young people that they will now look harder to get work at age 16, 18, 21 or whatever. We, as a Department, are going to work closely to try and 1080 attract graduates back to the Island. We are working closely with local authorities and businesses to get NEETS experience in the workplace and that is currently going on. There is a report coming to Tynwald shortly. I think I have also got a question down in the near future about it. The amount that has gone on between the joint Departments to try and recognise that youth unemployment is a major blight on a society and the community is one that we are graphically aware of and I would 1085 say that the employment and skills section of my Department has never been so pivotal or high profile as it is the moment. The work that is going on at the College – and again there is a motion down, I believe, next week and there is a development programme up there – is expensive and it is expensive to create more opportunities and we have to try and be realistic that the skills that people learn have got to 1090 be transferable into jobs that will be available. Engineering and ICT are the two most pressurised areas of growth potential across the UK, where there is a shortage in the UK and therefore in the Isle of Man of experts in those areas. We are pushing the majority of our resource and support into those areas, whilst never forgetting that there are many people from my own experience who did not get five grade C GCSEs, who still need to be feeling as if they are active within the society and 1095 the workplace. It is a problem on the Isle of Man, much smaller than in our counterparts in the Channel Islands or the United Kingdom, but that is not to say that this is a blight on our society if we do not improve and make sure that we give young people the opportunity to get into work. I do not think at the moment we could do more than we are and I am happy elaborating if you want to ask 1100 specific questions. We will make sure that information is made available to you, how much we are actively already doing.

The Chairman: Mr Butt.

1105 Q42. Mr Butt: A different subject altogether, Minister. Now the Pinewood deal has been completed, I believe by Treasury, I just wonder what your Department's view is of the current activity within film and what the future will be?

The Minister: On my way here at lunchtime I was delighted to hear on 3FM – I am not sure if 1110 they are in the room now – an interview with the producer of Belle who was extolling the many benefits that the Pinewood deal will bring to the Island. Independent producers, such as him, will be flocking to the Isle of Man. The reality is that there are opportunities and will be announcements in the near future about further film business coming to the Island. We have done a pilot of three television programmes, 1115 for which we are awaiting confirmation as to whether that would be extended for a longer run on the Isle of Man. We have exposed in the experience with Belle that because we have been in the doldrums with regard to our film proposition over recent years, we have not been up to date with the current availability of business on the Isle of Man, which will get work from the film industry. There was 1120 one example where they imported vehicles to the Isle of Man, in the ignorance that they did not realise we had those vehicles on the Island. Now, very good business for the Steam Packet, but for a local operator and for the film company, we want that business to stay on the Isle of Man. We have addressed that one and we are already updating and going out to the community on the Isle of Man to make sure that our figures and information are available about who can offer 1125 things towards the film industry and make sure that we give that to the right people in the film companies at the earliest day, so they do not import business that can and will be done on the Island. Our ambition is to try and grow a number of micro-businesses that would be linked around the film industry. It is unrealistic that they will make a 400% earning from film industry in the short to 1130 medium term, but the bigger their offering and the higher the level of skills that they gain, the more the opportunity will arise in the future. Am I ambitious? Of course. I think the film industry on the Isle of Man has had some negative publicity from the politicians and some of the media. The reality is we have now got a film industry which is seeing a resurgence and that means good opportunities for local entrepreneurs to 1135 have a little bit of that business and to develop skills. We will do everything we can to publicise their opportunities and it is then for them to work with the businesses coming over, the film producers coming over, to show what we can do.

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Q43. Mr Butt: We were told, I think, that there would be some back office work that would 1140 come our way, some production work, and not just the actual filming work. Is there any evidence of that actually happening yet?

The Minister: Not that I am aware of at this stage, but I think the signing of the deal only took place within the last two weeks. I think there is a Question down next week regarding one of the 1145 final pieces of that jigsaw regarding the FSA approval in the United Kingdom. But there has just been an appointment last week in Pinewood of a Manx girl, who has been promoted to a position over there and is a product of the previous Isle of Man film industry where she left our shores, trained, has worked her way up and has just been promoted to a position. So our talented young people have already benefited from this. 1150 We have got the launch of Sam Barks in Les Mis, coming out, I think, in November or some time around then, where we will have one of our young talented people performing at the highest level in a Hollywood blockbuster. Therefore, the opportunities for our young people to aspire to the highest levels is evident, not just in sport, but in other areas. I see no reason why we should not continue to develop skills through on-Island training, university and the industry opportunities in 1155 Pinewood Shepperton to actually allow our young people to have another string to their bow.

Q44. The Chairman: In the Tynwald Decisions Report, the two reports that were due to be updated in October, which are not actually on the agenda – one is the medical devices, looking for other opportunities; and the other one was the Isle of Man Freeport – any reason why those are not 1160 on the agenda, and when will they be on the agenda?

Mr Kniveton: No, it was an administrative issue that arose and it has now been straightened out. The work has actually been done. I think it was just a mix-up as to the format of the papers that was required that kept it off the October agenda. 1165 The Chairman: So it will be next month.

The Minister: And if not, he is in Sark anyway!

1170 Mr Kniveton: But still contactable.

Mr Quayle: Yes, I am sure he will be getting used to Sarky comments!

The Chairman: Very much so. 1175 Mr Butt: I have just got one more, if you do not mind.

The Chairman: Yes.

1180 Q45. Mr Butt: The aerospace industry manufacturing… There appears to be good news about increasing possible staffing here in the future. From what I hear, there is a deal between BAE today and a German company that fell through, some merger. Are there any problems in the future you can see with the aerospace industry that might affect us?

1185 The Minister: I think there is a significant challenge, which is the level of apprentices we can get through the engineering in the timescale available. We had a meeting with Education and Children a week and a half ago. You are possibly aware that Tony Wild MLC is both in Education and in Economic Development. He deals with employment and skills. He is at the conference all day today. He is there, and one of his main tasks is to try and bring together the private sector, 1190 Education and my Department to find a way of getting the resources adequate to treble the number of engineering apprentices. If we do not get up to 36 apprentices at least a year by September 2013, we will be falling behind our ability to deliver the contracts that are already in place. As new engineering companies see the benefit and skills on the Isle of Man, we have to ensure that we are replacing new 1195 engineers coming through, rather than just swapping from one company to another, which does not benefit the ongoing Isle of Man offering. The opportunities and the reputation of our aerospace industry are enormous. We have overcome issues about challenges from China and challenges from high energy costs, to still be seen as an area of excellence and of research and development within the skill base we have got ______22 EPRC-ED STANDING COMMITTEE, WEDNESDAY, 10th OCTOBER 2012

1200 here. We have an enormous challenge to make sure that we massively increase the opportunities. The demand is there. There are many people who wish to go into this career and we have to find the facilities and resource, which is back to the issues Mr Quayle talked about with the college, apprenticeships, and inevitably the funding levels involved will be a challenge. One of the things I am confident about is that the engineering industry itself has worked 1205 collectively and with Government for many years now, under the Awareness of Careers in Engineering (ACE) scheme, to educate young people about the opportunities to actually invest some of their time, resource, skills and money into this area, and they will continue to do that when we try and come forward with a proposition. But the clock is ticking, and although the future is very rosy for people who go into 1210 engineering, if we do not get enough people to replace those who come to retirement, then shame on us because this is a massive opportunity for long-term employment and well-paid employment on the Island. So it is a big challenge and I do not underestimate that, but we have to succeed.

1215 Q46. Mr Butt: But the future of the companies is secure in the Isle of Man, as far as we know?

The Minister: As far as we know, there is a lot of optimism there and indeed some of them are looking at saying that their only challenge really is how big they grow and how they get their staff. Therefore the growth is there, but the limitation is that there is a shortage of engineers in the 1220 United Kingdom and the Island and it is not in our interests to try and import people to our Island on engineering, when we have a pool of people looking for opportunities.

The Chairman: Minister, is there anything else you wish to ask – and I say it with the greatest respect – briefly (Laughter) to the Committee? 1225 The Minister: I don't do briefly, Mr Chairman, so, no, I will await your further questions now or at a later date.

The Chairman: Okay. 1230 Q47. Mr Quayle: I would like, as winding up the… whilst myself and my other colleagues can but try and make savings in Government, a lot falls on your Department's shoulders and your officers to deliver for the Isle of Man economy and I sincerely wish yourself and your officers every success in helping to grow the economy. It is nice to be reassured and I think the proof of 1235 the pudding on some of our topics will be when we see you again, maybe in a year's time, to question on how some of the newer ventures and some of our questions have got on.

The Minister: I would make one comment in response to that and thank you for your comments. 1240 I would urge you to at least consider, because of the importance, as to whether we should meet possibly in six months to give you an update on where we are with some of the propositions and things we are talking about. By then we will be clear of the Budget and the Chief Minister's statements and comments for the future.

1245 The Chairman: And Mr Kniveton will be back.

The Minister: Mr Kniveton will be back. The other reason, really, is that, although you are investigating the space sector, I think from the three of your points of view, it is possibly more up-to-date of where the Department is in a 1250 range of areas, rather than the analytical side that you can do on space as beneficial and will help us a little bit. There is a motion down next week, which might take you again into an area of specific –

Mr Quayle: A different type of space! 1255 The Minister: Yes! So from my point of view, I will be more than willing to meet with you every six months to try and give you this update on where we are, how the current economy is going, because I think that would be benefiting me, if you were better informed than waiting maybe for a 12-month period. I make that offer if it fits in with your timetable and calendar. 1260 ______23 EPRC-ED STANDING COMMITTEE, WEDNESDAY, 10th OCTOBER 2012

The Chairman: Thank you very much for that offer. Can I thank you both for attending today and also to the members of the public and press. The meeting is now closed.

1265 The Minister: Thank you very much.

Mr Kniveton: Thank you.

The Committee sat in private at 4.11 p.m.

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