FT SPECIAL REPORT Doing Business in the Isle of Man Thursday November 15 2012 www.ft.com/reports | twitter.com/ftreports Manx society faces Inside » Finance Island is having to cope with an ever- reduced state role growing burden of global regulation Page 2 Andrew Bounds finds a model of European welfare combined with low Manufacturing Output spans a taxes being re-examined as revenues fall and slowdown hits the banks range as wide as that of an economy 10 times its size t first glance little seems to aerospace, nurtured by government air of hypocrisy” about some British have changed on the Isle of support. rhetoric. Page 2 Man. It has just posted its It has also created successful ship The UK government has attacked 28th year of economic and aircraft registries, which bring the behaviour of offshore centres growth, the bars of Douglas business to the island’s professional while encouraging French investors Profile Ateem with suited bankers and lawyers communities by arranging mortgages to flee high taxes there and crowing and horses still pull trams along its and companies to own the assets. about reductions in corporate tax lur- Maker of kitchens, seafront during the summer season. The attraction of an online gaming ing back multinationals. adapted for the Yet it is facing its toughest test cluster has blessed it with impressive However, he says the relationship since its offshore financial sector was IT infrastructure. It invested in the with the UK had “calmed down a bit” disabled and established in the 1980s in response to good times in plentiful power and since the revenue sharing changes. elderly, goes global a deep recession. road infrastructure, which could be “We need to protect the economy,” Its model of European welfare com- augmented by offshore wind farms in says Mr Bell. “We are anxious to see a Page 2 bined with low taxes is being re-exam- the Irish Sea. level playing field. You look to Asia ined as revenues fall and the global Nevertheless, Standard & Poor’s, and see Singapore and Hong Kong slowdown hits its banking sector. the rating agency, downgraded its and other emerging centres and ques- Once unheard of, industrial strife is AAA credit rating a notch in Novem- tion whether they are following the growing: state-employed bus drivers ber 2011, citing external factors. It same standards. I still have to be con- have been dismissed for refusing to retains a AAA rating from Moody’s. vinced that the regulatory pressures accept the loss of paid lunchbreaks, Mr Bell says: “We have to recognise are applied equally to competitors.” while civil servants grumble about government cannot provide every- As part of its diversification the redundancies and curbs on their pen- thing in the way it has in the past island’s government in October took a sions. and, if we are going to maintain a 9.99 per cent stake in Pinewood Shep- Allan Bell, the experienced former competitive tax structure...there perton, the film studios, and gave treasury minister who now heads the have to be limits. Tax increases would Pinewood access to £25m of public government as chief minister, has be totally counterproductive.” money to invest in films. Filming drawn up an “agenda for change” set- That requires means testing would be done at the studios and on Economy ting out a smaller state and fewer child benefit and squeezing some the island. Pinewood is owned by benefits while maintaining the “cohe- savings reliefs to bring the budget John Whittaker, the billionaire chair- Changes to a VAT sion of Manx society”. man of Peel Holdings, the property, agreement He says the economic change – media and logistics group, who lives Headwinds: the island is facing its toughest test since the 1880s Alamy have hit the chiefly driven by the UK revising an Once unheard of, industrial on the island and discussed the deal agreement in 2009 on how to share directly with Mr Bell. shipping registry value added tax revenue, which strife is growing, with bus Peter Karran, a minister who was says: “Maintaining zero corporate tax he is worried that its air links could slashed government finances by about sacked for voting against the Pine- is vital. It has got to be a government be reduced. Page 3 a third – represents an “opportunity drivers sacked and civil wood deal, says he fears that govern- strategy. They have made all the right Easyjet has begun services from and a challenge”. servants grumbling about ment plans for outsourcing or “corpo- noises but, until you see that [budget] Liverpool, using large 150-180 seat air- “The Isle of Man is starting from a ratising” services to cut costs could gap closed, there is a degree of con- craft, while Flybe has the biggest net- Commentary position of strength. We have avoided redundancies reinforce a too-cosy relationship cern. I would like to feel 100 per cent work, using 80-seat aircraft. Easyjet is recession and unemployment is still between the government and busi- certain. It is an island and not every- offering cheap new capacity he says Questions are low,” he says. Gross domestic product ness. “It is a system built on patron- body wants to live on an island. If we but, with 700,000 passengers a year, being asked per head is higher than in the UK. into balance by 2015-16. age,” he says. His Liberal Vannin want to bring quality employees over, bigger aircraft could mean fewer But with the UK economy sluggish, Nevertheless, the island has a party is calling for an inquiry into the they have got to see the benefits.” flights. about the morality the euro crisis spreading uncertainty, stronger revenue base than many off- Pinewood deal. There are also worries about access. “The island can have economy or of tax planning and regulatory pressure increasing, shore jurisdictions because of its 20 However, Mr Bell wants to make Mr Bell admits that he has concerns frequency,” he says. “we have to be swifter in identifying per cent VAT rate shared with the more use of the wealthy on the island. over a proposed offshore wind farm in He welcomed a review announced Page 4 new niche opportunities for the future UK. It also attracts companies that Teaming up with Peel Holdings in British waters that could interfere on the open skies policy, citing the to enable us to continue the growth can register for VAT there and trade other areas would enable it to funnel with the vital Steam Packet ferry example of Guernsey, which still con- we have enjoyed now for 28 years”. in the European Union. overseas investment to northwest service from Liverpool and Heysham. trols access to its airport to ensure Professional As a self-governing dependency of The top rate of income tax is 20 per England and show that the island “is “We can’t afford any disruption to operators can make money and pro- the British Crown, the 81,000 strong cent and there is no inheritance tax, a genuine partner for good, not a tax the sea links. It is the lifeline for the vide frequent flights. services island has not hesitated to adjust its stamp duty or capital gains. Banks haven on a sandspit in the Irish Sea”, island. For our business community Nevertheless, most businesses Expansion reaches laws to attract business. are the only businesses subject to tax, he says. and for manufacturing in particular,” remain committed to the island. Bill It is an important operator in the at 10 per cent. Despite the commitment on tax, an he says. Mummery, executive director of beyond law and space industry, with one in four satel- Mr Bell says that, while the island increase from 18 to 20 per cent in 2010 Noel Hayes, chairman of Celton Manx, an egaming company, accountancy lites launched last year being owned would continue to comply with rele- has made business leaders nervous. Manx2.com, which charters regular quotes the latest marketing slogan: on the island. It retains a strong man- vant international tax and money Garth Kimber, chief executive of Xela flights to unscheduled destinations “‘The Isle of Man, where you can’. It Page 4 ufacturing industry, especially in laundering agreements, there was “an Holdings, an online gaming company, such as Gloucester and Belfast, says does what it says on the tin.” Lights, camera but Asia internet slightly less action gaming on a roll he says. “Since then, the additional tax revenues. However, the path chosen Gambling challenge has been manag- Film However, changes to has caused controversy, ing growth.” value added tax rules that with seven members of Andrew Bounds The island is on the UK’s Andrew Bounds put an end to the island Tynwald, the parliament, reports on a new white list, allowing licence finds the industry’s keeping the VAT earned on voting against and one min- holders there to serve UK cinema screenings in the ister being sacked for doing revenue source that punters. Celton’s main oper- attractions are being UK have hit the industry so in June. The government accounts for almost ations are in the Philip- outmatched by rivals hard. decided to take a stake in pines, where it runs live The UK and Ireland then Pinewood Shepperton, the 10 per cent of GDP casinos for its website and extended their own tax famous studios near Lon- its customer service teams. breaks. It costs about don where James Bond But the Isle of Man has The Isle of Man may be £250,000 extra to make a movies are made, and allow Away from the Victorian huge data storage centres small but it is adaptable.