P A G meeting listens to compelling arguments for and against Abrogation
The recent packed Positive Action Group (PAG) public meeting (Monday, 1st Feb) listened intently as two accomplished speakers presented coherent and persuasive arguments for and against the IOM withdrawing from the ‘Common Purse Agreement’ (CPA) with the UK.
Speaking in favour of abrogation was Capt Stuart McKenzie, who is credited with introducing the first computer system and the internet into the Island.
Capt McKenzie was an obvious choice to represent the pro abrogation camp as he recently presented a 15 point plan to government to help them get out of the VAT reduction hole they now find themselves.
One of the points he made was that the IOM is capable of collecting the tax themselves and do not need the UK.
Running through a brief history of the tax and its collection Capt McKenzie pointed out that the software created 40 years ago for IOM Customs & Excise is still working well and easily handles all the “abstruse calculations and exceptions of modern VAT”.
He explained the original deal was good for the Island and even after it was revised in 2008 the agreement still benefited the IOM.
However, as the UK started to get mired in its financial problems it realized it had been “stiffed” but instead of coming back to negotiate they effectively held a gun to the IOM Government’s head until they blinked first.
In his opinion the Island’s senior politicians and civil servants committed a “gross error” by giving in to the demands and by rolling over too easily cost the Island dear.
He believes they should have called the UK’s bluff: in which case they would have backed off and negotiated a ‘softer’ deal or if they had pulled the plug on the agreement the IOM would have been £150m better off; and given the Island two years to plan for changes.
Capt McKenzie is adamant the IOM needs to retain VAT but the Island could collect it itself. Furthermore, by going it alone, the Island would control any changes as opposed to the current situation where the Treasury Minister has to listen to radio announcements, by the UK, of changes - changes which are brought into operation without any prior consultation with the IOM or any consideration of their impact.
Although he acknowledged some concerns have been expressed about the impact abrogation would have on manufacturers based in the IOM, he didn’t think the additional paperwork would be significant enough to cause too many to think of leaving.
In fact he thought the inward importation would cause the greater difficulties, particularly purchases by residents over the internet; but even this he did not think insurmountable.
Capt McKenzie suggested there could be pros and cons in introducing customs posts at the port of entry; the latter the possible extra costs of staffing customs posts but, on the positive side, a greater deterrent to drug smugglers.
Winding up his presentation, he admitted the case is now weaker for abrogation, the Government having rolled over and ‘lost’ £150m, and the revenue being equitable or slightly positive to the Island. However, on the other hand, he said if the amount divvied up to the IOM is a ‘fair’ share where is the benefit in retaining the agreement; especially if the terms are at the whim of a UK Chancellor who has no interest in the IOM.
Finally, he said he had visited many countries over the last few years and, having evaluated some of the small jurisdictions, he thought the IOM better placed to manage its own affairs. The CPA could then be scrapped or phased out; and if that happened then there would be no effective barrier to independence by 2020. He suggested this would be some target to aim for.
Presenting the opposing view was former Managing Director of the Sefton Hotel, and Committee member of PAG, Chris Robertshaw.
He began his presentation by saying the government treat the public like children and this has to stop. He stated the public need to be properly informed and engaged in a debate regarding the problems faced by the Island and one of the changes needed is a new approach to the electorate. In other words they need to be treated like adults.
As for the debate on abrogation, Mr Robertshaw said that regardless of Tynwald not wanting to debate the issue - then the public will.
He said he agreed with a lot of what Capt McKenzie had had to say, but he wanted to avoid the preoccupation with the UK. To his mind the more important factor is ‘Europe’ “looming large over the UK”.
Although he admitted he doesn’t like it, he is a pragmatist and acknowledges it will not go away; and has always supported the original concept of a trading relationship - even if things have moved on from there. Therefore, he still favours a customs’ tie.
He explained he, like others, was very angry at first by the changes brought about by the UK and felt like riding the IOM of “perfidious Albion”; but realised one has to look beyond that reaction.
He pointed out the economic pendulum has swung towards Asia and South American countries, like Brazil, and the ‘old countries’, such as the UK, are burdened with a great debt crisis and are more likely to be cautious in future.
Mr Robertshaw didn’t hide his anger at the Island’s leadership for failing to see the coming storm and claimed they had “blundered bewildered” into the overwhelming crisis; i.e: the loss of the VAT revenue and the Reciprocal Health Agreement (RHA).
He explained, going forward, the Island’s customs position has to be looked at from a number of perspectives; with, constitutionally, the IOM having much closer ties to the EU - through Protocol 3 - than either the Channel Islands or Gibraltar.
From a budgetary perspective, the loss of revenue in the new CPA may be significant but pointed out the method of calculation, based on GNI, is the standard used by the EU and has brought the Island into line.
He acknowledged the Island had been doing well out of the previous agreement but wondered who was at fault for the changes and the subsequent challenges it now poses to the IOM. Was it, per chance, the fault of the people who had been effectively warned the deal was too good to last, and “went on spending like no tomorrow” he inquired?
We may not like the new deal but it is fair and reasonable, he argued.
In economic terms is the CPA a help or a hindrance he queried, explaining the background to the tax; and suggested it is not such a burden as may be perceived.
He pointed to the IOM’s unique position compared to the other ‘UK’ off-shores; and informed the audience the Island already has over 200 companies trading into the UK and this could be significantly developed. He stated it is not even necessary for the goods to pass through the IOM, only for the transactions to be processed here.
He saw the fact the IOM operates a familiar customs process as a benefit to businesses wishing to conduct transactions in English; and as a common centralized clearance of goods process is established in the next few years the benefits of using the IOM, with its low tax footprint, will become even more attractive to businesses importing and exporting goods any where from the EU. He sees the IOM as offering a “one stop shop” to trading companies and a service the other off-shores will not be able to compete with.
He explained the UK is merging all its processing units into one hub, based in Manchester, and as they do this the ‘personalized service’ - the IOM will continue to offer - will be lost.
He recounted an anecdote of when the ‘small is beautiful’ and personal approach had demonstrated its advantages. He recalled how the Sefton Hotel had got into a rut: they could sell the front rooms but not the ones at the back. Clearly they needed to redevelop the rear of the building but didn’t have the margins to make it viable. So he badgered the Chief Minister of the time, Donald Gelling, to get a reduction in VAT on accommodation.
Eventually Mr Gelling went off to Brussels and explained who he was, where he came from and what he wanted to do. Brussels said they didn’t have a problem so off he went to Westminster where, surprise, surprise, they said, as usual, we would like to help but Brussels is the difficulty. No they aren’t, declared Mr Gelling; and lo and behold a few months later the reduction was in place and the successful redevelopment followed.
This one example shows how the IOM can react more quickly to take advantage of opportunities when they present themselves.
Mr Robertshaw fervently believes the IOM can attract companies to the IOM to participate in this sector and in doing so well and truly put the Island “on the map”.
In a way, he said the Island would get what many thought they had voted for, but didn’t get - part of Europe for trade, but not in it. Therefore, he asserted, the CPA will not be a burden but an advantage to the IOM and he predicted the trickle of new business could turn into a flow, with the flow ultimately turning into a flood.
He ended by saying the IOM has always been a trader, and the only difference is that now it is an ‘electronic’ trader so he would be very cautious of the Island tearing up the CPA.
PAG Chairman, Roger Tomlinson opened up the debate to the floor and the first question was directed at Mr Robertshaw: an inquiry what would happen to his proposal if the zero rate of corporate tax was lost - would the IOM still be able to offer a competitive position to businesses.
Mr Robertshaw replied he couldn’t give an answer as such, other than if the IOM did lose its ‘competitive edge’ it would find itself facing a “massive problem”.
PAG public meeting stalwart, Colin Bendall commented on Mr Robertshaw’s ‘small is beautiful’ anecdote, pointing out the vulnerability of something small by stating “it only takes a big boot to squash it”; referring to the UK. He suggested if the IOM tries to declare ‘UDI’ the UK may not play ball and could effectively prevent the Island from going its own way.
Capt McKenzie responded that the Kilbrandon Report had dealt with this matter and had made it clear if the ‘measured response’ of the population (by referendum) was for independence than the UK would accept this decision. He added Tony Brown, the Chief Minister had also said something similar recently.
Peel Commissioner, Roger Gimbert suggested if Mr Robertshaw’s proposal was the way to go for the Island, as a trading nation, then abrogation should be considered along with membership of the EEA. In this way, he further suggested, the RHA would be reinstated and it may also alleviate some of the concerns of the e-borders project. He inquired if the £150m p.a. revenue would be lost or if the option would be created to raise the taxes needed to pay for the things the public wanted.
Capt McKenzie replied £150m was gone and the Island wouldn’t get it back. He again reiterated the case for abrogation had been weakened by this loss, but if the Island wanted to go it alone it would have to deal with the tax issue.
On the basis of the current GNI’s he thought the Island would lose another £40m-£50m straight away but at least going forward the Island would be able to set its own rates and manage itself.
Mr Robertshaw reminded the audience not to focus too much on the UK as the EU is the ‘big brother’ driving the legislation and again asked the audience whether it was better to be “outside but inside”. From a pragmatic point of view, he maintained the Island needs to take the best deal on offer and adapt to it. He returned to the issue of personal imports (through on-line purchases), if abrogation took place, and suggested it would be virtually impossible to tax every single item entering the Island.
Mr Tomlinson asked if during his discussions with officials any figures of likely income had been floated.
No there hadn’t been, replied Mr Robertshaw, and referred to the Singapore experience - where he said a lot of Manx reside, and their success - which he said could be replicated in the IOM.
Colin Slinn, a longstanding abrogationist, stated one of the problems with the current arrangements is “we don’t have two equal parties”. He pointed out the 1975 Act allows the UK to set how much the IOM gets from the CPA and as long as the IOM doesn’t have a grip on the whip handle it can’t do anything whilst the CPA is in force.
Mr Robertshaw’s responded by saying, among other things, the Island had to get tougher in the negotiations and that, he said, is down to who the public elect. He said that if the UK really started to “kick off” the Island should just consider negotiating a deal with another EU country.
Capt McKenzie said the 1979 ‘Agreement’ implies it is an ‘agreement’ but in reality the UK holds a gun to the IOM’s head during discussions and in the latest round just “shot us”.
Sandy Gorst remarked that lots of countries are “skint”, whereas the IOM has money in the bank and warned the audience “they will be back”. He was clear in stating the IOM needs to break free of the UK and pointed out Japan, which is outside the EU, does very well in world trade.
Colin Ackerley, who has wide experience of emerging nations in Eastern Europe, pointed out Kosovo and Montenegro had wondered what would happen to them if they left Serbia. Some had contemplated nobody would trade with them and they would go bankrupt etc. However, the PM of Montenegro had stated, whatever happened, he would rather be free.
The UK treatment of the IOM represented the last “vestiges of a colonial power” - and a bankrupt one to boot - and to continue to bully the IOM shows how desperate they are.
Returning back to the concerns of the new countries, he said 22 of the 27 EU member states had so far recognised them and that the EU wouldn’t allow any country to be bullied by UK civil servants.
He opined the IOM had been very fortunate to have so much money but questioned whether it had been spent wisely. He ridiculed the proposal by the Chief Minister to create a Department of Infrastructure, and pointed out only approximately 5 countries in the world have such a department, and most of them are bankrupt and don’t have any infrastructure.
In his view in order the Island to move forward it needs to elect a Chief Minister on the basis of properly formed policies; and, to the amusement of the audience, he didn’t think “all the wisdom of the world resides in a small electrical shop in Castletown”.
He suggested the EU can be flexible, is geared to delegating decisions to the lowest level and consults - something absent from the IOM Government.
Completing his input to the debate, he put it to the audience it is always possible to get 1000 people to say don’t do something; and as an example pointed to the experience of Ashford in Kent. He said when they wanted to build a railway and a tunnel a lot of people standing at a bus stop said they couldn’t do it.
But what it really needed was people to say how it could be done and paid for otherwise they may as well go and join the rest of the people at the bus stop.
Clearly this stirring speech was a rallying cry to the Manx to stop kowtowing to the UK and to give genuine consideration to forging its own destiny in the big bad world.
However, the Manx Herald doubts this government has the guts let alone the ability to take such a step, but perhaps the next election will bring about the changes needed.
Tristram Llewellyn-Jones made a similar point, by stating the audience had listened to two cogent speakers but who in government is going to listen. In his view the Council of Ministers already takes it lead from the Chief Secretary’s Office and so he was amazed that in the announced name plate shuffling exercise the CSO is to be strengthened yet further.
He suggested the Island’s senior civil servants listen to the UK and serve up a “cut and paste job” of what comes out of Whitehall.
He said the evening’s debate was “hugely entertaining”, and “good for democracy”, but again questioned “who is listening?”
Mr Robertshaw wondered whether anybody would disagree, and one brave soul ventured he thought the PAG too critical and overly resistant to anything that comes out of the UK. He felt the IOM could learn a lot from the UK, but didn’t get too many plaudits from the audience for saying so.
The final contribution from the floor came from Paul Fisher who expressed a concern there is more to this issue than meets the eye. In his opinion the EU wants to close down small jurisdictions like the IOM, and the Island needs to break free from their clutches. However, he questioned whether the Island has the politicians to do it - and answered the question himself by saying he doubted it.
Mr Tomlinson wound up proceedings by declaring the meeting one of the best PAG had organized and thanked the two ‘minor political’ speakers for their contribution to the debate.
He roused the audience by saying “people can make a difference” and that our politicians can be influenced by taking an interest in politics and by their physical presence in places such as Keys and Tynwald.
He urged the public to get involved, join PAG or a political party, or just write to the paper about something. He said there is a lot of talent in the Island but people are reticent to get involved in politics, but implored them to get involved.
In the case of the RHA, he suggested public reaction had spurred the government into action and asked for as many people as possible to sign the LVP petition; and if available to attend Tuesday’s sitting of Keys when Mr Karran would attempt to introduce a private members bill (which was, in the event, unanimously supported). He then closed the meeting.