What our Isle of Man research means for Jersey and Guernsey

Posted on

Our recent research shows that the Isle of Man is heavily subsidised by the UK. My best estimate is by £270 million a year, of which at least £233 million is under an arrangement unique to it. That's over 40% of its State income.

The implications of this are obvious. Because the Isle of Man has not needed to raise a significant part of its own tax revenues as they are, in effect, given to it, it has been able to afford to be a tax haven. The low personal and corporate tax rates it offers are directly subsidised by the UK government.

That of course makes no sense for the UK government, but in many ways the consequences are much worse for Jersey and Guernsey. Both of them have felt compelled to follow the Isle of Man's lead on tax over the last few years. And let me be unambiguous about this: the Isle of Man has led to the way to 0% corporation tax, 10% tax on financial institutions and to income tax capping for individuals, in which directions Jersey and Guernsey have had little choice but follow.

The Isle of Man can afford these things because it is bailed out by the UK. Jersey and Guernsey are not. They get no equivalent subsidy. They face massive black holes in their government revenues as a result. Jersey's is about £120 million (although the official line is a lower figure of about £95 million). Guernsey's is smaller, but it has least clue how to fund it and is simply going to whistle and hope that growth might get it out of its mess, a strategy I'd call na?Øve.

The research I have done now gives both these places hope. They can't afford 0% corporation tax, or 10% for finance institutions come to that. Their people cannot afford GST rates which I confidently expect to exceed 10% in Jersey (as do all serious Jersey politicians, even if they won't say it in public yet). But they now have a basis for negotiating their way out of these problems. They can:

1) Go the UK and ask for similar subsidies;
2) Complain to the EU about the UK's subsidy to the Isle of Man, about which there must be doubt as to its legality, not least because VAT is an EU tax which appears to be being misapplied here;
3) They can raise media stink to point out the inequity of the issue and get UK politicians to require its resolution by stopping the Isle of Man subsidy.

The first option is highly unlikely to work. The other two seek to stop the subsidy. This would put the Isle of Man into massive trouble, I admit, but would create a level playing field where all would have to collect tax. Jersey and Guernsey would be well ahead if that were the case.

And you have to ask the simple question, isn't this what the UK government should want? So what's the problem?