Wallowing in trillions of pounds sterling of government debt, suffering an unprecedented recession prolonged by its leftist policies, with banks propped up by £1.2 trillion (US$1.7 trillion) in bailouts taken from angry taxpayers, the British Labour Party, now in its political death throws, has decided to destroy the United Kingdom's offshore financial centers.
In doing some hope that it may precipitate a constitutional crisis the gravity of which has not been since the abdication of Edward VIII in 1936.
Keep in mind that Jersey, Guernsey and the Isle of Man are not part of the UK but are self-governing dependencies of the Crown. This means they have their own directly elected legislative assemblies, administrative, fiscal and legal systems and their own courts of law. The Crown Dependencies are not represented in the UK Parliament and UK legislation does not extend to them.
Brown's Tax Haven Ploy
Earlier this month I gave you a detailed account of the shabby treatment the Labour government has accorded the U.K. offshore financial centers, even though these centers have led the way in offshore financial reforms well before the current OECD blacklisting attacks.
In the midst of the worst British recession in 30 years, faltering Prime Minister Gordon Brown (left) has been demanding “the end of tax havens,” demagogically blaming them for the global economic downturn which had its root causes in the City of London, in Wall Street and elsewhere.
Chancellor of the Exchequer, Alistair Darling, (below) announced a review of the Crown dependencies and overseas territories in his pre-budget report last year, three weeks after he made disturbing comments to a Treasury select committee about the Isle of Man being little more than a “tax haven sitting in the Irish Sea”.
No to the Cayman Islands
The anti-Manx action appears to be part of a larger plan of actin aimed against all U.K. offshore financial centers.
A few weeks ago the Labour government refused to assist the Cayman Islands, a British overseas territory (read colony), with a budget shortfall, in effect ordering the islands to sink or swim on their own financially. In the past London under both political parties has accepted a duty to support its colonial possessions in times of need. The Foreign Office refused the Cayman Islands permission to raise a £280m (US$459m) loan until it has levied new taxes.
Attack on the Isle of Man
Now comes Mr. Darling and announces that, without any negotiations, and with only 30 days notice, the Labour government is cutting the annual budget of the Crown dependency of the Isle of Man by 24%, causing what Manx leaders call an “unprecedented” financial crisis.
British observers saw this as one of Gordon Brown's harshest ways to deal with the Isle of Man's status as a "tax haven" and they said it has the potential to change life for the worse on the island in the future.
London slashed £140 million (US$229.5 m) off the tax haven’s £572 million (US$938 m) annual budget. And they did so unilaterally. The sudden cut eventualy could amount to about half the total Manx government budget. It also ended an existing Health Care Agreement that provided services to the island's people.
The island’s chief minister, Tony Brown, (left) told Tynwald, the Manx parliament, that the deal imposed by the UK was non-negotiable. Mr Brown added: “This situation is clearly extremely serious for the island and unprecedented."
Violation of 400 Year Old Treaty
This appears to be in violation of a 400-year-old customs revenue-sharing agreement between the Isle of Man and the UK. The annual payments by the UK are not a subsidy, but revenue sharing based on a formula that pays back some of the British VAT collected on the island. Locals claim that in the past the island has received less than it pays in VAT, and that certainly will be the case now.
Left-wing British anti-tax haven groups cheered Labour's abrupt action and claimed it would put an end to what they claimed, without proof, is massive tax evasion on the Isle of Man.
Credit Rating at Issue
Having suddenly lost 24% of its planned revenues, the credit rating company Moody's has placed the island’s credit rating under review. The current Triple-A status may be downgraded because of the 24% reduction. This could have a significant effect on life on the island and ultimately impact upon its status as a leading tax haven.
Banking, high caliber legal, accounting, insurance and other financial services are available on the island. In spite of their ancient history, banking on the offshore islands is modern, sophisticated and user-friendly. Total deposits in the 47 banks in the Isle of Man banking system in 2009 exceeded £98 billion (US$156.5 billion).
Good Record
Only recently I wrote an article here extolling the superior status of the Isle of Man and its management as an offshore financial center.
I noted that the island's free market approach had reaped rewards. The island has enjoyed 26 consecutive years of growth. It has no national debt, an unemployment rate of just 2.2% cent, and has avoided the global recession. Per capita income 24% lower than Britain’s in 1996, is 18% higher now at about $35,000.
What Brown is trying to destroy is a well-regulated and universally recognized high quality offshore center for financial services.
History
The Isle of Man came under English control in the 14th century. During this period the Isle was dominated by the Stanley family, who also held the title of Earl of Derby, who had been given possession of Man by King Henry IV. In 1703 the Act of Settlement secured peasant rights and marked the beginning of a move away from feudal government.
In 1765 the British Crown secured greater control over the island paying a price of £70,000 without incorporating it into Great Britain, laying the basis for the island's status as a Crown dependency. In 1866 greater autonomy was restored to the island's parliament and a full transition to democracy began.
The Isle quickly developed as a finance center and tourist destination, becoming increasingly prosperous during the 20th century.
The Future
Perhaps the Isle of Man may wish to assert its constitutional independence in the face of this blatant violation of a 400 year old treaty -- especially since the Labour government has made clear its hostile intention to destroy the island's major source of income.
Then too both the Isle of Man and the UK may be saved by the ascendency of a Conservative Party government in the 2010 elections. Labour is now trailing in all the polls.
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