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 P R O C E E D I N G S

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1 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 COMMITTEE OF TYNWALD ECONOMIC DEVELOPMENT HANSARD Douglas, Wednesday, 16th September 2015 PP2015/0136 EPRC-ED/2015 All published Official Reports can be found on the Tynwald website: Published by the Office of the Clerk of Tynwald, Legislative Buildings, Finch Road, Douglas, Isle of Man, IM1 3PW. High Court of Tynwald, 2015

2 Members Present: Chairman: Mr M R Coleman MLC Mr J R Turner MLC Mr G R Peake MHK Clerk: Mr R I S Phillips Contents Procedural... 3 EVIDENCE OF Hon. L D Skelly MHK, Minister and Mr C Corlett, Chief Executive Officer, Department of Economic Development... 3 The Committee adjourned at p.m EPRC-ED/2015

3 Standing Committee of Tynwald on Economic Policy Review Economic Development The Committee sat in public at a.m. in the Legislative Council Chamber, Legislative Buildings, Douglas [MR COLEMAN in the Chair] Procedural 5 10 The Chairman (Mr Coleman): Good morning. Welcome to this public meeting of the Economic Policy Review Committee, a Standing Committee of Tynwald. I am Mike Coleman MLC, and I am the Chairman of this Committee. The other Committee members are Mr Juan Turner MLC and Mr Ralph Peake MHK and also with us is our Committee Clerk, Mr. Roger Phillips. If we could first of all ensure that mobile phones are switched off, as they interfere with the recording equipment. Also, for the purposes of Hansard and the Tynwald Listen Live facility, I would kindly ask that we do not have two people speaking at the same time. The Standing Committee is taking evidence today on matters relating to the responsibilities of the Department of Economic Development. We have with us from DED the Minister, the Hon. Laurence Skelly MHK, and the Chief Executive, Mr Chris Corlett. This is an annual oral evidence session, the last one being on 29th October So again, welcome Minister and Mr Corlett. EVIDENCE OF Hon. L D Skelly MHK, Minister and Mr C Corlett, Chief Executive Officer, Department of Economic Development Q1. The Chairman: Can we begin by inviting the Minister to make an opening statement updating the Committee since our last session in 2014? The Minister for Economic Development (Mr Skelly): Yes, thank you, Mr Chairman and moghrey mie. I appreciate the invite and opportunity to come here. In terms of an overview, where we are in terms of the Isle of Man economy, I would suggest that we are in positive territory. The GDP growth which was just announced for gave a figure of 4.5% growth and our estimate going forward for and is at that same level, or slightly above, to perhaps hit the 5%. What we are very conscious about is two things: number one, what our competitors are doing, in particular the UK, where we are recording a 2.4% increase, so that measures quite well against them. But the other point we are very conscious of and that is the Government policy 3 EPRC-ED/2015

4 about sustainability. We are trying to reach a point of sustainable growth in our economy and we believe that the 4% to 5% is that right level. We do not believe we will be returning back to what some people regard as the glory years, where we were looking almost at double digits, and that is not sustainable. So in terms of GDP, that is very positive. Our main focus, though, is all about jobs. We are very much focused on the job market. We know that we have ridden, perhaps, the most perfect financial and economic storm. It is well worth taking that into context with regards to the banking crisis, which we still are seeing a fallout of that and the decline of that particular industry and the impact that has had on so many other industries. The VAT agreement, which we are all very much familiar about, and the reduction in our own budget here and the impact that is having and, in particular, a slowdown in the local domestic economy. Those issues are very much at the forefront of our minds as we try and reach a sustainable growing local economy. So it is all about jobs. We believe, since 2008, there has probably been the best part of 2,500 jobs lost between the public and private sector, which has resulted in the figure the Chief Minister has quoted of about 800 being quoted as job losses. However, what we have seen, whilst we have seen certain industries retrench and go in decline, we are seeing a number of industries grow and offset that particular issue. The Vision 2020 strategy document that we put together a few years ago is actually starting to bear fruit in particular, one sector that is showing significant growth and that is, of course, e-business and ICT, which is now our fastest growing sector on the Isle of Man. But the general principle of the focus in terms of a strategy of diversifying our economy has stood us in good stead, which is why we see a positive growth in GDP and actually employment has remained quite low, and we are seeing a very positive movement in that direction. Our big issue now, of course, is what we are going to do with the Enterprise Isle strategy that is embedded within the Vision 2020 strategy document. One of the biggest issues in that is that we are suffering from a skills shortage in a number of different sectors and that is the key element of why we are promoting the Enterprise Isle strategy, the Enterprise Fund, and what we will be bringing back to Tynwald next month. We recognise that there is a very competitive environment going forward. We see what our near neighbours are doing with regard to various things with incentives, their own corporate tax competition, and what we need to do is really step up our game and that is what the Enterprise Isle strategy is and that is where our focus is for the immediate future. Q2. The Chairman: Okay, that is fine. Taking some of the points you raised, are you therefore saying that the 800 quoted by the Chief Minister is a net loss? (Mr Corlett: Yes.) Okay. So we have actually created 1,700, something like that? Mr Corlett: Approximately that, yes. It helps explain why at times the figures have seemed, or the data has seemed, contradictory. People say, Well, I am hearing about job losses and yet Government is talking about economic growth and jobs growth. The answer is there has been both. We went through a period, up to 2008, that was very benign and so we were creating growth against a backdrop of an economy that was already creating growth. The difference is since then we have been swimming against three very strong currents, as the Minister said, of the reduction in banking, which is a global banking crisis; the reduction in the public sector, due to the VAT changes; and the slowdown of the domestic economy retail, construction etc. due to reduced disposable income and, of course, the losses elsewhere. So we have continued to deliver good growth relative to many other of our competitors, against what was a tough backdrop. The Chairman: Okay, Mr. Turner. 4 EPRC-ED/2015

5 Q3. Mr Turner: Yes, thank you, Chairman. Do you happen to know who these people are, where they are coming from? So where there have been the losses, are those people who are not from the Island, who have come here, had the jobs and have then gone back and the movement shift has been from Manx workers, if you like, going into other roles? Do have an analysis on quite who these people are and where they are coming and going from and to? The Minister: I do not think that we have a direct breakdown of that, but we can point to a number of different sectors. We focused here, of course, on banking and in that particular case the banking skills and qualifications are quite transferable, for example, into the e-gaming industry, which has actually helped that business to grow while one declines. But there have been shifts. Construction is one such area where we have seen, obviously, a skills shortage there because the industry has gone through significant decline and continues to be in transition as we speak. So we have seen construction move off-island, in terms of the workforce in respect to that. What we are aware of is that we do have We talk about skills shortage, and I will just touch on one in particular, a statistic that jumped out at me, and that is we have over 100 jobs in e- business and ICT currently available on this Island, and we cannot fill these particular posts. With an average salary of 50,000 that equates to over 1 million just in direct income tax, so we are saying how do we address that particular issue? And this comes back to part of the midterm projections, what we are trying to do with regard to the Nunnery and training and education and working with our colleagues there in that Department. Q4. Mr Turner: To build on that, if you are looking to fill these jobs with people and upskilling the workforce that are already here to enable them to take them, do you think and I know we are going to touch on this a little bit later on that the possible reason why we are not attracting some people to come to the Island is maybe the high cost of living? So the jobs, although quite highly paid, or reasonably highly paid, when they weigh up the additional costs of coming here and living here, it is actually defeating what we are trying to achieve? The Minister: It is very competitive. We just focused in on that industry, e-business and ICT; there is a global shortage in that particular job market. And we have seen, for example, with the growth of e-gaming and the potential and this is one of the reasons that there has been a lift in the average earnings in that particular industry is demand and one of the issues around low employment is that you can actually force up increased earnings in that respect. Cost of living and attractiveness to the Isle of Man is an issue that we are constantly working on, looking always at what our USP is and we have been doing some work around that, recently. This year we have embarked upon a very proactive engagement with the north-west, for example. We have been having a number of different events across the pan of different sectors. That is what we try and do when we are promoting the Isle of Man, not just promoting one particular sector, but across the piste of sectors that we represent as a Department. There are 20 different business sectors that we are responsible for. And what we do, particularly in the north-west area, is that we are now starting to gain some traction. We had about 30, maybe 40, different events last year working with the private sector promoting the Isle of Man as a place to do business, as a place to invest, and hopefully a place to come and live and work as well at the same time. Q5. The Chairman: I think Mr Turner makes a valid point about the cost of living here and the attractiveness of the Isle of Man. One of its unique selling points, I think, has been that the cost of living, traditionally, has been lower because of the taxation etc. But what we are hearing, anecdotally, is that the number of people leaving and reporting back is just about break-even for 5 EPRC-ED/2015

6 them, and I am talking about the nuclear family type people going back, reporting that it is about breaking even. The Minister: Yes. I guess it comes back to the competitive environment, be it the job market or it may be a political business market at the same time. Yes, there is no doubt about it; there has been some difficulty in that area. But what we do find though is that when we it is the stickiness of the Isle of Man. If I go back to what we have done in the north-west, the amount of traction that we have received from that is has really been quite significant and we are seeing what would be investment, interest and hopefully follow-ups for next year. We have got a huge event, one big one, there is a follow-up event in Liverpool, the International Festival of Business which was last year, a six-week long event covering a whole range of different sectors. Very successful, and I say successful from the private sector feedback that we have had that we have made a commitment to go back next year in So we are hoping we can build on that. But our USP is a challenge. If we come back to the Enterprise Isle, one of the key elements of that is, there are several components to it: one of them, of course, is a fund. We are hoping that entrepreneurs will follow the fund, and that is follow the money, come here hopefully to the Isle of Man. The other part of that is the expansion to grow, the Employment Land Review is an element to that. The other point is the tax incentives that Treasury is currently consulting upon to try and incentivise people further. These are all new USPs. The one that we always overlook is our quality of life and it is very difficult to put a tangible value on that, but it is very strong. Again, if I point to the north-west where we have very strong cultural links, so we more or less talk the same language with them, they certainly know where we are and once they pick up on that that is why we find that we are getting good traction in that particular area. Q6. The Chairman: Can I just follow up on that. I know we have taken away from the IT industry the requirement for work permits in certain areas. The point I suppose is that there is a skills shortage and if we go to all the problems of recruiting people to the Island and when they get here, their salary, they are finding that they are not that much better off from where they were in the UK. Then the next part of that rolling process is you have to start paying more and then you have to start saying to yourself, as a business because most of the things you have been talking about are attracting business those businesses will only operate with people and if you get to the point where our living costs are so great that it is unattractive for the people to stay once they have come and this is what we are hearing. The Minister: Yes, in terms of the work permit, we fast-tracked this particular industry. The work permit system obviously being quite topical always very topical but we have enhanced that recently and recommended with regard to social care workers, nurses, midwives and actually removed the work permit requirement for those because there is a great need. It is the same principle in those industries as well. I think the quote was in one case with the nurses, we were training I think 15 a year, which is a great achievement, and you like to see the home grown talent being given jobs here locally in that particular field. But there were 50 something jobs, I understand, that were available. So we are talking about ICT and banking but even in the areas of critical care in terms of nursing and social care we have shortages in that particular area too. We do need to particularly continually review our USPs. Cost of living is an element of that but with inflation as low as it is, I am not sure that is as big a distraction as it perhaps used to be in the past. Q7. The Chairman: I think the cost of living being low tends to be reflected in the other isle as well. But I suppose we know that we are going to have another lot of increases coming up in April and some of them are 50% on things. It just makes it less attractive and the point is that if 6 EPRC-ED/2015

7 the cost of living for the employee becomes unattractive and they have to be paid more, then it will become unattractive to the employer The Minister: It is, yes. One of the things that we did do, of course, I know it is a while ago, nearly a year ago, was the minimum wage. We managed to increase that by 3.9% above, which is clearly above inflation, and quite a step up. And that was only as a result of the local economy supporting it, because moving the minimum wage up you actually then hopefully have a domino effect beyond that. We are currently in the process of reviewing that again, with the hope and intention that we might be able to come forward with another recommendation because that will help offset what would be cost of living increases. The Chairman: Okay. Mr Turner. Q8. Mr Turner: Just to add to that, of course the majority of the jobs that we were referring to before are earning nowhere near the minimum wage, they are much higher, and yet they seem to be you are in your Department trying to encourage people in, but other departments are punishing them, severely, with some very heavy charges coming in. So although no doubt the increases are very welcome to the lower paid and we are trying to get the living standards up so people can afford to survive, it is not really relevant to those who are on the higher salaries who are buying properties, mortgages and then having these constant charges coming in. What are you doing to argue this case against other Departments who are working in their own silo? Because it is a very serious issue that is happening and we have all heard the stories where people are saying there is no longer any benefit of living and working on the Isle of Man. The Minister: Yes. That is the balance, of course, with some of these charges that have been introduced, very unwelcome without a doubt, but also necessary to reach the re-balance in the budget and it comes back to the perfect fiscal storm that we are living through, really. From our point of view, if we can keep the economy in positive territory we can improve the average earnings. That will help offset any of those charges. But what we are, I think, as a Government, is we have all got a responsibility about any decisions that are made, whether it be a charge or any other impact elsewhere that we have to understand what that means across the face of Government as well as the economy and of course the population of the Isle of Man. There have been a number of blunt charges, shall we say, over this last year which we would all recognise. Q9. Mr Turner: I would say they were actually punishing charges for homeowners. Can I just, Chairman The Minister mentioned the north-west and I have got a couple of questions on that. How have your trips to the north-west been met by your peers in the northwest? Of course, David Cameron has announced Northern Powerhouse, employment land, all sorts of benefits for businesses establishing. You mentioned Liverpool; there is that whole corridor down the Manchester Ship Canal with land that has been zoned for employment. Obviously, you turning up over there and saying, Come and move your business to the Isle of Man, I can imagine if the north-west turned up here doing a similar roadshow we would be quite suspicious of it. How has that been met by peers in the north-west who are going to be aggressively competing with the Isle of Man for the business with all the selling points they have got access to the motorway network, the rail network and, of course, cheaper transport links? The Minister: It is a good point, really, and something I think we worked on for some time to establish the civic relationships first and foremost. So having the Memorandum of Understanding (MoU) with Liverpool, signing with Joe Anderson, was really important because 7 EPRC-ED/2015

8 they need to understand that we are not there to be their competitor; we are their strategic partner, is how we see it. And on the bigger picture basis what we are looking for is foreign direct investment. So the work, for example, is done in China and further afield which we do and they do. We therefore say if you have got the opportunity to attract that foreign direct investment, maybe attract some Tier 1 people here to the Isle of Man or to the UK, what we can do is say that the Isle of Man is a fantastic headquarters for you. The professional services that we have here on the Isle of Man are second to none, as we know. We have got real strong legislation supporting IP and various other things, but if you wanted to build that factory quite clearly we cannot accommodate you on the Isle of Man because we do not have the hundreds of unemployment that would be able to fulfil that, and that is why the whole north-west situation does work. We win over the civic partners first and foremost and make them understand that we can be a strategic partner with them and work together. We are seeing this now, actually. There is a project with the Wirral, they are talking about the US, we were in Leeds just a couple of days ago looking at their Enterprise Spark, which is really one of these hatchery environments where they are trying to promote creativity and entrepreneurship. So we are learning from them and each other and I think we have won them over in terms of understanding that we can benefit mutually. Q10. Mr Turner: But do you think the UK will be receptive to this? Because this was part of the criticism of the likes of some of the big organisations being in the UK but then basing their headquarters offshore. In Ireland, there was a big fuss over the likes of Starbucks and many other names. Do you think that what we are effectively doing is the same thing here and is it a real goer? The Minister: If it is true partnership. I think the point that we have got to look for, and one of the things we are really focused on is physical substance in terms of businesses, not just brass plates. It is important, that is part of the Enterprise Isle strategy, and it depends on the actual industry that is focused. I mentioned one there with Wirral, for example, and the US, and that is actually focused in on the clean technology and some of the work that we are doing actually does marry quite well with some of the work that they can do. There is always risk, I think. But the reality is that we spent in the past an awful lot of time and resource in London where the competitive environment there is much more heightened and much more severe. Whereas with the north-west we find that it is a two-way street because we also have investors here in the Isle of Man that invest in the UK and that could work both ways, vice versa. Mr Corlett: If I could just add we are not trying to win the likes of Apple to create artificial tax structures, brass plaques that avoid tax in other countries. Companies need to fulfil their tax obligations in the jurisdictions they operate in. What we are saying is we have genuine expertise in Government and the private sector to help businesses seeking to grow in Europe. Say you were to take, as the Minister said, a Chinese manufacturer which wants to have a production and distribution base inside Europe. The Isle of Man would be very well-placed to be its European HQ. We have the expertise in our financial and professional services community to help them to do that and within Customs and Tax and elsewhere to help advise them on that. But if somebody wanted to create a factory or distribution centre with a thousand jobs in it, such that they could distribute physical goods across Europe, they would not place that in the Isle of Man. So they could place it in the north-west. There has been 1 billion of investment in Liverpool Docks to allow much bigger container vessels. There is about to be 1 billion worth in Manchester Airport for air freight, so the north-west is very well positioned for that physical movement of goods and we are very well positioned to complement that, so we in no way 8 EPRC-ED/2015

9 compete with them. We are entirely complementary. We are the international business centre that can aid the growth of the Northern Powerhouse The Chairman: Mr Peake. Q11. Mr Peake: Thank you very much, Mr Chairman. Minister Skelly, we all agree that economic growth is a pillar of the future of the Isle of Man and we have been working on this, or you have been working on this for a number of years now. Do you think the strategy has been clear enough to small and medium-sized enterprises? The Minister: Probably not in some cases. It actually highlights sometimes some of the issues that we have. There has been quite a lot of media coverage regarding what we are trying to do with the Enterprise Isle and the Enterprise Fund which has sparked enquiries from some of our very well established businesses on the Isle of Man saying, Are we excluded? And we have gone to painstaking points to highlight absolutely not. We already have a number of schemes financial assistance schemes, small business start-up schemes already in place. Those will remain and actually will be enhanced and in particular the small business start-up, we are going to expand that further. I met yesterday and actually opened up a local incubator very close here to the Tynwald building and that is to promote and support the small to medium-sized businesses. That is exactly what we need to do because the organic growth from within is always the strongest growth. That is what we are looking for, hopefully to businesses to gain a support and accelerate that growth. But the focus will always be about jobs. We must maintain that diversification because that gives us the strength. Because as we highlighted earlier with regard to banking and other sectors, there will be peaks and troughs and as we have a diversified economy, if one falls we can hopefully call on the others to actually balance that. But small to medium-sized business is absolutely the backbone of our whole economy here on the Isle of Man, and we must do more. I would suggest we do need to do more to actually reach out to those people and make them aware of some of the schemes that we have got available. Q12. Mr Peake: How do you measure that success? Do you actually keep records of how many businesses start, how many businesses come to the Isle of Man? The Minister: We do. Interestingly enough when we were in Leeds last week looking at the Entrepreneurial Spark, which is bank-led with one of the big accountancy firms, they looked to see how many firms they could support within a year and we thought it was quite a lot at 80 that they were projecting this is obviously a big demographic in Leeds and we were consulting and we believe that we can reach at least 40, possibly 80, at the same criteria and we are looking at a possible pilot of something similar here on the Isle of Man. So yes, we already have a measurement in terms of the different schemes that we support. Particularly the small business start-up ones because those are the ones that are really the fledgling businesses that we hope can accelerate it. We measure them through the mentoring system and whether they stay in business beyond the 12 months that they get the initial support. Our ratio of success is actually quite strong I forget the percentage, but it certainly is higher than the average in the UK. Q13. Mr Peake: I would agree with you. I think medium sized enterprise is the backbone. Do you know the figure of how many businesses started in the Isle of Man over the last 12 months? 9 EPRC-ED/2015

10 The Minister: I do not have a figure as such but I think we had over 200. When I said that 80 figure; I asked the question to one of our colleagues and he said it was over 200 at least Mr Corlett: It is quite complex, because of course there are many companies formed for all sorts of legitimate reasons, but there is a difference between the number of company formations and the number of new businesses (Mr Peake: Okay.) and so it is quite difficult to say how many actual new trading companies there are. But certainly we have seen a growth in the number of self-employed people in the last 12 months and we have seen overall economic growth and in the last 10 years most of the growth has come from the SME sector, most of the job growth has come from that sector. Q14. Mr Peake: So just to be clear then, how many businesses have moved to the Isle of Man who employ people for jobs? The Minister: What we measure by is actually jobs. As I say, we represent 20 different sectors and what we do is we have a job barometer, basically, that actually highlights where those changes are. That is why, I think when we are looking at these changes, and what has happened, and I come back to banking because that one has been highlighted with so many job losses and there were headlines in the media etc. However, there have been creations elsewhere and our measurement and our monitoring of that has actually borne quite true with regard to the predictions that we set out in Vision I would be more than happy to share some of that detail afterwards. Mr Corlett: Just to illustrate, we do not generally look at it in aggregate; we tend to look by sector, because different sectors have different natures. Some it is about helping existing businesses to grow and others it is about attracting new businesses. If we take e-business, as an example, last year that sector generated about a hundred additional jobs and based on the number of businesses we helped to attract here, or helped to grow here, the Department helped create over half those jobs. If we look at say, digital currency, which we have actively promoted worldwide for a little over a year, we believe we have helped about 20 companies come to the Island, most of which would not have come here. Those have generated about 20 jobs so far, because they are fledgling companies, very much SMEs. And who knows where digital currency may go but it offers interesting potential and in the short-term at least it is generating very valuable publicity for the Isle of Man as a centre for e-business globally. Q15. The Chairman: Okay, can we just move on a bit. We have mentioned the attractiveness for employees, but now I would like to move towards the attractiveness for the employer. Bearing in mind how fast this growing source of new organisations coming to the Island seems to be IT related or e-business related, I think they are synonymous really, you cannot do one without the other. But neither can those types of operation operate without proper banking facilities and we are hearing that some of these organisations are having a lot of problems, and also with normal organisations, CSPs and people like that, are having a great problem getting banking facilities because of the constraints being put on by the parent bank in the UK or wherever, to a branch which we have here. It was interesting to see the two initiatives that you are coming up with on banking, which is like an online branch if you could call it that, one for high net worth individuals, neither of which would be covered by the depositors protection scheme. And also for the normal individual the fact that you can have you come in the liquidation line a bit higher up than previously with the depositors. That is fine, but what are we doing to encourage the banks to take on the types of businesses which are coming to the Island? Because we are hearing that people are having problems; bitcoin people are having problems, e-gaming, and if that is happening there has to 10 EPRC-ED/2015

11 be a possible tightening on the other types of organisation that are looking for banking facilities. That is my first point that I want to make. We also mentioned skills and providing them. Last year we exercised the Nunnery project quite well so when are the first set of students going to start going into that organisation, firstly? And has there been any application for additional government funding through the schemes that DED run for that facility to be able to open? The Minister: Picking up the last point first, no, there has been no application in terms of any additional funding that is required. We are due to actually meet with the principals next week for an update. What I am aware of is that the principals have been working very closely with our colleagues in Education to seek the appropriate academic accreditation, which I think is very crucial to having the appropriate qualification for the earn while you learn type programme that they are proposing. So we are still very supportive of it and we await news and update on that in due course. I think we have always recognised that this would be a mid-term project to resolving the skills shortage in this particular area but there is still strong support, I know, in the private sector to move this forward, and I will say it has been very encouraging to see the collaborative approach with our colleagues in Education. The other point with regard to banking, Mr Chairman, and I think this is probably part of the fallout of the banking crisis. The banking industry has continually de-risked for a number of years and for a couple of these new emerging and, in their eyes, high-risk industries, it has been quite difficult for them to our local industry here, in terms of e-gaming and particularly the digital currency to game facilities. We do recognise that and what we are trying to do is try and resolve that through two different formats. One is crowdfunding, that is one area that we believe will help a number of different particular industries and we are at the final stages of consultation, I think it has just closed on that now. The other one is the alternative banking regime that we hope will open up new opportunities and give greater choice and opportunity for industries. We are aware though there is some movement with some banks on a closed environment scheme with some of those industries that are based here on the Isle of Man. Because these industries with regard to I think e-gaming is really starting to mature now, and gain not just credibility but respect, and we do think there will be some movement in the traditional banks in due course. We constantly play that role with our banking meetings that we do have and play on that point. But the alternative banking regime and the crowdfunding are two areas that we are trying to open up the market for funding, which is exactly one of the the biggest stranglehold on any growth of business has been funding, which is part of our Enterprise Isle strategy and Enterprise Fund is hopefully going to enhance that as well. Q16. The Chairman: You are aware that the Gibraltar Government has opened a bank in Gibraltar. Is that under consideration for the Isle of Man? The Minister: I think Gibraltar s situation is quite different to ours. They have obviously had what would appear a bit of an exodus of banks in Gibraltar. Their economy mix is very different to ours, so do we follow their route? We have not reviewed it in detail but we would recognise their economy is very different and the exodus of some main banks there is the reason why they have gone down that route. Of course, the Isle of Man, do we want to get into the banking business? I think that is one of the challenges that have been put down by some in industry and I would venture no, as a personal view, on the basis of the liability aspect the Isle of Man Government would have to consider. And that is just not financial you touched on the Depositor Compensation Scheme 11 EPRC-ED/2015

12 it is also a reputational issue that we would need to consider and the anti-competitive situation that we would therefore create. That is why we are going down the route of alternative banking regime, that we might entice in alternative banking that will support some of these niche markets that we obviously have here on the Isle of Man. Q17. Mr Turner: How do you mean anti-competitive? The Minister: Well if the Isle of Man Government was to enter the banking business I think you would have to ask the question what reaction that would have on the banking industry here, locally on the Isle of Man, so I think there is a competitive issue there. Q18. Mr Turner: But surely it is up them then to provide the services. You would only be providing it because they are failing to do so The Minister: Indeed. But we are focused in on two particular sectors more than anything else here and whilst we recognise they are struggling with this, there has been some movement by some of the main banks. The expertise, the resource, the liability it is really it is almost incomprehensible to consider what we would do in this particular area. Q19. The Chairman: Can I just point out there is very little difference to a business user between a bank leaving and a bank not providing a service. Mr Corlett: If I can just touch on We have assisted quite a wide range of businesses in this matter. Banking has changed. Up to 2008 a lot of the big banks were trying to become global banks, to provide services to almost every sector, in almost every country, and they over extended themselves in that regard. Most banks have retreated from that strategy. Most banks now have picked a sub-set of sectors and a sub-set of countries in which they are prepared to take risk. That has posed a challenge for the likes of gaming, digital currency and the CSPs who by their nature offer either services in what are still emerging sectors or very diverse services on a global scale and so it has affected them. The Department has worked with all three so there are several of our leading gaming companies who are banked locally and we have assisted in that. There are several of our digital currency businesses which are banked locally and we have assisted in that; and we have worked with some of the CSPs to whom one of the banks has said, We are no longer are prepared to take business from that part of the world. Well we have helped them move to another bank which is, which does see that as part of its core area of competence. So the banking industry has changed, but in reaction to what was, as we saw, the world s biggest banking crisis ever, there was always going to be fall-out from that but most businesses we are able to help them find banking arrangements, in some form. And so I think, while there are some challenges, I think we need to be careful that it is not seen out of context. It does not assume disproportionate importance. It is very important but the situation is nowhere near as severe as maybe some might feel. For an individual business it might be very severe, but for the economy as a whole we are managing it. And as the Minister said the alternative banking regime is designed specifically to help us attract more corporate and niche banking facilities which will help those sectors. We believe that is the best way to give the business community the banking services it needs, rather than for Government to try and replicate those services. Q20. The Chairman: If you are providing this sort of assistance, can I suggest that you spread the message a bit more that you do this, because you are certainly getting the message to us and you have seen the document which we have received, and I have heard it anecdotally elsewhere as well, that people are having problems getting banking facilities. 12 EPRC-ED/2015

13 Mr Corlett: I absolutely accept for a business, in the individual business having that issue, that is a very severe problem for them. As I say, we have been able to help a number, but in the round I think we have been helping to address that challenge. The Minister: And I think the other point that is not being picked up on is certain industries and there are certain banks actually are banking some of those industries, and it is not really known by I think everyone. The Chairman: Mr Turner. Mr Turner: It has been covered, thank you The Chairman: It has been covered. Mr Peake. Q21. Mr Peake: Thank you very much, Mr Chairman. You mentioned alternative banking, are you aware of the Credit Union and how they are trying to get? Is that something your Department supports? The Minister: Yes. The Credit Union movement has been going for some time, I personally do give support. I think we need to determine what market this will actually fit. In the industries we were talking about there, I do not believe that is quite the fit for this particular business model. But the principle of a credit union makes good sense. It is probably no different from a niche type of a bank in any case because it would have to be a relatively small bank. What we want to do is we have not seen banks come here for quite some time and we need to change that. The process we are going through with regard to the alternative banking regime I think will be a positive move. But I think we also need to consider what is happening with regards to crowdfunding. We have done quite a lot of work with regard to crowdfunding and this is a new route really, particularly for emerging businesses and entrepreneurial businesses as well and individuals. There is an awful lot of opportunity for funds to come via unconventional means. For example, the Angel Network and this is one of the reasons the Enterprise Fund, we believe, will be hopefully a magnet for other funds to come here to the Isle of Man as well. The Enterprise Fund, whilst it is a big figure, 10 million for five years, 50 million out of taxpayers, the intention of that is purely to be the catalyst for other funds to come here. The Government being the minority stakeholder at 20% to 25%, therefore that could be fivefold in terms of an investment and it could come through a number of different sources. Q22. The Chairman: If I could pick up on a few things here. We have said recently that to grow the economy to the point I think it was 15,000 additional economically active people coming to the Island. The Minister: Yes, the Chamber did, didn t they? Q23. The Chairman: Yes. If it is just the economically active, presumably they are going to have families, some of them will, some of them won t, unless you say, Bachelors only or, Single ladies only which I would imagine, with normal demographics, you are looking at about 30,000 people potentially if you raise by 15,000 economically active. (Interjection by Mr Corlett) Let me make by point. The point I am making is that a lot the infrastructure that we have created in the Isle of Man has been based on population levels which could not handle that. I was involved in the numbers which were going to be used for the new water treatment works, and they would be below that. 13 EPRC-ED/2015

14 You have got sewage treatment, health, education, all of those things. I just want to make certain that someone sits down and says, Let s look at the true cost of what we are doing here. That was my first point, and it was more like a speech than a question. Moving on a little bit, you alluded to virtual currencies, it seems to have gone very quiet lately in the press. Is that because there have not been so many failures or hacking in or what? The Minister: It is something that, perhaps the local press. However, I will say it was only a week ago today I think there was a Bloomberg piece actually that went viral, multi-million, particularly I think it started on Twitter and really expanded from there. It was a fabulous piece about really the digital currencies and what the Isle of Man is doing; it really got positive traction beyond our shores. We had BBC World Service here doing an interesting piece a little while ago. Again, I do not think that was picked up by the local media, but they are actually coming back to do a follow-up piece and we are being recognised as innovators. I think this is one of the key principles of what we are trying to promote, the economic growth is innovation more than anything else. Because, of course, everyone says, Is this going to be the next big thing? E-gaming was the last thing. Is it going to be virtual currencies as the next thing? The reality is we do not know and in Government all we need to do is provide the environments for these businesses to flourish. However, what we do need to do is to ensure that we have consumer protection. And if you think of e-gaming and what we did there in terms of the regulation that we put around that, in some cases it actually stunted further growth in this industry because we wanted to have a high level of regulation to support and protect the consumer. The same principles of e-gaming will be applied to the virtual currency industry as that grows. But there will be many more new industries that will emerge, and what we need to do, I think, as a Government is consider how we can actually allow those businesses to flourish and provide the ecosystem for them. Funding is one of them, we talk about growth, it is a fair point you make with regard to population, infrastructure and so forth. What we know is we need to grow the economically active, and that is really to support more than anything the social welfare of the future and we all know what that is being portrayed. Q24. The Chairman: I had discussion with a virtual currency provider and their client accounts were in Slovakia because they could not get banking here. I do not think I, personally, would be very reluctant to have my money in Slovakia not that I have got any! The Minister: It is a very good point and that is one of those industries that certainly are struggling for banking and if you are open and honest about it, they are probably one of the biggest industries under threat, really, with this industry. However, I think what other jurisdictions, and particularly the UK and the strength of what George Osbourne has said in the last budget, on this industry, this will be around and I think banks and other industries need to consider how they can adopt this new technology. For us that is one of the focuses we have been on. I come back to innovation, but we have been supporting the technology rather than the currency aspect of it, so the technology behind the blockchain, the environment behind that is important. But it is producing jobs and the power of this promotion is actually attracting people here to the Isle of Man and it is new and innovative work. We had a presentation just over a week ago from some students being career ready, a new programme working with our colleagues in Education and two of the students actually did internships in one of these virtual currency companies and were so enthused about it that they will be now leaving for their degree qualifications and want to come back and work in this industry because they see there will be a bright future. 14 EPRC-ED/2015

15 Mr Corlett: If I can just add, we, of course, have extended our legislation. Those regulations will take effect later this year to help keep out crime and protect consumers in relation to digital currency. It is know your customer, anti-money laundering, countering the financing of terrorism that will take effect later this year. That will help the digital currency businesses to trade and so as those existing ones can further trade, that will help us get further growth. Please let us assure you we have generated an enormous amount of very positive publicity internationally from Bloomberg to the Wall Street Journal to the Financial Times to many others and that does continue. The Department has a key part of our role to promote the Isle of Man in niche sectors. We generate the equivalent of millions of pounds worth of advertising worldwide in coverage. In the last year or so, we have more than doubled the amount of coverage the Isle of Man is attracting worldwide. Possibly at times we do not always share that at home and people are not always aware of that but please believe us when we say we are attracting far more international media coverage in our niche sectors than probably we have ever done. If I can return to the figures about the population, because that is quite an important point. It is my understanding and the Chief Minister has been at pains to say this, he has not specified a target population or specified a figure. What he has said in his July statement to Tynwald was the strong desire to grow the economically active population, rapidly. Because that is a critical element of being able to grow the economy, generate additional Government income and ensure we have a sustainable dependency ratio as lives continue to lengthen, which is, of course, a positive thing, but he has not specified a figure. Chamber, on the same day that the Chief Minister made that statement, endorsed that drive to grow the economically active population and Chamber said that in their view we should aim to get the population to around 100,000 as soon as possible. Because they saw that as a critical mass in the economy to help support leisure services, transport services, which in turn then helps us to attract the key skilled workers and the entrepreneurs that we need for further growth. But it was Chamber s figures; the Chief Minister did not set a figure. In terms of the number of individuals that that would relate to, working with the Economic Adviser, we do believe that if we target economically active people our experience has shown that for every worker you do not need a dependent. It can be as little as 1.2, so instead of 2 it can be 1.2, so that would materially alter and aid our dependency ratio. As to where we ultimately get to in population, who knows? All we know is that over the last 30 years the population has grown materially from in 1980 around 60,000 to about 85,000 now; that the Isle of Man has more than accommodated that; that that has been directly linked to us having the greatest period of economic growth and fiscal prosperity we have ever enjoyed. And so while there are some infrastructural implications for that, we have shown that the Isle of Man can accommodate more individuals and it is in our collective interest to do so. The Environment and Infrastructure Committee of Council of Ministers has been specifically tasked with looking at what is the right level of infrastructure investment to aid that growth. My understanding is that large parts of our infrastructure were designed to accommodate 100,000 population and in some areas more. So while there are some parts that will need some investment, large parts are already able to accommodate significant growth before further investment is required. So, yes, that work is underway, as directed by the Chief Minister in the Environment and Infrastructure Committee, as directed by the relevant Ministers. Q25. The Chairman: Okay. Well, I am sure the roads could cope with 100,000 but I can assure you from my intimate knowledge of the water, I think there is a problem there, and I think there is a problem with sewerage, health, and there could well be with education. Anyway, that is beside the point. I fully accept the analogy of virtual currencies with the beginning of e-gaming. I was on the Gaming Commission when we only had five licences, and there we made the mistake of making the legislation too strict. Everybody coming along had to have the software approved through 15 EPRC-ED/2015