UK election 2015 - comment

Friday 08 May 2015

By Phillip Dearden, Director - Tax, Equiom Solutions

Introduction

The UK electorate has voted to continue with the Cameron/Osborne 'austerity is the route to prosperity' strategy and has not been tempted by Mr Miliband’s offer of a gentler route to balancing government finances and his greater element of redistribution or fairness - depending on your perspective. It looks like the voters were not prepared to trust Messrs. Miliband and Balls with their economic prospects. Whilst the Conservatives secured a slim overall majority, the picture is not uniform; England has leaned slightly to the right, but Scotland has lurched significantly to the Nationalist left. What does this mean for the Isle of Man?

Initial impact for the Isle of Man

The UK is the Isle of Man’s closest trading partner and, when the UK catches a cold, the Isle of Man seems to suffer a number of unpleasant ailments. Therefore, a healthy UK economy is good for the Isle of Man. Businesses like stability, so a continuation of the last five years will please many business leaders in both the UK and the Isle of Man. At the time of writing, the UK FTSE is up by nearly 2% and the pound by 1.2%, so financial markets seem pleased with the result. This is positive for the Island, as investment products are easier to promote when financial markets are optimistic.

The longer term

I often hear comment that a Labour Government is likely to be tougher on the Island than a Conservative one. Mr Miliband had certainly made noises about blacklists, the taxation of non-domiciliaries and public registers of owners of companies. These won’t have made residents of the Island very happy and there will be some relief that he will not now be able to bring these proposals forward. However, looking at the history of legislation that could apply to services offered by Isle of Man businesses, the Conservatives seem to have been as busy as Labour.

Although Anti-Money Laundering legislation is generally promulgated by the EU or Financial Actions Task Force rather than the domestic UK Government, on tax-avoidance the Conservatives have introduced many new initiatives that could affect some Island businesses.

Furthermore, the current administrative burden that is the US instigated FATCA, is now being spread around the world by the OECD. Most of these initiatives have worthy aims, but in some cases, the cost may outweigh the benefits. Whether this is the case or not, the pace of change is not likely to be mitigated by a re-elected Conservative Government.

The constitutional effect for the Island may be interesting. After rejecting independence, the Scottish voters have emphatically backed a Nationalist Party. At the same time, the Conservatives have promised a referendum on the UK’s membership of the EU. This will have implications for the Isle of Man. On the one hand, Mr Cameron may persuade the voters to stay in the EU and negotiate a more Federal relationship with Scotland, so that the Union remains stable for a while. If the referendum goes the other way, however, the UK may have to leave the EU. Should that happen, the SNP are likely to demand a new referendum on independence, on the basis that circumstances have changed, whereupon Scotland may then vote to depart from the UK and look to remain in the EU. This would leave the Isle of Man in a loose constitutional relationship with a smaller UK that is no longer within the EU, which would have implications for the Island. Firstly, the UK economy would be altered and, secondly, local business could be significantly affected due to the fact that much Isle of Man business is predicated on the assumption that the Island is, and will continue to be, within the EU.

Summary

In the short term, the uncertainty of a hung-Parliament and the questionable economics of the Miliband/Balls strategy have both been avoided. Businesses and markets seem happy that the Conservatives remain in power and a stable and successful UK economy is generally good for the Island. In the longer term, the UK now faces some significant constitutional issues and these will affect the Island in a way that is hard to predict.