Before financial services, the Isle of Man’s economy relied on tourism. shutterstock.com
It’s not since 1973 that the Isle of Man has sat so firmly in the cross-hairs of British media attention. In August that year, a disastrous fire at the Summerland resort claimed the lives of 50 holidaymakers. Now it is the Paradise Papers revelations about tax avoidance which have focused international interest on this windswept, semi-sovereign island.
The links between the two events are not as tenuous as it might seem. Both were the result of inadequate regulation and scrutiny. The materials used in key parts of Summerland were not fire retardant – nor did they need to be, in accordance with Manx building regulations at the time. And if the Summerland precedent is anything to go by, the ensuing legislative clampdown on tax avoidance will deliver rapid reform. But a knee-jerk reaction, in this instance, could inflict more harm than good.
British media reactions in the wake of the Paradise Papers leak have been savage, and rightly so. Legal loopholes exploited by British Crown Dependencies have facilitated tax avoidance on an immense scale, depriving the government (and ordinary citizens) of money that could be channelled into public services. But to condemn the Isle of Man is to miss the point.
The remains of Summerland. iom_mark/flickr, CC BY
That jurisdiction (and many others) has been operating within perfectly legal parameters set by the UK government. For UK ministers to express surprise and distaste at revelations exposed by the leak is nothing short of political theatre. There seems to be an embedded belief that when you reach a certain income threshold, your societal obligations diminish, and you are perfectly entitled to squirrel away money in offshore financial centres. This has to change – but it can’t happen overnight.
Cautious reform is required. Contrary to popular depictions currently circulating, the Isle of Man is not some kind of financial rogue state, a chillier Monaco, or an English-speaking Switzerland, sitting adrift in the Irish Sea. A cursory look around its main towns of Douglas, Peel, or Ramsey tells a different story. The shadows of the old seaside economy are everywhere, which creak into life during the annual TT motorcycle festival.
A walk around the backstreets of Douglas reveals bleak terraces of former boarding houses, in varying states of decay, converted into low rent flats. Social deprivation afflicts the capital, Douglas, as much as any other seaside town in the British Isles.
Immediate sanctions against offshore jurisdictions will not hurt the affluent beneficiaries of tax avoidance. It will hit hundreds of ordinary Manx families dependent on the financial services sector for employment. And I’m not talking about solicitors, asset managers and bankers – I’m talking about cleaners, IT technicians and receptionists.