Renaissance for island economy

By Rob Pittam
Business Correspondent, BBC Working Lunch

The port town of Douglas has been the island's capital since 1869

It's an island of palm trees, lonely beaches and a booming economy.

And from next month it's placing a limit on how much tax anyone on the island will pay.

Welcome to the Isle of Man.

From the air the island is a thirty mile long stretch of green buffeted by the waves of the Irish Sea.

It looks like a sleepy backwater, but in fact it's been the home of an economic miracle.

And by offering tax breaks to a new breed of entrepreneurs, it's hoping to see that continue.

Twenty years ago the island's economy was dying on its feet.

Fleeing the island

With the collapse of tourism, unemployment had reached 18 per cent and young people were fleeing the island.

But now unemployment is just 1.6 per cent and the island's economy has grown by 7% a year for the last 10 years.

The island's finance minister Alan Bell puts much of the recovery down to being in charge of a small economy where changes can be made quickly and have a rapid effect.

"We can come up with a policy idea and have it implemented in a matter of days.

"For example we decided to see if we could attract the space industry here by offering it a zero per cent rate on business tax.

"Well, I thought, we haven't got a space industry at the moment , so we have nothing to lose. This was just a couple of days before the budget and I was able to put it straight in.

Thriving industry

"Now we've got a thriving industry, particularly with satellite booking firms and more are moving here all the time."

There's no doubt the island's low tax status helps.

The top rate of income tax is just 18 per cent and from April the tax cap comes into effect.

No-one will pay more than £100,000 a year.

The Isle of Man is home to around 76,000 people

In addition, the zero rate business tax is being extended to almost every sector of the economy, although the banking industry is exempt.

It's an attempt to persuade more entrepreneurs to move their businesses and their families here, bringing in highly paid jobs in growing areas.

Millionaires' yachts

You can see the kind of company he's looking for from the quayside at Douglas, the main town on the island.

Above the bobbing millionaires' yachts, on a hill overlooking the harbour is the headquarters of Microgaming, a company that makes software for online poker and computer gaming. The firm moved its headquarters here five years ago.

Then there were two people, now there are 45, in an industry with an average wage of £50,000.

Chief Executive Officer Roger Raatgever, is a South African convert to the island.

"As we were growing we were doing business with financial and legal people here and we became comfortable with the island.

"The tax regime was a major factor in moving here, but the quality of life is important too.

Lifestyle

"It's a great place to bring up a family, and we are trying to attract management people from all over the world, so you need to be able to sell them a lifestyle and the island is great for that."

But what do all the changes mean for the islanders themselves?

Some worry that their Manx identity is being overwhelmed.

Elizabeth Claque is from an Isle of Man family that goes back generations.

"Sometimes when you go into Douglas now you feel like you are a stranger. All you hear is foreign voices. Where once you used to know everybody, these days you might not see anyone you recognise."

But Elizabeth is prepared to pay the price of progress.

Young people

"It's just the way the world is, and what's good is that young people on the island now have loads of opportunities. My generation often had to leave to build up a career, but our children can grow up on the island and stay and know they will find good jobs."

The TT motorcycle races take place each year in late May and early June

Elizabeth is speaking from personal experience, her son Graham left the island to study at Oxford, but he returned to work in the financial sector.

"I'm just old enough to remember the collapse of traditional industries like fishing, farming and tourism. Now things are booming here and although lots of people are moving to the island, many of the jobs have gone to Manx people too.

"I think young people here have the same opportunities now as they would anywhere in the world."

Meanwhile, finance minister Alan Bell bristles at the idea that the island is simply an offshore haven for the super rich.

"We've got a diverse, vibrant economy here, with market leaders in aerospace, telecommunications and e-commerce.

Welfare state

"People often don't realise that we have a full welfare state with a health service, pension provision, council housing and social services.

"I'm proud of what we've achieved here. People talk about Ireland being the Celtic Tiger, well I reckon we must be the Celtic Tiger cub!"

But there are warning signs. That unemployment rate of 1.6% represents a slight rise of 0.1% on last year.

And growth has slowed slightly, the latest figures show it is down to 6%.

Manufacturing jobs have been lost to China and India. By raising its wealth and its profile, the island has become has become part of the global economy.

Which is why the island is keen to attract new entrepreneurs to make sure it has a stake in the growth industries of the future.

The Celtic Tiger cub, it seems, is growing up fast.