Cannan Outlines Bold Economic Strategy

Chief Minister Alf Cannan has outlined a draft economic strategy that the gov hopes will ensure economic and social prosperity for the island into the future. 

There is a lot of political jargon such as ‘once in a generation’ so we’ve tried to break it down into reasonable chunks. 

The plan, which comes after research by KPMG, includes four key elements including growing the island’s population to 100,000 residents sby 2037, which the gov hopes to achieve through inward migration, retention of economically active people and recruiting key workers.

Some of this work, such as a childcare strategy, healthcare plans and looking towards a greener future are already underway. 

The strategy also outlines a plan to reach a GDP of £10bn by 2032, creating 5,000 new jobs, generating over £200m of additional income to reinvest in services for the island, to substantially decarbonise the island’s economy by 2030 and supporting an overall reduction of 35% in the island’s greenhouse gas emissions.

The Chief has said: ‘This is a significant moment for our island as we set out our high level ambitions for investment, incentives, and ideas that will help change the shape of our economy and bring greater opportunity for the people of the Isle of Man. The draft Economic Strategy comes from months of research, stakeholder engagement, and economic analysis that has shone a true light on the current trajectory of the Island’s economy and demonstrated a new approach that is necessary to ensure our resilience and success over the next 10-15 years.’

Mr Cannan said the economy is ‘in reasonably good shape’ but that global challenges including digitisation, taxation and demand for skilled workers are ‘highlighting the precarious nature of our current economic model’.

He added: ‘We have always prided ourselves on our ability to adapt and as an island, we have so much to be proud of. But we have reached a point in our economy where we must evolve again if we are to create longer term economic success. It would be unwise to maintain the status quo whilst so much change is happening around us. 

‘If we do not address critical challenges facing the island in terms of our demographics, finances and public services we run a substantial risk of gradual decline which would create significant uncertainty. We should also recognise that our young people demand new job opportunities and modern, attractive facilities.’

Perhaps most worryingly, the draft strategy includes plans for £1bn of long-term private and public investment, supported by an initial £100m Economic Strategy Fund, to help stimulate shifts and initiatives. For context, think of £100m as the Liverpool ferry terminal (including overspend) and the prom scheme, with a little bit left over in small change. 

Where Are We Now?

KPMG’s work highlighted a number of positives and negatives about the island. Our strengths included stronger reserves than our peers, strong GDP growth, leader in the Crown Dependencies, diverse economy, well respected internationally, high 4G coverage, wealth of natural resources and a proven ability to grow niche and new sectors. 

However, against this, the cost of living is not offset by wages, it also means that the tax advantages ‘do not outweigh high cost of living for low-middle incomes when compared to the UK’. There is a growing wealth disparity between households, 49% of the population is not economically active, high levels of vacancies, GDP growth has been driven effectively by two sectors. There is a low volume of high quality commercial facilities, the gov is not seen to be digitally enabled and feedback indicates that business dynamism and innovation are not strong features of our business culture. 

Do Nothing?

The proposed strategy makes it pretty clear that if the gov does nothing then ‘the competitiveness of the Island as a place to do business could gradually erode’, making it even harder than it already is to attract skilled workers.

Without growing the working population, an ageing population would put further pressure on an ‘increasingly unsustainable taxation model’ which could lead to reductions in public services and the economically active population (those who go to work) facing higher taxes. 

Furthermore, there are concerns that a lack of infrastructure investment may ‘further dent the island’s competitiveness as a place to live and work’. We’ll leave you to laugh at your own joke about the prom scheme and other infrastructure schemes the gov has embarked on. 

What’s on the Table?

If the strategy is followed and, more importantly, it works, this could lead to the Isle of Man being a ‘leading sustainable island’ with a highly skilled and productive workforce. The gov says this should lead to ‘better paid jobs & rewarding career opportunities for all’, a more diverse economy, a modern business-friendly environment, infrastructure and amenities ‘to be proud of’, healthy gov finances, improved health and wellbeing and a larger, younger, more diverse population. 

How?

To achieve this new vision, the gov has identified four changes it needs to make, the first of which is population growth, changing the shape of the economy, diversifying income streams and sustainability.

Population

Like many developed (allegedly) countries, the island has significant demographic issues, mainly that we’re getting older which brings challenges around tax and infrastructure. 

Another big issue has been that while previous govs hoped that the island’s population would reach 94,000 by 2026, that just simply isn’t going to happen. Famously the island’s population dropped between 2011 and 2016 and only recovered to circa 84,000 by 2021. 

The report also indicated that the island is ‘particularly attractive when it comes to the inward migration of individuals who are not economically-active’, essentially we’re more attractive as a place to retire than we are a place for people who want to work and unlike other jurisdictions, we don’t make it harder for non-economically active people to move here. 

To fix these issues, the gov wants to ‘re-adjust the island’s offering to target new younger workers and families, while encouraging our young people to stay and build their futures on the island’. This includes affordable housing, career opportunities and improved leisure infrastructure. But the gov is also suggesting that it could act to disincentivise non-workers from coming here by considering health insurance requirements, minimum levels of savings and preventing access to property markets. 

Economy

The island’s economic growth has been based on a narrowing group of sectors, with insurance and eGaming each worth more than double business services, ICT and banking. However, this imbalance is putting future growth at risk, leading the gov to seek new sectors. 

To resolve this, measures will be put in place to invest in skills, productivity, infrastructure and business sectors to deliver a more diverse economy. In essence this requires investment in infrastructure, growing export sectors and pursuing new opportunities. Some of this is already happening, with the island looking to move into the medicinal, although not recreational (for now), cannabis market. 

This would, for example, mean that the enabling sectors of the economy such as retail, hospitality, culture and leisure, property, infrastructure and transport and energy would need to adapt and modernise. The current key sectors of digital, financial services, production and the visitor economy would need to be maintain and grown, while the new sectors, being green, data and knowledge (more on this later) would need to grow by pursuing new opportunities and consider where the island can leverage existing advantages. 

Public Finances

About two thirds of the gov’s income comes from us through employment and the things we buy. This means that gov finances (better known as our money) is vulnerable to changes in population, incomes and consumer confidence. 

Due to the island’s zero-ten tax strategy, while GDP has grown, this has not been matched by a growth in taxation income. This means that society is not benefiting from the island’s economic activity and puts pressure on investment in public services. 

The solution to this, according to the draft strategy, is to grow and diversify revenues with a broader range of sources for long term sustainability. This would be done by developing new income streams, such as the monetisation of resources and growth of new economic sectors.

The ambition for this is to deliver over £200m of additional annual income by 2032, which the gov says would be available to ‘reinvest in services and quality of life’.

Sustainability 

According to the KPMG research, ‘the island is perceived to be lagging behind competitors in the area of sustainability, including in progress towards net zero and in the availability of green power options for businesses’. There are also no clear, overarching decarbonisation plans for businesses and industries.

The strategy says that this is putting the island’s place as a home for responsible businesses ‘under threat’ if commitments made by these businesses to decarbonise are not met by gov action. 

As such, the gov needs to ‘consciously and proactively invest in the Climate Change Action Plan, and energy decarbonisation, to place sustainability at the heart of the economy’.

This includes putting the climate change action plan at the centre of economic planning, ensuring that new industries support economic growth and climate goals and to ‘prioritise the decarbonisation of our electricity system by 2030 as set out in the climate change action plan’.

University Isle of Man

Collaborating with other small islands and UK universities, KPMG’s report has led to the proposal of having a ‘knowledge economy as a new sector’. The idea being that an island campus would bring in ‘large volumes of off-Island students could be an economic initiative in its own right rather than just an educational option’.

As part of this, there are proposals for developing an Island Campus with a curriculum that is relevant to industry requirements and future employment. 

The strategy says: ‘An island Campus would offer students a unique range of experiences, reducing challenges with the retention of graduates and delivering to Island businesses young professionals with the skills that they need. It would be attractive to both on-and off-island students and help to support the wider objective of attracting more economically active people to the Isle of Man.

‘As an additional benefit, a large student population would be able to support more diverse and vibrant leisure and hospitality facilities, both on the demand side and through seasonal complementary working.’

What Else Do I Need to Know?

We did tell you this would be a long read right?

The economic strategy includes a review of individual and corporation taxation on the island, this could mean lower taxes for some and higher taxes for others. We also need to see how the OECD’s two pillar taxation plan affects the island. 

A big question is, of course, how is this going to be paid for? The strategy says that the gov’s plan is for it to ‘pump prime’ investment to signal that the island will be open for business and external investment. 

It says: ‘Ultimately, targeted spending at the outset will mean this Strategy will be self-funding, with the return on investment after 10 years exceeding the outlay.’

This could also mean that existing capital schemes are not necessarily prioritised and that some of the NI fund and reserves could be allocated to commercial projects on the island. The report says: ‘This would need to be a commercial investment with commercial returns, such as key public infrastructure with a guaranteed income.’

As the cost of borrowing is currently low, the report suggests that the gov could seek extra external funding through the use of loans. Another option is to leverage private sector funding through a gov-led investment programme to ‘fund or partially fund a number of projects’. If the population is increased, then this would also allow private investment to be more commercially viable. 

Consultation

While this is the draft strategy, a consultation will be held over the summer, with the Tywnald conference in September also serving as a chance for the public and businesses to further engage and offer feedback, one way or another. 

Once this has been completed, the strategy will be updated and go to Tynwald for debate and possible approval in November. 

And we’ll all live happily ever after, the end.