Douglas, we have a problem

The Isle of Man's once-thriving industry in space exploration is heading for a crash landing. Jonathan Brown reports

When the annals of human space flight come to be written, there, along with Houston, Cape Canaveral and Star City, the name of Douglas, the capital of the Isle of Man, could well be etched.

News this week that a Manx-based space company, Excalibur Almaz, is offering the first human trips to the Moon since the Apollo 17 mission 40 years ago has been met with surprise bordering on disbelief.

Yet for space industry followers the revelation was unremarkable. The offshore jurisdiction, famed for its zero corporation tax, treacherous motorcyle race and belated acceptance of gay rights, has long been rated the fifth most likely territory from which to launch Moon missions. Two lunar programmes are active on the island.

Space has been one of more than a dozen sectors designed to help the island replace its traditional reliance on fishing, agriculture and tourism. It is estimated that over the past seven years the industry has contributed £35m to the Tynwald's coffers. But this year changes to the amount received through the tax system from the space industry have turned that net gain into a liability. And despite the years of investment, the number of people employed in the space sector on the island is estimated at just 30.

In March the Manx government announced plans to cut spending by £35m to help balance its budget. Cuts are planned in all departments except health, education and social care.

Tim Craine, the Isle of Man's director for economic development and former head of space commerce, admitted that even on the island times were difficult, although ministers still saw the space industry as an important contributor to economic growth.

"The Isle of Man is not immune. We are facing similar challenges [to the mainland] but currently our economy has not gone into recession. Our chief minister believes the reason we have avoided recession is because of the diverse economy," he said.

Alan Bell, the Chief Minister, rejected calls that taxes should rise to help the island through its present difficulties, choosing to leave allowances and rates unchanged in this year's Budget.

Mr Bell believes rates of zero per cent for corporation tax and 10 per cent for income tax have been central to the past 28 years of unbroken growth, and ministers opted instead to offset cuts with money from the island's reserves.

Richard Murphy of Tax Research UK has been a longstanding critic of offshore tax havens, particularly the Isle of Man – although he concedes that it has become more open.

"[Tax havens] are still pretty secretive and you can't get information, while the low-tax system is designed to undermine the tax situation in the UK. A lot of companies on AIM [the Alternative Investment Market, a sub-market of the London Stock Exchange] are incorporated in the Isle of Man but listed in London," he said.

Mr Murphy is sceptical about the success of the space industry there. "The attraction of the Isle of Man is not that it is a hotbed of technical expertise. It is not. The interest is that there is no tax. That is bluntly it," he said.

It is a claim rejected by Mr Craine, who said the island's short-term space liabilities would be reversed by the end of the current financial year and the industry would move back to a surplus.

"It is a fallacy to think that the space industry is on the Isle of Man for tax reasons. The main reason is because it is a neutral jurisdiction which is not aligned to Russia, China or the United States," he said.

A recent report by the Institute of Directors singled out the Isle of Man as a stellar example of Britain's emerging role as a leader in the space industry – a sector that has doubled in size over the past decade. It now employs 25,000 people and is said to be worth £8bn to the UK economy.

The IoD said 30 companies of the 54 working in the satellite sector are based on the island and acknowledged that the industry is well served by the island's growing concentration of professional and manufacturing expertise.

Mr Craine admitted that even many of those living could barely take in its growing prominence in the space industry. When the Excalibur Almaz spaceship went on display last year 30,000 of the island's 85,000 inhabitants went to have a look for themselves. "It was a case of seeing is believing," he said.

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