THE next five years will be the most challenging the island has faced in a generation, Economic Development Minister Allan Bell MHK has warned.
His stark warnings, made against the backdrop of a likely further revision of the VAT deal, were outlined to a breakfast briefing at the Claremont Hotel, Douglas, last Friday organised by Lloyds.
Mr Bell told the Examiner afterwards: ‘The next five years will be the most challenging for a generation, on a whole range of fronts.
‘We need the Isle of Man to recognise just how serious it will be economically and to rebalance the budget.’
But he said one issue would dwarf all others in the years to come – the affordability of the state pension.
He said: ‘The debate so far has taken place on the affordability of public sector pensions and the need to get them back on a firmer footing.
‘But the bigger challenge is the sustainability of the state pension in a smaller community like the Isle of Man with an ageing population.
‘Under a pay as you go system, the workforce today pays the pensions of those who’ve retired.
‘When it’s in balance, it’s affordable.
‘But the challenge for the Isle of Man coming up is that the Baby Boomer generation is coming up for retirement and there’s not the immigration to keep the workforce buoyant.
‘The combination of that change, together with the issue of providing acceptable levels of health and nursing care, is going to be a major challenge.
‘It will dwarf other problems unless we can sustain economic growth.’
He said that without a strategy to deal with the pensions issue, the island would ‘sleepwalk into crisis’.
Mr Bell predicted that the Manx supplement would eventually have to go. But with the UK proposing a universal state pensions of £140 a week, island pensioners would not lose out if the Isle of Man followed suit.
He added: ‘We can’t pay anyone anything unless we generate the money in the first place.’
Mr Bell warned that another issue was the greater level of competition that could follow demands being made by the developed parliaments of Scotland and Northern Ireland to control their own tax rates.
He said Northern Ireland wanted a 12.5 per cent corporate tax rate to compete with the Irish Republic and Scotland was also pushing for greater autonomy of its tax affairs.
‘This has the potential, in the medium term, to be a very real challenge to the Isle of Man if that was to be realised,’ he said.
Mr Bell said it was ‘conceivable’ that the UK might even look at changing its constitutional relationship with the Isle of Man and other Crown Dependencies. He said: ‘We’ve no idea what the UK’s intentions might be but it’s conceivable they might look at the relationship with the British Isles as a whole, bearing in mind the growing independence of Scotland and Northern Ireland, who have both cited the Isle of Man as a model they would like to see established.’
But he stressed: ‘I’m not saying that would happen.’
The Economics Development Minister said new ways had to be found to diversify the economy.
Mr Bell likened the backdrop to this year’s general election to that of the one in 1985 when the island’s economy was struggling.
‘Our backs were against the wall. The challenge now is just as great,’ he said.
He said the island needed ‘national and international politicians’ and suggested some current MHKs were ‘really extensions of local authority members’.