Island on track to meet challenge of tax change that cost it dear

MANX LETTER:It is appropriate to link Thomas the Tank Engine and the island given the huge revenues of both

REV WILBERT Awdry had a problem when his son Christopher, in 1942, came down with measles, and was lying, bored, in bed. In desperation, he made up stories about a group of talking steam engines living on the island of Sodor.

Eventually, the Anglican clergyman had to write them down because inconsistencies in his nightly story-telling had begun to annoy his boy. In 1946, the first of the Thomas the Tank Enginestories, soon to be a publishing sensation, were published.

Shortly afterwards, the Hampshire clergyman was receiving letters from young fans of his first book, The Three Railway Engines,published in 1945: where did Thomas live? At first, Awdry had no answer, though it came to him on a subsequent holiday in the Isle of Man.

There, he discovered that the island’s Anglican bishop was, and is, known as the Bishop of Sodor and Man – Sodor being a now long-forgotten name for part of southern Scotland. Thus was born the island of Sodor.

It was situated, like the Isle of Man, in the middle of the Irish Sea, but five times larger, and linked, in Awdry’s imagination, by a bridge at Barrow-in-Furness in southern Cumbria.

And so it was large enough for his stories about the daily lives of the engines to be credible as his audience grew older. Equally, it was large enough to protect his creations from the reality of the passage of the steam age from British railway life.

Today, the Thomas The Tank engine franchise produces sales of £1 billion (€1.18 billion) every year. The stories of the engines’ daily chores and occasional disagreements are broadcast to more than a billion households in 185 countries each week, while 98 million videos and DVDs, along with 200 million books have been sold.

However, the publishing brand did not "go global", as it were, until Britt Allcroft produced a television series in 1984, Thomas and Friends, with ex-Beatles star Ringo Starr narrating the first series. It became an overnight success and made Allcroft a youthful millionaire.

The link between a childhood character that has generated extraordinary revenues and the Isle of Man is appropriate, given that the island has an old-fashioned air about it – evident as one walks down the Douglas promenade on a cold November morning past the faded seafront buildings; but also in the many financial services firms now resident on the island.

The Isle of Man has managed to avoid the worst of the global credit crisis, though the days when its zero-tax rate for business was enough on its own to guarantee prosperity for many are over, or almost so.

Today, it is harder for the island, which is a Crown dependency, though not part of the United Kingdom nor the European Union, to maintain its distinctive position, since it is influenced, and increasingly so, by both.

The EU is investigating its corporate tax rules, though not the figure set, suspecting that non-residents are able to wield advantages that are not shared by the locals. It is also trying to find out more about the impact on the island’s tax base.

An EU decision could be months away, but Manx authorities are watching carefully. Since they are not part of the EU, they could, in theory, tell Brussels to get lost, but this is not an option as pressure can easily be brought to bear.

Changes from the outside have been seen frequently in recent years: firstly, the British government decided to change VAT rules without a moment’s consultation, threatening a quarter of the island’s tax base at a stroke.

VAT paid on the island goes into central coffers in London and is then redistributed. Undoubtedly, the Isle of Man had been doing extraordinarily well out of the exchange for decades, until London realised what was going on.

Then, they faced curbs on health services. Traditionally, the island has treated British visitors for free and sent its own more seriously ill patients to the northwest of England. Now they have to pay more for off-island treatments.

All this has put pressure on finances.

Reserves built up in good times are being used to offer a cushion over the next four years as the exchequer copes with reduced VAT revenues and public service numbers are cut.

Local politicians realise that the island’s grey reputation is now threatening its place in a world where the rich can play one tax regime off against another. Low rates are one thing, but good restaurants and attractive surroundings are also needed.

In reply, the authorities are intent on regenerating the urban centre districts to make them more attractive in the hope of bringing back tourists.

Local politicians talk of efficiencies but, in the end, there will be job losses. A quarter of the island’s workforce are public employees. Staff are being told they must reform; some that they must move offices, many are unhappy, particularly so about the loss of parking places.

Known for being self-important on occasions, Thomas The Tank Enginealways believes he is deserving of more respect and he gets annoyed when he does not get it.

On the Isle of Man, right now, there are a few more like him.