Gibraltar Magazine – January 2018
Ian Le Breton

At the turn of the year it is traditional to look back at the year just passed – and to look ahead at the 12 months in prospect. I note, with some amazement, that this is the eleventh time I have performed this feat for The Gibraltar Magazine, so is this time round any different to similar pieces I have penned over the last ten years? I venture to suggest that there may be some new things to say – and genuinely grounds for optimism. Read on.

Before I set out my thoughts on 2018, we must rake over financial coals of the last 12 months. As the economy continued to improve or at least stabilise across Europe, UK interest rates – which also apply in Gibraltar – doubled to half of one per cent from the historic low rate set in the aftermath of the EU referendum in June 2016.

Financial people often split a single percentage into 100 basis points (expressed of course by
the relevant initials). It certainly sounds more impressive to say that rates moved up from 25 to 50 b.p. but for savers this still means that returns remain perilously low. Borrowers are paying a little more for their mortgages and other debt, but stiff competition between banks and other lenders mean that at the end of 2017, funding is still cheap by historical standards. Perhaps as a result, the savings ratio appears to be dangerously low.

Inflation has been creeping up recently and this will need to be monitored carefully in the year ahead. We seem to be past the time when the threat of deflation hung over us – falling prices are in fact more perilous than a rising trend. This is because in a deflationary environment, people may delay the purchase of large goods (white kitchen appliances are a good example) in the expectation that the price in a few months’ time will be lower. It’s understandable of course but if everyone follows the same policy, the economy will go downhill very rapidly. A modest level of inflation is therefore considered a good thing. Luckily perhaps, the delicate balancing act that is required to ensure that inflation does not spiral out of control is something way beyond most of our pay grades!

It concerns me a little that for many, the financial crisis now appears to be nothing more than a memory. It is, after all, only ten years since the original difficulties were exposed and the Eurozone is definitely not out of the woods yet. Some countries may struggle again, although at the time of writing the days of national bailouts appear to be behind us. In some cases, such as Iceland (which was the first to be rescued) and Ireland, the speed with which their economies have recovered has been astonishing.

As the New Year begins, the EU remains a key news item and the dreaded ‘B’ word remains the principal issue. One of my correspondents has asked me to get through a whole article for once without using the ‘word’ but my meaning is clear. In the weeks leading up to Christmas, negotiations for Britain’s departure from the EU and its future trading status with the remaining bloc members after 2019 continued to dominate the news agenda.

Gibraltar is of course totally implicated. Unlike the Channel Islands, the Isle of Man and other British overseas territories, we are a full member of the EU and will be exiting alongside the UK, presumably in March 2019. Frighteningly this is now little more than a year away! With all due respect to my friend who is bored with the ‘B’ word, this represents the greatest challenge of our time, not just for the UK but also for the other EU member states. Moreover, other countries worldwide will need to adjust the way they look at us – and trade with us – too.

Gibraltar may not have sought this outcome (96% of us voted to ‘remain’ in the referendum) but I am convinced that we will make the best of it. The votes have been cast and counted so we have no choice but to explore how we can exploit this brave new world. A large number of foreign businesses are looking to establish or expand their operations in Britain to retain competitive advantage in what is, after all, one of the largest and most prosperous European nations. The current UK population is not that far off 70 million so the rewards are huge, and the likely cost of doing nothing is unpalatable to say the least.

One of my key objectives over the coming 12 months will be to encourage as many of these foreign-owned businesses as possible to consider including Gibraltar as part of their strategic planning. Regular readers may recall that I have addressed this in previous finance columns. Foreign businesses should consider setting up a Gibraltar holding company or perhaps owning their UK subsidiary via a Gibraltar trust or foundation. With our low corporate tax rate – just 10% on profits accrued or derived in Gibraltar – the advantages could be hugely to their benefit.

Added to this, foreign firms should consider basing senior staff here. In some cases, business owners might consider Gibraltar as a new personal base too. Our Category 2 residency scheme remains highly attractive to such people and, in my view, there is plenty of business out there for us to find and bring home.

I have long been convinced that the UK and its satellites should also be mining the rich seam that is the Commonwealth of Nations. The 52 members currently have a combined population of 2.3 billion – or about 30% of the estimated global population of 7.6 billion. This represents a huge opportunity because all Commonwealth members have a strong connection to Britain. In the main, their governments (and by extension, I hope, their business leaders) all have a close affinity to us and want to trade with us. The forthcoming leaders’ summit – CHOGM – is due to take place in the UK in April and should provide an ideal opportunity to get our message across. “Britain and Gibraltar are fully open for business – and we want yours”, should be our slogan.

I cannot leave without mentioning the forthcoming royal wedding. Whatever your views on the monarchy, there is no doubt that ‘the firm’ delivers a huge annual windfall in terms of tourist spend and international profile. 2018 should break all records. Good luck to Prince Harry and Meghan I say, and let’s welcome all the visitors who will want to be part of it in Gibraltar.

So it is with somewhat more optimism than I have felt in recent years that I conclude this piece in the traditional fashion. For some inexplicable reason, I have always preferred ‘evenly’ numbered years but, less irrationally, I think that assuming the successful outcome of Britain’s discussions with the EU, perhaps served with a small helping of good fortune, we should prosper in the year ahead.

On behalf of all Sovereign staff (there are 110 of us in Gibraltar these days) I wish all readers and their families a very happy – and prosperous – New Year.

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