Lord Ahmad of Wimbledon
Minister of State
Foreign & Commonwealth Office
King Charles Street,
London
20 March, 2018
Thank you for your letter of the 13th March 2018, in which you outlined the reasons for your delay in approving the Anguilla Budget. In keeping with your expressions of the honesty in our relationship, I will likewise be candid in responding to your concerns, which based on your limited first-hand knowledge and sight of the overall circumstances of Anguilla, would most likely have been influenced by your officials and advisers.
Like you I am also conscious of the critical milestones that are fast approaching our territory. Indeed, I am reminded daily as I witness the plight of our people who are still suffering from the catastrophic effects of Hurricane Irma. With Anguilla’s key infrastructure crippled, and its main industry undermined by the destruction of our main tourist resorts, Anguillians continue to experience mass unemployment and loss of business opportunities. Although some opportunities have arisen from the restoration of the tourism sector and the initial ‘clean up’ operation, the situation remains challenging. With our main access hubs still in a state of serious disrepair and with the existence of fierce competition in the tourism sector within the Caribbean; Anguilla’s main economic driver still has some distance to go before normality is restored.
It is against this sordid backdrop, that we are seeking the approval of Anguilla’s 2018 Budget and the release of the £60 million recovery funds committed by Prime Minister Theresa May last November when I met with her at 10 Downing Street.
I intend to respond only to some selected issues you have raised in your letter in advance of our telephone conversation to be held in a few hours. However, I intend to refer your letter to my able officials in the Ministry of Finance to address point by point if necessary for the benefit of your officials and advisers. I am writing to you as a colleague Minister dealing with many broad socio-economic principles which as politicians we can both appreciate and negotiate in an atmosphere of mutual respect. And to repeat your “stage-setting” statement: “I believe we have an honest relationship where I can be candid”.
The 2018 Budget
The depressed performance of revenue during the first quarter of 2018 is no surprise given the extent of the damage caused by Hurricane Irma both in Anguilla and the surrounding islands on which our territory depends. But on further analysis it is clear that the depressed performance was principally in accommodation tax receipts as opposed to the other revenue heads. And it must be remembered that the absence of reserves was the premise for Anguilla being allocated grant funding by the UK as opposed to loan guarantees, in the first place. That situation was in the main a consequence of the Banking Resolution process that Anguilla was obliged to implement.
With regard to your reference to the limited scope to extend overdrafts, I draw your attention to the negotiations that are far advanced with the Caribbean Development Bank to provide Anguilla with an extension of their banking facility until December 2018 on the terms and conditions which we have made available to UKG officials. This facility will ensure that Anguilla is, in fact, in a position to make payments that will fall due within the next few months in the run up to the next hurricane season and beyond, and should provide scope for the UK government to fulfil its obligation to the British citizens of Anguilla by swiftly disbursing the humanitarian aid that was publicly announced last year.
Needless to say, the extent of Anguilla’s risk of defaulting has been considerably exaggerated. It offers little justification for the UK defaulting on its obligation to protect the welfare of British citizens of the territory from both the consequences of last year’s catastrophe, and the increasing potential risks of the forthcoming hurricane season. We will be particularly exposed should the recovery operation not commence prior to June when the 2018 hurricane season commences.
Updated revenue forecasts
You correctly observed that the revenue receipts for January and February are below expectations. This is a direct consequence of the limited progress that we have been able to make in recovering from Hurricane Irma without aid for reconstruction. It must be recognised that the impact of aid is twofold, firstly the critical public services can resume and the hazardous state of Anguilla that may give rise to further loss of life during the 2018 hurricane season will be mitigated. And secondly, as recently referred to by UK economists, once reconstruction commences Anguilla’s economy will be stimulated by employment in the construction sector and related services. The truth of this assessment is manifesting itself as we speak.
The aid spend will remain within Anguilla’s economy. It is for this reason that we have not factored a significant downward revision in our projections, which is an approach endorsed by The Economist that predicts Anguilla will have the second fastest growing economy in the world once reconstruction begins. In short, the remittance of the aid will, of itself, be a critical stimulant to economic growth in the territory. Furthermore, that aid has been committed in response to a humanitarian crisis, and as such its delivery should not be withheld for the purpose of fiscal engineering, particularly as these measures were not sought prior to the hurricane.
Moreover, the successful restructuring of Anguilla’s debt with the CDB has addressed the concern that forms the basis of your argument for withholding humanitarian aid, as it decreases the risk of default.
We note your request for clear proposals to increase recurrent revenue from existing, predictable revenue streams including Customs Duties, Stabilization Levy and service related taxes, such as Accommodation Tax and Tourism Levy. In circumstances where the island’s main source of accommodation is in a state of disrepair and confidence in the destination has to be rebuilt, along with the infrastructure on the neighbouring islands upon which Anguilla depends so heavily, any proposal must be conditional on a myriad of factors that lie well beyond the control of our government and your own.
Needless to say, reconstruction and recovery within Anguilla will naturally improve the prospects of our earning the recurrent revenue we all seek by tiding the island over whilst the tourism sector regains its strength. It is a “no-brainer” that increasing the taxation of those currently struggling in a humanitarian crisis goes against the spirit of humanitarian aid, adding to the strain which thousands of Anguillians continue to suffer.
Your proposals for the increases in recurrent income streams are morally wrong, and should not be held out as a prerequisite of aid, especially when the very provision of the aid may act as a much-needed catalyst for economic as well as physical and social recovery.
I must also inform you that even though we are unhappy with the tone and approach of the advice you are receiving. I fully understand the realities of Anguilla’s physical and economic state. And rather than theoretical aspiration, we have provided a realistic view of the revenue position and are currently developing new revenue heads to diversify our income stream beyond those that are heavily reliant upon tourism, which may not realistically recover to its pre-Irma position for two to three years. This fact of course is based on the assumption that our island home and our region will not be visited by further natural disaster that would make nonsense of our best laid plans for restoration.
Update expenditure forecasts:
We note your need for confirmation that expenditure estimates be thoroughly reassessed and revised, where necessary. We also note your assumption that this will necessitate implementing plans to cut recurrent expenditures such as personal emoluments, consultancy and goods and services. Sadly, you have never visited Anguilla, and it is clear that your colleagues are not conversant with the structure and nature of our society. Unlike the UK with its institutionalized social safety nets, Anguillians live within strong, extended family arrangements underpinned by intergenerational support. The consequence of this is that one salary may provide for up to four generations and support several households, having a positive, multiplier effect on the welfare of the community. This is an imperative on an underdeveloped island with limited public services, and that is isolated from sustained support from its sovereign state of a nature and magnitude enjoyed by other British Overseas Territories.
The cutting of emoluments and raising of personal taxes as you persistently suggest, set in the context of a humanitarian crisis where virtually all of Anguilla’s critical infrastructure was destroyed, and over 90% of private households were severely damaged, most of which were uninsured, would seriously compromise the welfare of thousands of vulnerable people. The fragility of their welfare will be further tested by the, as yet unknown, consequences of Brexit on Anguilla’s relationship with the French and Dutch islands that have hitherto underwritten Anguilla’s viability. Taking note of the restructured debt for 2018 that largely addresses your principle concern, we cannot justify placing undue pressure upon a community that is still experiencing a humanitarian crisis as it approaches what may amount to another. Such an act would inevitably be recognised as inhumane by the global community, and those of Anguilla and the UK. And I strongly caution against it as, no doubt, will many within your own government and the UK parliament as a whole.
Indeed it would be negligent to pursue this course of action. And the reasoning for inflicting further pressure upon such vulnerable British citizens in their hours of need must be considered unsound.
Tax and duty concession
We note your concern with the regional practice of providing concessions on imports to investors. This incentive is standard practice throughout the region and until this changes Anguilla may struggle to attract inward investment without competing in this manner. The truth is that Anguilla is the least generous of all our neighbours in terms of the application of this concession. We only apply it to the upfront construction, furnishings, fixtures and equipment and not to any consumables of any kind, quite unlike our neighbours. With regard to concessions to local businesses, we must continue to extend these as a means of assisting their recovery.
However as a broad range of opportunities will now arise from the reconstruction and general recovery of Anguilla, we see no problem in the future in introducing a stricter regime for newcomers to the market and we are currently developing a designated income stream for new developments., Nevertheless, we would not wish to drive out existing or local businesses that have struggled through the disaster, preferring instead to incentivise them into remaining; despite the protracted recovery period in which their income may be challenged and insurance cover may be limited. We therefore welcome the initiative of our London office in devising a trade mission and trust that HMG will collaborate in its delivery in the near future.
Medium Term Plan
The financing of deficits of 2019 and 2020 will of course be a factor of their size. Given the conditionality and timing of the assistance you have allocated to Anguilla and the risks of further adverse weather conditions within the next few years will compound the likelihood of deficits in 2019 and 2020. However, the anticipated stimulation of the local economy by virtue of employment in reconstruction should continue throughout that period generating fiscal income for the government and attracting inward investment that may be made subject to stricter taxation and duties as you suggest.
I am painfully aware of the limited experience and institutional memory held within your government on Anguilla and the sustainability of its public finances, and so must draw upon my thirty seven years of experience in my territory’s administration, during which time we have never defaulted on any of our commitments. It is of grave concern to those of us in Anguilla and many in the UK that we continue to experience a general reluctance on the part of the sovereign state to support the British citizens of Anguilla even when recovering from what your government has classified as a humanitarian crisis and despite a moral and constitutional duty to do so.
It is a reasonable argument to make and one which continues to be made among social gatherings in Anguilla as well as on radio talk shows and social media, namely, that the predicament Anguilla found itself after being hit by Hurricane Irma was not only caused by the force of nature alone, but also by the UK’s decision not to permit the territory to accept assistance from third parties, and by the years of neglect on the part of the sovereign state in assisting the island to create robust critical infrastructure, even when Anguilla was eligible for assistance from the UK Overseas Development Agency (ODA). It would be foolhardy to juxtapose your suggestion to implement increased tax measures against the widespread acceptance of this argument in our communities.
Fifty-one years ago, Anguilla had no electricity; running water; or indoor sanitary facilities. We boasted one telephone box to serve the needs of thousands of British citizens. From that base point we have, predominantly through our own efforts, elevated our standard of living and served the needs of our people to the best of our ability, with limited input from the UK, unlike our fellow overseas territories some of which have had the benefit of hundreds of millions of pounds over many years solely for economic stimulation.
Anguilla does not seek aid dependency, but needs humanitarian aid delivered in a timely manner without inappropriate conditions that further compromise the welfare of its people. We were therefore encouraged by the Prime Minister’s commitment to provide aid to Anguilla and even your statement that you would like to disburse the £60 million allocated by the Right Honourable Theresa May last November as soon as possible; and the confirmation that you are willing to agree to the disbursal of some funds for high priority recovery projects, such as ensuring our children may take their examinations so that their education may not be retarded further.
It is now almost seven months after the full force of the worst hurricane on record hit Anguilla and a mere three months before the next hurricane season commences. If steps are not taken in the immediate future to secure the island’s dilapidated critical infrastructure, a lesser weather event may have a similar effect to a category four or five hurricane, risking lives and livelihoods once more. Unless we begin this essential work, Anguilla will deteriorate further and quite likely significant permanent migration will be considered, particularly since many Anguillians hold full British passports.
Your two pre-conditions for remitting any funds, namely the preparation of a revised 2018 Budget that addresses your concerns by the 31st March and the preparation of a revised MTEFP by 30th June 2018, which coincides with the commencement of this year’s hurricane season, may jeopardise the welfare and safety of the people of Anguilla and may well prove tantamount to negligence. It is quite clear that the current state of repair of the island, if affected by further adverse weather conditions, is likely to result in life threatening conditions that could be avoided by the deployment of aid that has been committed by the UK Government for this purpose.
You must accept that the ‘risk of default’ as determined by some of your advisors who are still in the process of becoming conversant with Anguilla, should not be the sole premise of such a fundamental step change in Anguilla’s relationship with the UK and that some of the suppositions made are unfounded.
I am deeply saddened that you feel it necessary to enquire as to whether I ‘recognise the seriousness of Anguilla’s financial position’, given the fact that you have never visited our island and the questionable level of practical experience within your team. If the Prime Minister’s sentiments towards all British citizens are to be reflected in this undertaking, care should be taken to demonstrate respect for the political and human rights of the territory, and to avoid demeaning the support the British public is so keen to provide to fellow ‘Brits’ at the frontline of climate change through the provision of humanitarian aid by the imposition of conditions that are neither pertinent nor justified in fact. We shall continue to endeavour to work with you, but we reserve the right to refer the matter to the appropriate institutions for objective scrutiny to ensure the protection of the welfare of the people of Anguilla should the need arise.
I am copying this letter to the Prime Minister, Foreign Secretary and Secretary of State for International Development for their information, and request that they each determine whether the course of action you proposed is pertinent in the case of an humanitarian crisis affecting 15,000 British citizens, in the hope that the commitment to aid the people of Anguilla in recovering from this catastrophic event is not derailed.
Meanwhile, we remain ever hopeful of a mutually beneficial outcome as befits our the 368-year old history as loyal British subjects in accord with the expectations of the peoples of the UK and Anguilla alike and that both you and your colleagues will accept that your on-going threat of seizing control of our government’s financial administration has no place in a situation such as ours where the probity of the democratically elected government is not in question and, as we have persistently experienced to date, there is a distinct lack of experience of Anguillian society, regional economics and relationships or the conduct of a humanitarian response amongst those deployed on this matter.
I look forward to the management of all these issues in the atmosphere of mutual respect that we have been enjoying.
Victor F. Banks
Chief Minister
