It is now clear that Gibraltar will be used as a bargaining chip in the Brexit negotiations over the coming years, as the UK prepares to leave the European Union.

I had always thought that the border between Gibraltar and Spain would remain open.  But circumstances are changing. At the time of writing the EU is insisting that Spain implements border controls in the Schengen area to prevent illegal immigration and increase security.   After the UK leaves the EU, the border will change from being an internal border to an external one. This will inevitably cause delays crossing from Spain to Gibraltar and if the Spanish Government decides to be awkward then crossing would become an arduous daily ordeal. 

Senator Jose Ignacio Landaluce of the Spanish Foreign Affairs Committee told ITN “Even if we go easy, I can assure you things will be a great deal more uncomfortable than they are now.”  Such controls enforced daily could wear down those travelling across the border to work to the point where business could be disrupted.

On 31 March 2017 the Daily Telegraph reported that the draft guidelines drawn up by EU leaders state that the Brexit deal will not apply to Gibraltar without an “agreement between the Kingdom of Spain and the UK”.

The clause has taken British officials by surprise. One told the Telegraph it is “absolutely unacceptable” and gives Spain too much power over the future of Gibraltar. 

“One really wonders why the EU has thought it sensible to put in something that’s a bi-lateral issue between Spain and the UK,” officials said. 

Gibraltarians voted 96% in favour of the United Kingdom remaining within the EU in the 2016 referendum.  They did not vote to leave the UK and, as they are concerned, being a part of the UK takes precedent.  

Gibraltar the low tax jurisdiction

But a weakness in Gibraltar’s case is that it is a low tax jurisdiction.  There are no capital taxes, no VAT, gambling tax is 1% of gross gaming yield capped at £425,000 with a minimum payment of £85,000. Excise duties are very low causing daily smuggling runs into Spain. 

The rate of income tax peaks at 29%, with the rate then falling in bands for amounts over GB£ 353,000. In general it is a progressive rate in reverse!  Low taxes equal a booming economy and Gibraltar has been growing at a rate of 12% a year.

Given both the EU and UK apathy towards low tax regimes and the need of all member states to raise more in tax to finance budget deficits, Gibraltar is hardly likely to find favour.  On a cost-profit analysis, if Gibraltar were to become Spanish, would companies stay in Gibraltar or migrate back to the UK? If the latter, what would be the benefit to the UK exchequer?  

On the question of sovereignty, in 2013 the former Labour Government minister Peter Hain mooted the idea that the best way forward is for the UK and Spain to have dual control of Gibraltar.  So discussion within the UK Government has already taken place about resolving the situation with Spain.  In any case, the Chief Minister of Gibraltar, Mr Picardo rejected the idea on 10 January 2017 but has also stated that if Gibraltar lost access to the single market it would be a disaster.  It is wanting the best of both worlds that is likely to test Gibraltar’s resolve.  Fiscal pain can change minds.

The Spanish attitude is clear, within hours of the referendum result last year, then-Foreign Minister José García-Margallo declared that the time to plant “the Spanish flag on the Rock” was close at hand.  Probably a bit of bravado at the time but nevertheless a demonstration that emotions on this subject run high in Spain. 

The rhetoric has not cooled since and the new Spanish Foreign Minister Alfonso Dastis told the parliament on 30 March 2017: 

“We will not agree to any documents that will undermine Spain’s position on [Gibraltar] sovereignty or back Gibraltar’s economic activities that hurt Spain’s interests”

The low tax regime is one of Gibraltar’s economic activities is damaging to Spanish interests. 

Spain has now escalated the situation by saying it would not object to Scotland seeking independence. Previously Spain was concerned that to do so would encourage Catalonia to break away from Madrid.

E-gaming implications

All of this has unnerved e-gaming operators on Gibraltar.  888 Holdings, one of Gibraltar’s largest operators, highlighted the EU negotiations and Gibraltar’s position as a risk:

“The proposed status of Gibraltar in relation to the United Kingdom as a result of ‘Brexit’ is at present unclear,” 

“If 888 were to remain registered, licenced and operating in Gibraltar in these circumstances, its ability to rely on EU freedom of services/establishment principles in supplying its services within the EU will be limited.”

Regulatory licences issued in one jurisdiction might become ineligible in certain EU jurisdictions.

The ability to rely on EU principles underpinned 888’s regulatory strategy regarding major EU markets, the company said, adding that it would be unable to control or mitigate political changes of this nature. 

888 Holdings, however, “would reconsider the appropriateness of remaining registered, licenced and operational in Gibraltar in these circumstances”.

“Malta may be considered as an alternative ‘dot com’ licensing jurisdiction.”

In its 2016 interim report published before the UK’s move for a hard Brexit, GVC Holdings said Brexit could reduce the group’s ability to operate in certain EU markets without a change in domicile, which could carry a higher tax burden.

But Lottoland CEO, Nigel Birrell, said, “We began operating from Gibraltar in May 2013 and it has been the perfect base for our business, providing an excellent platform for our success… Our business is thriving and the benefits of staying in Gibraltar remain very strong indeed.”

Fish for access

What would be on the table during the negotiation with the EU that would affect Spain, the UK and Gibraltar? FISH!

The UK embraced the idea of Total Allowable Catches (TACS) because of the EU policy of “equal access to a common resource” in 1973. The rest of the EU now has 75% of the TACs, despite the UK having 48% of the seas. It also shows that the EU catches 59% of the fish in UK waters, which is worth around £711 million. The UK catches 15% of its fish in EU waters while the EU catches a whopping 54% in UK waters.  Spain imports a great deal of fish and it will want continuity of supply.

The fishing towns in the north of England voted Leave by a big majority and Britain’s UKIP party has said that regaining control of Britain’s fish is a priority. If the UK wants control of its fish it may have to relent on Gibraltar.  Not so says Boris Johnson, the UK’s Foreign Secretary, who said the future of the Rock was not up for discussion whilst its people still overwhelmingly want to remain British.  

I believe that to be the crucial element.  If the UK is leaving the EU because of a democratic mandate from the electorate, does it not follow that if Gibraltarians want to remain British then that is their democratic right? 

Last but not least, Gibraltar occupies the strategic entrance to the Mediterranean Sea giving access to the Suez Canal and the Middle East. Although Spain is a member of NATO the British Government would want to relinquish control at a time when the future of NATO itself is in question.

Gibraltar needs to establish a more coherent political objective. Access to the single market as an EU member, and remaining British does not recognise that things have changed. Gibraltar needs to present the simple case of staying British. Becoming a part of Spain and losing the tax advantages that attract business is a move that would cause the Spanish flag to fly over Gibraltar and would render the economy to that of La Linea, the poor Spanish town across the border. Like Britain, Gibraltar needs to cast its net wider than the EU.

by Warwick Bartlett