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Will Gibraltar be the biggest Brexit loss for the UK?

Ben Weiss, Tuesday, 10 September 2019

Gibraltar
Source: Ayala/CC BY-SA 3.0.  Arial view of Gibraltar looking down over 'the Rock.' 

Over 1,000 miles away from London, a group of monkeys reside on a rock that’s for the most part bathed in glorious sunshine. Morocco is visible to one side, and the Andalucía coastline to the other. This rock, along with its strategic situation by the sea, has made the land on which is resides highly sought-after for thousands of years.

I’m talking, of course, about Gibraltar, which many people would be surprised to know is actually a part of the UK with full voting rights and even an MP representative in the Houses of Parliament. Its red phone boxes, British traffic lights and mixture of traditional English and Irish pubs hint towards its domestic relation, but its sparkling blue sea and scenic, quaint beaches suggest otherwise.

After centuries of bloody assaults, sieges and captures, Gibraltar has experienced peace (at least in the physical sense) for the past few decades. However, its sovereignty has been the catalyst of diplomatic tensions between the UK and Spain for years now. Spain again launched a bid to reclaim its former territory immediately after the 2016 Referendum results, but here's why it's crucial for the UK to fight to keep hold of Gibraltar after Brexit. 

Gibraltar overview

Before we get into why Gibraltar is so significant to the UK, let’s first learn a little more about the country.

Despite its obvious geographical links with Spain, Gibraltar and its inhabitants consider themselves British. A 1967 and 2002 referendum gave residents the choice to remain under British sovereignty or Spanish rulership, and both times they resoundingly chose the former.

Although it has a population of just 34,000, the tiny nation has a thriving economy in relative terms to its size. It’s focused on four different sectors; online gambling, financial services, ship refuelling and tourism.

What makes Gibraltar a key asset for the UK?

So, why is Gibraltar an asset for the UK? This hinges largely on the sectors just mentioned. Where resources are not available in abundance, Gibraltar channels what it does have and uses it very efficiently.

Online gambling

A number of UK firms have a headquarters in Gibraltar to take advantage of lenient tax laws for gambling firms. As well as being exempt from VAT, including workforce and marketing costs, Gibraltar’s favourable betting license ensures these firms pay less tax on earnings than in the UK and many other countries. The gambling industry is said to contribute to up to 25% of GDP for the entire nation, and it has undoubtedly been a factor in Gibraltar having the fastest growing European economy.

Tax haven

Laws in Gibraltar are based on English law, but taxation is one area where there is a significant difference. For those business that are not originate in Gibraltar, no income tax or tax on capital income is paid – unless the source of the income is from Gibraltar. VAT and other forms of sales tax are not charged either and there are certain leniencies/loopholes that non-resident companies can capitalise on to reduce tax.

Country Corporation Tax 
(%)
Relevance
Gibraltar  10 -
United Kingdom  19  Governs Gibraltar
Germany  29.65  Largest European economy
Luxembourg 29.22
Offers huge tax incentives, largely considered the European tax haven
United States 21-33 (Varies by state) Largest global economy
Spain (Mainland)  5 Borders Gibraltar
Monaco 33  Similar, lenient tax policies to Gibraltar
American Samoa 15-44  Highest rate in world

 

Tourism

As a part of the UK courtesy of being an overseas territory, UK citizens do not need a passport to travel to Gibraltar – the same way that a passport is not needed to travel from London to Edinburgh. Of course, the tiny nation is situated precariously close to Spain and surrounded by sea, but it does indeed have its own airport that has direct flights from the UK. Most visitors enter through Spain using a passport, but the point remains that it is directly accessible from ‘mainland’ UK.

Source: YouTube/Stoll915.  A video from a plane taking off and landing at Gibraltar, which is considered one of the most dangerous airports in the world due to mountainous winds and the short runway.

So, assuming a Brexit that alleviates the free movement of travel for UK citizens, Gibraltar might be one of the only options for a sun-filled holiday destination that requires no form of visa or paperwork. It’s likely that after Brexit, a trip to Spain or Italy for a bit of sun will still be easy, but it’s worth having Gibraltar in the back pocket as an easy alternative to the Costa Del Sol.

Location

From the elevated viewpoint on top of ‘The Rock,’ the Moroccan coast of Africa can be seen, as well as the Spanish city of Algeciras. Being a gateway between two continents, with the sea between Africa and Europe called the Strait of Gibraltar, it holds strategic significance in both a commerce and military point of view.

Gibraltar location-min
Gibraltar's location in the south of Spain (taken from Google Maps). 

The Straight is one of the busiest sea lanes in the world, with a number of European imports and exports using it to connect Europe with the Americas, Africa and the Far East. Having this ‘base’ right on the tip of Europe is very handy for the UK to take advantage of exporting goods to the rest of the world, as well as having direct access to the busy sea lane.

Leverage over Spain

Even if Gibraltar had little value to the UK (which is not the case at all), the fact that the Spanish are so keen to reclaim makes it of value. It was once a part of Spain, but Anglo-Dutch forces captured it in 1704 and officially declared Gibraltar to the British nine years later.

The people of Gibraltar have since considered themselves British and have grown a certain amount of patriotism towards their identity, as Spain has relentlessly pushed to reclaim the territory. Two separate votes in 1968 and 2002 affirmed the Gibraltarians’ loyalty to the UK, with both overwhelmingly declaring the desire to continue to be a part of the United Kingdom.

Spain has not let up in its persistent pursuit of Gibraltar, and saw Brexit as an opportunity to finally reclaim what they feel is theirs. It’s still unclear as to what will happen with it post-Brexit. Gibraltar voted in favour of remaining in the EU (95.91%) and requested to stay in the EU after the UK has left, but it too will leave with the UK.

Gibraltar will continue to have key connection and a certain influence over Spanish business in the area, so it’s unlikely that the Spanish quest for ownership will cease anytime soon. 

Negative impact of Brexit on Gibraltar

As much of an asset Gibraltar may be to the UK after Brexit, its citizens could be the ones paying the price for the departure from the EU. Being in such close proximity with Spain is an issue. As much as Gibraltar prides itself on its independence, it simply cannot capacitate the number or workers whose jobs fall within the country. Thousands cross the border each day from La Linea, the Spanish city over the border.

That trip can sometimes take around an hour going back into Spain, with the Spanish border control doing everything they can to frustrate travellers and make the process as drawn-out and tedious as possible as if to say, ‘If we were in charge of Gibraltar we’d make it quicker.’ Post-Brexit, this could take far longer if and when free movement is abolished when the UK leaves the EU – depending on if a deal is struck.

Furthermore, a tightening of border checks (something that will result in a lengthening of the time it takes to cross the border) could be implemented. At the moment, many unemployed Spaniards residing in La Linea travel to Gibraltar to purchase cheaper goods to sell on for a profit. Cigarettes (often illegal amounts) is the main product smuggled back over the border, with the price of tobacco being 40% cheaper compared to Spain.

So, will Gibraltar be the biggest loss for the UK after Brexit?

After years of remaining stern and not giving in to Spanish 'requests' to hand over Gibraltar, the UK's grip, or rather desire, to cling onto sovereignty of Gibraltar seems to be loosening. Brexit is the perfect excuse for the Spaniards to launch another bid as to why they should reclaim the region, with laws regarding tax, movement, imported goods and other aspects crucial to the everyday lives of Gibraltarians set to change.

The UK has previously accepted that talks must opened between themselves and Spain regarding a deal over Gibraltar post-Brexit, and these will almost certainly bring up the issue of joint sovereignty. 

That said, the Gibraltar residents are fiercely against Spanish rule, but the impact of Brexit may leave them with no choice. Were the UK to lose Gibraltar, it would be a massive loss in terms of what it is as an asset. Depending on how else the departure affects the UK, it may not be the biggest in terms of financial loss, but it will be a symbolically devastating loss in terms of status and power among other countries. 

 

 

 

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