Good Evening,

I hope that you have had a happy Christmas and festive period with your family and friends. Many of you, like me, have been struck with the flu during the holiday period! I hope that this did not prevent you from enjoying Christmas. Well, 2004 has certainly been an eventful year for Gibraltar.

We have celebrated our 300^th Anniversary – the Tercentenary – with a series of successful and enjoyable events both here and in the United Kingdom. The highlights were, of course, the street parties and events of 3^rd and 4^th August; the RN Freedom Ceremony; the Elton John Concert; and the Princess Royal’s visit. But perhaps the most important events were the dozens of cultural and sporting events and the many events carried out by our children at schools – and of course – the Rock encircling by the people of Gibraltar. Through all these events, Gibraltar did what we do best – celebrate together as a community - celebrate our homeland, our history, our achievements, the sacrifices of our forefathers, our resoluteness and determination and our spirit as a people. The last 300 years have been our history and we have rightly celebrated and commemorated it as we have wished. But in celebrating our past we have also made an important, dignified statement about our future, namely, that just as Gibraltar’s history is ours so to its future belongs to us as well, and only we can decide it. And so, when we all come together to celebrate as a community, we are reinforcing also our collective aspirations and political rights as a people in this our homeland, and our now legendary determination, willingness and ability to protect and defend them with dignity and calm, but effectiveness.

We have also successfully used the Tercentenary Celebrations to make new political friends for Gibraltar and to cultivate and consolidate existing ones. The Church Service at St Clement Danes in London on 2^nd March was a huge success and is still spoken of in the UK with admiration, fondness and respect. Later in the year, in October, 1000 guests joined in our Tercentenary edition Gibraltar Day celebration at the Guildhall in what was a very moving event. Also, as part of our celebrations nearly 500 veterans have visited Gibraltar as our guests during the year. In this way we have marked Gibraltar’s 300 year old special relationship with the armed forces. The value of such visits is evident from the sentiments that these new political Ambassadors for Gibraltar express for us following their visits. The Tercentenary celebrations have given us the opportunity to consolidate the political support for Gibraltar in the UK achieved during the successful political campaign of the previous years against joint sovereignty.

I would like to take this opportunity to thank everyone who has worked so hard to make the Tercentenary the success that it has been, but in particular Peter Canessa, the Tercentenary Events Director here in Gibraltar and Albert Poggio and the staff of the London Office, for the events there.

During 2004 we have also seen some significant land mark achievements in the ongoing work to modernise and develop Gibraltar and to improve the quality of life. Not least amongst these was the successful establishment of the new, reliable and comfortable bus service which has finally enabled Gibraltar’s urban transport system to catch up with the rest of Europe. Similarly, the refurbishment of John MacIntosh Square has been a huge success and a great embellishment of our City Centre. The Government will continue with such projects throughout Gibraltar. The Lands Transfer Agreement concluded with the MOD in April transferred about 40% of the MOD’s lands to Government without affecting MOD jobs or operations. This land will offer housing and commercial development opportunities for years to come. And of course, as the parent of a university student myself, I know that many of you will have felt the positive impact of the end of parental contributions to university grants!

This last year much work has been done on three large social projects which will come to fruition soon during this new year.

In February the magnificent new hospital at Europort becomes operational. This will continue to be called St Bernard’s Hospital. But the name is the only similarity with the old hospital. This is truly a state of the art, modern, well equipped, 21^st Century medical facility of which Gibraltar will be justifiably proud for generations to come. It represents a £55 million investment in the health of our community, now and for the future. It represents the health service’s share of Gibraltar’s economic success story in recent years. The new hospital contains millions of pounds worth of the very latest medical equipment and systems, state of the art intensive care facilities and wards, x-ray scanning and dialysis equipment, operating theatres and sterilisation facilities, menu-catering facilities, a garden, air-conditioning throughout, patient’s entertainment system and – at long last – a dignified and worthy mortuary area.

To go with our new hospital, work is very advanced on the "root and branch" reform of our health services, its management, and medical processes and procedures. Together, these two major developments will at long last – and once and for all – give Gibraltar a modern, safe and reliable health service free of waiting lists and private practice. No activity or organisation in Gibraltar has ever undergone this sort of transformation. Such is the scale of change, that the small matter of an end to all forms of private practice has gone almost unnoticed!

Those of you who have family members in residence at Mt Alvernia will know what a marvellous, dignified and caring service is now provided there to your loved ones. Not only has the concept of the service provided improved beyond recognition, but the building itself has been refurbished and redecorated internally from roof to floor. It’s capacity has been extended from 70 to 135 residents, and this additional capacity will come on stream during the next few weeks.

Happily, our elderly are living longer to even riper old ages. As a community we therefore need to provide still more elderly residential facilities. We will now turn our attention to providing still further sheltered, residential facilities for our elderly at some of the buildings to be vacated at the old St Bernard’s hospital site.

Indeed, the move of St Bernard’s hospital provides a once in all time opportunity to redevelop a large chunk of the old Upper Town. This will provide the catalyst for the regeneration of the Upper Town, a much delayed project which will finally get under way this year.

Later this month the Government receives the construction tender bids for our housing scheme at North Mole on which construction will therefore start in February. This scheme will see the construction of 400 affordable homes for sale to our youth and first time homebuyers and 140 rental homes specially designed for the elderly. Marketing of the home ownership units will begin in the next few weeks.

Also during 2005 we will see the construction of a youth leisure centre at King’s Bastion. Many of you will be delighted to learn that this project entails the demolition of the old generating station hall, thus increasing the exposure of the historical bastion itself!

On the economic front I am happy to say that Gibraltar has continued to grow and to prosper. In 2003 the economy again grew healthily – this time by 8% driven by increased levels of employment and economic activity.

All our economic sectors are performing well. Our port continues to grow and prosper as does our tourism and hotel activity. Our gaming industry now employs about 1000 people and has grown to become one of the world’s leading virtual gaming jurisdictions. We are very proud of this world leadership and we are responding with a greater legislative and supervisory structure for the industry to protect our reputation as a country and that of the many blue chip gaming companies that we now host here.

Even the Finance Centre, challenged as it is by tax uncertainties, has continued to grow and develop. This remarkable performance is a testament to the sector’s robustness, resilience and expertise. It is, of course, in this area of taxation and the Finance Centre that Gibraltar has faced its biggest economic challenge requiring me to devote a huge amount of my time to it last year. As you know, the European Commission rejected our proposed new tax reform proposals saying that they breached State Aid Rules. That by itself would not have been a great challenge. But two other factors have combined to create a huge threat, such that some vultures in the Spanish press and political arena had already begun to publicly circle overhead, pronouncing and rejoicing in the end of our Finance Centre. What were those factors. Firstly, in rejecting the tax reform proposals, the European Commission has challenged Gibraltar’s right to have any tax regime that is different to the UK’s tax regime. Obviously, this misconceived view has been challenged in the European Courts by both the UK and Gibraltar Governments. But that Court Case may take several years to conclude and, in the meantime, the European Commission has threatened to close down our tax exempt status regime as well. The exempt status regime is not only the mainstay of the Finance Centre, it is also the basis of most of the gaming industry. These two sectors account for thousands of jobs in Gibraltar and a large chunk of our economy. Continuity is therefore of vital economic importance.

Well, I’m sure that you have already spotted the predicament! If the EU Commission were to shut down the tax exempt regime (as it had vowed to do) and will not allow its replacement with anything except the UK tax regime – then the tax model upon which our economy is based and many companies and jobs are set up in Gibraltar is destroyed. It is not possible to exaggerate the grave economic impact of this catch – 22 situation.

Accordingly, during almost all of this year we have been engaged in intense and very, very difficult and protracted negotiations with the EU Commission, to try and agree terms upon which they will allow the exempt status regime to continue to operate until the European Court rules on our rejected tax reform proposals, and more importantly, on our legal entitlement under EC rules to have our own tax regime different to the UK’s. This last issue is absolutely crucial to Gibraltar’s future economic and therefore social and political success. To speak of exaggerating the impact of this issue (as the GSLP Opposition has recently done) suggests, at best, a total lack of understanding of the issues and their consequences and implications for Gibraltar.

In December we were finally able to strike an agreement which, I am confident will shortly be ratified and approved by the full EU Commission and thus come into effect.

Happily for our economy there is no let up in international investor confidence in Gibraltar. There are several large scale investment projects in the pipeline. In December we announced the Mid Town Project on the Naval Grounds. Others will be announced shortly, including we hope, the Eastside Development project which will represent a huge boost to the economy and local employment over many years to come.

On the political front too there have been important developments in 2004. At the United Nations, the UK and Spain introduced, an albeit very small and insufficient modification to the text of the UN Consensus resolution to include a reference to the aspirations of the Gibraltarians. This obviously is a very long way from a proper recognition and respect of our inalienable political rights as a people. But it is at least a small first step in the right direction, after years of us banging away at the UN.

Also, we were glad, at last, to participate for the first time in European Parliamentary Elections following success in the Denise Matthews case conducted before the European Court of Human Rights by the Government.

The Government has also had to remain alert and vigilant as the European Community drew up its new, draft Constitution document especially to ensure that our EU exemptions on such things as VAT were not jeopardised. It remains to be seen what fate awaits this draft constitution. There is huge hostility to it in various countries of Europe.

A very major political development was the agreement in December between the Governments of the UK, Spain and Gibraltar to set up a new, trilateral process of dialogue outside the Brussels Process. This agreement fully delivers the conditions for safe and reasonable dialogue that successive Gibraltar Governments have been seeking for decades. It is outside the Brussels Agreement. It is dialogue on an open agenda basis. Gibraltar has its own separate voice and participates on the same basis as the UK and Spain. Finally, nothing is agreed on anything unless and until the three sides agree to it. I believe that this outcome represents success for our longstanding policy of reasonable and safe dialogue on the terms and for the purposes that we have long been advocating and which is viable for all sides.

Everybody knows that the sovereignty of Gibraltar is not negotiable, and this will not change. This agreement and this dialogue does not and will not change that, just as it does not change Spain’s own objective which remains the recovery of sovereignty. But all sides look forward to participating in dialogue and seeking such agreements as may be possible which will enhance co-operation, improve cross border relations and improve the economies, societies and qualities of lives of people on both sides of the border. We look forward to working towards the best possible relations with Spain consistent with the continuing defence of our rights and wishes as a people. And so, the only constraint is that the sovereignty of our homeland and our political rights as a people to decide our own future must not be adversely affected or prejudiced in any way. That will not change either.

I repeat my recent observation about the Brussels Agreement. As far as Gibraltar is concerned it is now totally irrelevant and should be formally abandoned by the UK and Spain at the earliest opportunity. That is a matter for them, but there is no prospect of Gibraltar’s participation in it, nor can there be any question of parallel bilateral talks about sovereignty between the UK and Spain.

Another very important political development was the start of formal constitutional negotiations with the British Government to modernise our constitutional relationship so that it ceases to be colonial in nature. To undertake this important task I set up a broad based Gibraltar delegation to carry out the negotiations with HMG. The process got off to a good and promising start and it is important that the momentum continues with a view to arriving at a conclusion this year.

The year ended with the tragic events in the Indian Ocean Basin. Earlier, I spoke of Gibraltar’s community spirit. This has many, varied and frequent manifestations. But it has been clearly evident in Gibraltar’s response to the Tsunami and its victims. Already Gibraltar’s financial contribution per capita leads the world. Many of you will wish to see your Government take part too, and so, Government will be initially contributing £100,000 to the relief effort. But we hope to do more than just send money. The relief and reconstruction effort will take months and years. Thousands of communities need to be rebuilt. We will seek other ways to help, perhaps by sending a relief team, medicines and medical equipment from the old hospital to set up a medical facility somewhere in the affected region. A Committee is being established in partnership with Gibraltar charities and other NGO’s to develop these ideas.