Just a week or so after the outgoing Guernsey finance minister said that island has to look beyond finance and tax abuse if it is to survive it looks like Jersey might be going the same way. Channel Online has reported:
The man in charge of Jersey's purse strings will next week be asked whether the island is too reliant on the finance industry.
The questions facing Senator Philip Ozouf come just days after more bad news for Jersey's banking sector.
First it was Guernsey's outgoing Treasury and Resources minister who flagged up the Channel Islands PR problem, the age-old issue of being labelled a tax haven.
Now his counterpart in Jersey is set to be grilled about that very issue. Senator Philip Ozouf will next week be asked in the States whether it's time to work harder on diversifying the economy.
And just this week Rupert Murdoch, on the eve of his appearance at the Leveson Inquiry, fired a shot across the bows of Jersey and Guernsey by directly flagging up the billions of pounds in the Channel Islands which he calls a 'tax racket'.
I candidly doubt Ozouf will back off.
If he did there's always Plan B for Jersey, that I wrote.
But although it would be massively beneficial to the island it wouldn't suit those who use and abuse the island so nothing like that will be happening soon, I fear.
Jersey would rather go bust first.
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Its a very valid question and should have been asked in more earnest about 10 years ago. Its obviously become somewhat more urgent, but diversification has to be prudent. To what extent it is actually feasible is another matter. As the saying goes, “I wouldn’t start from here”, with high labour costs being a major obstacle to any new industry.
I’ve had a look at your “Plan B”. It’s not remotely viable. I don’t think you could have done any proper research before suggesting that it is remotely viable. Its taken 40 years to build up Jersey’s economy through finance, and would take far longer to build an economy based on your “Plan B”, assuming that there was enough global business to make it work What do you suggest Jersey does in the interregnum to balance its books? An absolute non-starter for any existing finance jurisdiction. Maybe viable for a new jurisdiction starting from scratch (ie to diversify into), but not to replace a mature one.
And I disagree
Sorry – what exactly are you disagreeing with? That we can’t replace our huge income from the finance industry overnight by your Plan B, or that you havnt done extensive research and feasibility studies?
I am arguing that you are wong to say there is no alternative
If there isn’t Jersey is doomed!
Jersey is doomed, Richard. There isn’t the political will to change.
Ozouf’s comments are nothing more than sound bites to appease those who recognise that our economy is in dire straights.
Recent and pending job losses are going to take millions out of the economy, and Ozouf is going to have to make tough decisions… which he won’t, because he knows it will be at the expense of his career.
I think your Plan B could work… but don’t think it will grow quickly enough to continue to support Jersey’s residents in the manner to which they have be come accustomed to over the years.
Aside from finance, I don’t see what see Jersey could offer to the outside world. We’re expensive and inexperienced in most things.
Richard
I’m not saying that there is no alternative. I am querying whether there is a viable alternative – not quote the same thing.
If we were to accept that maybe 50% of Jersey’s finance industry is about to become obsolete over the next 5 years, leaving a residual finance industry which is entirely unconnected with the EU, then Jersey would be completely mad to risk anything which would threaten that remaining business. No sane person would contemplate throwing that business out in the hope that it would be replaced by replacement new business generated by your wholly untested Plan B. The amount of Plan B business required to replace that remaining 50% of Jersey business would take decades to build up, and so it would be vital for two systems to run in parallel, otherwise its not even an option to consider.
There is possibly a small and growing market for Plan B-type financial services, but wealthy individuals will NEVER opt to have their financial affairs on public record (over and above full exchange of information for tax purposes) out of choice when there are many other jurisdictions which will continue to enable them to retain their privacy.
Thanks
That is a reasoned response
You assume however Jersey will have the option of maintaining the status quo
I think that will be very unlikely, and admit I am doing my best to make sure that is true
It is however political momentum in the face of falling tax revenues that will really Crewe change and much sooner than most think, i believe
Richard
My personal belief is that it may be far harder for Jersey to look after Continental EU business, although there really isn’t very much of that business here. Nobody would be too concerned about losing it. Of far more relevance is Jersey’s UK-connected business, most of which is being eroded anyway by new and effective targeted anti-avoidance legislation. That will be by far the biggest driver towards losing the 50% which I think may be at risk.
The other 50% will be either completely unaffected by EU or UK anti-avoidance legislation, or, at the extreme, become domiciled in Singapore or Hong Kong and with lots of bookkeeping, accounting and company secretarial work outsourced back to Jersey where a lot of expertise exists. This will not involve any tax leakage whatsoever for the EU.
I don’t believe for one moment that Jersey’s offshore finance industry will be closed down altogether. If Jersey’s own corporate tax regime has to eliminate 0% (I would put money on it becoming territorial), then its so easily resolved by using Bahamas or Mauritius companies rather than Jersey companies. There will also be a substantial fiduciary industry in Jersey, even if it looks very different from today’s industry. Likewise there will always be a fund administration industry.
Any attacks on Jersey will be limited to eliminating tax leakage from the EU (including the UK). Beyond that, the EU doesn’t care. The US is irrelevant – its
not material enough to matter in terms of existing Jersey business. The Middle East involves no tax leakage there, ditto the Far East as they virtually all operate territorial tax systems.
Personally, I will be relocating to Singapore later this year and feeding work into my Jersey and other international (non-EU) offices. Jersey will be the core office for all my company’s non-EU business, and I don’t believe that will change. Our UK business, or what’s left of it, will be transferred to Singapore and the back office work will be done in Jersey. A senior director team will be based in Singapore managing and overseeing the entire business, and all directorships and trusteeships will be completely run from there. We will end up employing probably 5% fewer staff in Jersey, but it won’t affect us too much at all, and I know several other Jersey fiduciaries who will operate a similar model.
Private banking is where Jersey is going to see by far the biggest hit in employment terms. It is now in its late autumn/early winter phase and will be virtually gone within 2 years due to decreased demand and through the withdrawal of EU government-controlled banks.
The future is undoubtedly East – Middle and Far – but Jersey will still have a huge role to play without needing the EU market at all.
Always is a massively optimistc turn of phrase
And I suspect wrong
You are far too expensive to compete in a global market
Richard
Accepted – “always” is an unwise term. I’ll amend that to 25 years.
I don’t think that would be wrong, especially as I doubt that the EU will still exist within 5 years.
Yes – high costs are a huge problem. Its one of the biggest obstacles to diversification. The effect is that clients serviced out of Jersey need to be very substantial. My own firm’s average new client has risen in value from $2m to $10m in 3 years. Anything smaller is looked after mainly from Mauritius. This is the reason for the focus on Asia and the Middle East rather than Europe. Its vital to “follow the money”.