In the late 1990s my friend and tax justice colleague John Christensen left Jersey, fed up with saying, in his role as senior economics adviser to the island's government, that turning itself into a fully fledged tax haven would be a disaster.
Since 2005 I have been forecasting that Jersey had no long term future in this role.
Today Jersey has published new data on its economy in 2013. It includes this table on the changes in gross value added (GVA) for the island, which is its equivalent of GDP, during the course of this century:
In 14 years Jersey has grown in just four.
Total gains were 15%.
Total losses were 29%.
Now I know you can't quite add percentages up and be statistically valid but you can certainly say that this data shows a very marked trend.
This year Jersey is celebrating maybe standing still - the first time it may not have lost since 2007.
I think both John and I were right.
I can't see Jersey agreeing, even when the evidence is right there in front of them that being a tax haven just does not pay.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Would it be reasonable to set 1999 as 1 (or 100%) and apply the year on year changes?
My quick estimate would mean that Jersey’s GVA is about 85% of its 1999 level. Pretty close to the straight plus/minus difference anyway.
I suppose the actual GVA’s are around somewhere to make it simpler.
Not good either way!
While growth in the Eurozone and Uk has been…?
Have you noticed pre 2007?
And the ONS tell us we only dipped once
The Euro Area had gone from 11 to 17 countries from 1999 to 2013 (18 now). Working it out from individual member GDPs is a bit beyond me.
The UK was up about 24% from 1999 to 2013 according to the ONS.
Of course the bulk of Jersey’s income comes from the finance industry and it has had a difficult decade. But the problem is really deeper than that and is, quite simply, what prospects do geographically remote small communities have in the 21st century? Between the end of the war and the mid-80s Jersey had a thriving agricultural and tourism sector. But both of those were effectively destroyed by globalisation: it was cheaper to grow tomatoes in vast greenhouses in Alicante (and now Thanet and Isle of Wight) than Jersey, and flights to countless destinations in Europe are now cheaper than Jersey.
Historically (i.e.pre 20thC), Jersey was a very poor place and what wealth it had was the result of either cod fishing off Newfoundland or smuggling. I suspect it was in that way similar to many other places with small populations which are geographically distant from major markets.
Personally, I believe it is a mistake going for economic growth all the time: I think a better approach is to control the population and aim to improve quality of life. But unless places like Jersey can attract wealth from outside (whether by tourists coming here or people sending their cash/IP here) really they have no future, other than as giant retirement homes. It is a real problem, but those who attack a lack of diversification really miss the point: what could you do in Jersey (or for that matter the Western Isles, Pembrokeshire, Brittany, Anglesey etc) that you could not do more cost effectively 30 miles from a capital city?
Plenty of people in Jersey would love to see a more diverse economy. I am sure the same applies to most of the UK. It is easier said than done.
We had a way of solving this
It was called redistribution
It meant localities did not have to provide their own infrastructure and core services which were paid for them so local added value could be all used locally
Jersey needs to come in from the cold and into the UK to take part
And the UK needs to realise its obligation to redistribute the wealth of the south-east
Or no one wins
It is hard to conclude that “being a tax haven just does not pay”. Compared with what as the alternative?
Jersey is unquestionably a very different place from what it would be today had it never developed offshore finance, and I dare say there will be many who would see that as a positive, and many who would see that as a negative.
I have close family ties to Jersey and I visit there regularly. I cannot imagine what other sustainable industries Jersey could have developed in place of finance in order to sustain the population, and to retain its youth.
Raw materials and finished goods are far too expensive to ship in and out, and tourism simply cannot compete with the Med. Frankly there is not a lot else, which I think is precisely why Britain so pro-actively encouraged its dependent territories and crown territories to become tax havens in the 1960s. The reality is that they became too successful at it, and the global demand for offshore tax havens far exceeded expectations!
We could have encouraged drug dealing as an alternative with as much harmful impact
Would you have agreed with that?
I have provided my answer to the problem in answer to another commentator
Richard
I don’t think so. Drug dealing is and always has been illegal. Having an offshore finance industry is not and has never been illegal, even if elements of it clearly can be.
Your “redistribution plan” is hardly a viable solution. Far too many other ducks would have to be lined up first, not least precedents re poor areas of the UK. Tnose poor areas of the UK could at least create new viable industries, with no expensive stretch of water to make them non-viable. Jersey would never have that option. It would surely be signing its own death warrant. So whilst what they have now might be in decline, it is a heck of a lot better than the alternative of being a sea-surrounded version of Middlesborough after Corus pulled out.
Drug dealing would quite probably have caused less harm to the world than what many secrecy jurisdictions like Jersey did and do by facilitating that trade
Open your eyes and stop making excuses
“Jurisdictions like Jersey did and do by facilitating that trade”? Do you mean Jersey, or jurisdictions like Jersey? Do you mean past or current tense?
Do you seriously believe that Jersey’s finance industry proportionately harbours more drug dealing proceeds than onshore jurisdictions like the UK’s does.
Jersey financiers have admitted it had a wild past
It is clear this happened on a massive scale in othe jurisdictions and I expect it still does
Do I believe Jersey will harbour more drug money? Undoubtedly, yes. Of course I do
Past? Yes. Drug dealing proceeds? How widescale has that been in Jersey? What has what has gone on in “other jurisdictions” got to do with Jersey’s own reputation?
The problem is systemic
“Systemic handling of drugs money”? Where’s your evidence?
If you haven’t noticed by now you never will
I can hardly notice something which does not exist.
I repeat. – where is your evidence?
I suggest you go and read the quite extensive literature in the use of tax havens
Richard
There is very little of it that I have not read.
I see some limited historical evidence of Jersey being used to harbour drug-dealing proceeds.
I see no evidence of current or recent evidence of it since the impact of Jersey’s AML took hold.
Where is your evidence of current usage?
A) you think this activity gas only stopped in Jersey?
B) Where do you think the legacy funds are?
Richard
I think that sort of money left Jersey a long time ago. Far too much chance of it being reported by highly competent compliance officers. Jersey is one of the last places that a criminal would think safe these days.
Singapore, Panama, Dubai, Hong Kong, Monaco and Bahamas would be top of my list in terms of where it will have moved to.
Very politely, I am trying not to laugh
Jersey’s biggest problem is its immigration policy. Nobody is going to move genuine businesses into Jersey that employs local people unless they can bring their key staff with them. You can’t move the real activity of a business to a low tax jurisdiction if you have to leave key members of staff behind. The only thing you can attract with the current policy is brass plates.
I know the Isle of Man does not impose such restrictions,being open to any UK or EEC citizen to reside and/or presumably open a business,although work permits might be required. So how about Guernsey?
Such restriction must discourage inward legal investment,so do they not allow temporary residence for such start ups?
Brian
Identical to Isle of Man. Any EU or EEA citizen can rent or buy an open market property in Guernsey, which fee they can freely work or set up a business and there is no minimum tax contribution which they need to make (unlike in Jersey). There are around 1650 designated open market properties in Guernsey (about 10% of the housing stock).
Open market residents have to pay a premium (roughly double) over and above the local market rental or purchase prices, and the open market prices are driven solely by supply and demand.
In other words – the market is rigged
It isn’t identical to the Isle of Man, because the whole of the property market is open in the Isle of Man.
Richard
Yes it is “rigged” to protect the interests of locally born and locally qualified residents. It is the only way to control the population, as demand to reside in Guernsey far exceeds supply.
Michael
Yes, you are correct.