The Jersey Evening Post has noted yesterday that:
Profits in the [Jersey] finance industry last year were at their lowest levels since records began, according to official figures released today.
The level of profits at £605 million fell by 25% last year from £809 million in 2009 and plummeted by 60% compared to 2008 when profits were at £1.5 billion.
They were at their lowest since the survey of financial institutions started being compiled in the mid-1990s.
That is extraordinary, and perhaps even more severe a decline than I might have predicted. Despite it though Jersey Treasury minister Philip Ozouf said:
that the falling figures did not mean that there would be any need to hit Islanders in the pockets with tax increases to make up the difference.
He said that financial forecasts had already been revised downward twice and that actual taxes received for 2010 were not reflective of such a large drop in industry profits.
I think we can safely call that obfuscation in the face of the evidence.
So let's look at that evidence for a minute. When I was advising a Shadow Scrutiny Committee of the States of Jersey in 2005 it was thought that nearly £200 million (then about 50%) of the total States revenue came from the finance industry at that time - in tax on corporate profits. That was not 20% of those profits because companies could set their own tax rate at that time in jersey (absurd, but true) but it was a substantial sum.
With profits at £600 million now and only 10% taxes, at most, on them that revenue has collapsed by much more than anyone, me included, might have predicted. Revenues now might be £60 million out of a sum of more than £500 million. I suggested the Jersey black hole would be £100 million at that time - it now looks like it might be more.
Now of course GST has come in since then, and been increased once, and that has reduced the impact of this loss of revenue, but at the same time few of the savings that the States would be made in government spending at that time have materialised (a common refrain: governments almost always fail in this objective, as George Osborne will discover in due course if he hasn't realised it already). The result is obvious - there is a big and growing black hole in Jersey's fiances that can gave only two consequences.
The first is that the ordinary people of Jersey be asked to pay more, probably though increasing GST (the local form of VAT) again, soon after its recent rise to 5%.
The alternative is the States will go bust - a scenario GST increases can defer for now and until such time as the local electorate declare that they've had more than enough of being charged the earth to let the wealthy and the large corporations of the world avoid a great deal of tax altogether - but which may not, on the trend of this ongoing collapse in he finance industry be deferred for long.
I said Jersey might be bust by 2015 when I fist predicted a black hole in its finances. GST increases may put that off for a year or two, but I increasingly believe that the entire Jersey business model is fundamentally flawed: Jersey cannot meet the reaosnble demand of its population for public services on the basis of that model.
I am, of course, the only person to have out forward an alternative business model for Jersey - Plan B as I called it. It has been scoffed at by those in power and by the finance industry in Jersey, but the need for such a plan looks more pressing by the day.
Let's not beat about the bush: the finance industry in Jersey is failing. Its contribution to the States is falling, rapidly, both as a result of policy failings and as a result of its own financial decline. Change is inevitable. The question is when will Jersey wake up and smell the coffee?
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That’s half the story.
The other half – which really ought to have people on the streets – is that at the same time as the profits fell the average bonuses paid to finance staff rose last year.
The report contains more than you highlight and there’s more balance to be had.
While there has been a steep decline in profits since a peak in 2008, 64% of 2010 profits came from the banking sub-sector, which in turn showed 57% of revenues from net interest income. In the low interest post global crisis environment, it’s to be expected that profits from such activities will be impacted. Similarly, it’s not surprising that funds activity has reduced in the current climate. These are cyclical issues, not ones related to Jersey’s model.
Set against the profit figures, the report also highlights that Jersey’s finance industry spent £690m on goods and services (up 3% on 2009) and of that, £400m was spent locally in Jersey. In addition, finance sector employment stood at 12,080, which although down 2% on 2009, is still a good chunk of the working population (c.20%+) all of whom contribute directly through income tax, as well as personal spending in the island.
It’s clear that there are challenges (as there always will be) but selective use of the facts to scaremonger is not helpful.
No profit = no business
That’s the way it’s going
And the cycle is going to be down for a long time this time and historically Jersey always takes a long time to recover
The Jersey public are waking up to the reality of economic decline, which they experience in terms of unemployment, no pay rises, rising taxes, diminished business activity and all round reduced living standards. Low and middle income earners are hurting; the rich meanwhile are laughing, just as they always were.
For too long that public had it too good. They lapped the cream from the bowl and gave not a thought for others, for antiquated state structures and for the future, which they believed and still desire to be like the past. They must accept part of the responsibility and make amends. It truly is crisis time for Jersey. That is precisely why the Treasury Minister, Senator Ozouf, is desperately trying to give a positive spin to all news. He is whistling in the dark.
Those whom the electorate trusted for so long as the architects of prosperity are now revealed to be charlatans. They bargained and sold. They are traitors.
Some patriots are prepared to stop the disaster. The electorate will be voting in greater numbers in this October’s general election. Jersey is not a place of dramatic change, but expect a few Establishment heads to roll.
Obfuscation, ambiguity, and spin are all I’ve ever heard from Ozouf.
Take a look at the evidence, his website, extract any examples of the above, and you are left with a blank page.
It would seem he has deleted his first pre-election manifesto for his website. Why is that?
Take a look at his Facebook page, “Positive Politics for Jersey”, just 72 “likes”, subtract his friends and family and what are you left with?