I have long argued that tax havens are bad for the world: they are used as the deliberate launchpad for attacks on the right of democratic nations to make their own decisions on the taxes they want to charge. As such they are international agents for the promotion of inequality.
It is also interesting to note just how bad they are at promoting equality within their own economies. As I noted recently, Jersey's economy has had a pretty dire time this century, but a new survey published (and credit is given for this) by the States of Jersey on income distribution within the island shows just who has paid the price for this (not that you would know from their own press releases). Take this for example:
Staggeringly, the poorest 20% of people in Jersey have seen their net incomes fall by a sixth in five years. No one else has.
And then note this:
To put it another way, those in the top decile (the top 10%) enjoyed income 19 times greater than those in the bottom 10% of income earners and that ratio has increased from 12 : 1 in just five years.
Tax havens are very clearly bad news for the world. But they're also very bad news for those who live in them unless you're part of the elite.
In 2012 Francis Maude took it as a compliment that the then government was turning the UK into a tax haven. And now with tax credit changes it looks like the UK is really doing its best to emulate Jersey.
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One other piece of data jumps out from this chart.
Bearing in mind that the chart depicts a comparison of net income before housing costs and net income after housing costs, the question arises as to just how it is the third, fourth and fifth quintiles end up with more net income after they have taken into account their housing costs then the income they had before paying their housing costs.
Having access to the system mechanics of that process would be interesting bedtime reading.
Dave,
Part of it is the mechanics of Jersey’s housing market, which is built on a distinction between those who are qualified to live in the island and those who are not. Property for rent to those who are not qualified (ie have been resident less that 5 years) is generally wildly overpriced and of substandard quality. Those resident over 5 years but under 10 can rent but not buy, those resident over 10 years can buy. The cost of living means that climbing the ladder is not easy.
On top of this there exist two other categories of people who distort the statistics: if you are very wealthy, or are deemed to be in a job which cannot be filled by a locally qualified resident, you can jump the queue and buy property. The current government basically ensure that if you are in finance getting a license is easy, otherwise it’s damned near impossible.
James,
Thanks for this. I do understand what you are saying here. However, there is one feature I’m struggling with.
Whether buying or renting a house involves a regular cost. If renting it’s via the weekly or monthly rent. If buying it is via a monthly mortgage payment for however many years the mortgage runs. It seems reasonable common sense arithmatic to conclude that if anyone at all has housing costs then their net income before housing costs should be greater than it is after they have paid their housing costs, not less – as is the case for the top three quintiles in this chart.
If, as the chart shows, the net income of the top three quintiles is greater after they have paid their housing costs then their net income is before their housing costs are taken into account than logically they have no housing costs and are actually making money on their houses.
Now I concede I am working on the assumption that the term “housing costs” is defined as the cost to those in question of the house they are living in. And that seems reasonable given that this has to be the case for the bottom two quintiles and therefore for the data on the chart to be consistent this has to be the case for the other three quintiles otherwise you are not using the same criteria for the data against all the data sets/points.
The logic of the chart suggests the everyone in the upper three quintiles all own their home outright with no mortgage payments going out and are actually receiving payments to live there.
Now fair enough the actual case may well be that the upper three quintiles own loads of properties and are coining it in as BTL landlords. If that is the case then the chart is slightly misleading as it is not comparing like with like across the quintiles.
You’ve misinterpreted what the chart is actually looking at. This is showing the change between the Before Housing Costs and After Housing Costs figure (broken down by quintile) from 09/10 and 14/15. So it’s not that the 3rd, 54th and 5th quintiles have gained money from housing costs, it is just that they have more now than they did 5 years ago (and this is mainly as a result of persistently low interest rates). The contest is the 1st and 2nd quintiles who have done worse (mainly as a result of rental costs going up in that time).
It hasn’t been misinterpreted. If you look at 3 to 5, whilst it represents the change from 10 to 15, it suggests that for example, in the 3rd quintile, over that period net income before housing costs are taken into account has increased by 5%; but by 7% after accounting for housing costs. As Dave points out, this makes no sense unless ‘housing costs’ are somehow an addition to income for that quintile, which they are obviously not.
The other thing that jumps out from the table is that it is obvious that the main reason for the inequality is housing costs for those in the 1st quintile. This can be easily explained, because most in that section will be renters and whilst rents consistently increase, housing prices have dropped, and interest rates are low.
Essentially this a comparison of how current economic conditions favour home owners over renters. It is as simple as that, and absolutely sweet fa to do with Jersey being a ‘tax haven’.
Jonty – No I’m afraid you are still not quite getting it. The full report is here:
http://www.gov.je/SiteCollectionDocuments/Government%20and%20administration/R%20Income%20Distribution%20Survey%20Report%202014-15%2020151112%20SU.pdf
Whilst they don’t have the figures by quintile for both years, just look at the Median (which is essentially quintile 3):
Net Income Before Housing Costs 09/10 was £650, 14-15 £680 so an increase of 5%
Net Income After Housing Costs 09/10 was £520, 14-15 £560 so an increase of 7%.
This is what the chart is showing (just by quintile) and quite clearly housing costs are not providing an income to this group (as the income figures are quite clearly lower once housing costs are deducted). What is obvious however is that housing costs for those groups has decreased since 09/10 (which I would agree is likely as a result of persistently low interest rates).
Its weird how blogger Rico Sorda supports your cause whilst his wife Chloe works as a Manager at Crestbridge Corporate Services Jersey supplying tax avoidance opportunities to outsiders. What’s wrong with the mentality of the Jersey people are they for it or against it?
Who is Rico Sorda?
And have you considered that might be the only job she can get?
That’s what happens in captured states
Have you also considered they may not share views despite being married. My wife has been known to disagree with me
Richard,
I understand you’re a busy man but will you be giving any further in depth thoughts behind this latest report? To me this is more than just a housing/renting cost issue or “fallout” from the financial crisis as Gorst has put it. To me this a deliberate economic policy of transferring wealth upwards and insulating the elite at the expense of the poor.
This is a time when Jersey people will be looking for answers more than ever and already the establishment has begun to spin it. Any further input would be greatly appreciated.
Sorry: I never got to this
Rico Sorda is a big Stuart Syvret supporter.
You recall the man who wanted to sue you at one time.
I do
But so what?
I believe you are missing a fundamental point. Jersey population has grown by 30,000 from 90,000 to 120,000 over the past 10 years, fuelled in part by immigrants, whose only competitive advantage was cost.
If you take this point into account, then the conclusion of your analysis may not be entirely correct. As competition increases globally, people who low human capitals are under threat of being excluded, and their income decreasing.
So that justifies this outcome?
What shall we call it? Exploitation?
Francois,
Your figures are – to put it politely – garbage. There are not 120,000 people on Jersey. There are probably just over 100,000.
I admit I wondered how the figure was so high
I know there have always been some illegal immigrants but the growth did seem extraordinary