Jersey Is Not Bust, @OliverBullough

Reading today’s Guardian article, The Fall of Jersey leaves one hoping for better-quality journalism… or certainly some balanced reporting.

Oliver Bullough argues that Jersey is heading towards an abyss financially, as its government deficit is forecast to expand to £125mn by 2019. Let’s put the numbers in perspective to start with.

Checking the States of Jersey’s Annual Accounts, which are easy to find on the government’s website, I would draw attention to the following:

  • Jersey’s forecast deficit of £125mn in 2019 represents around 3% of the island’s £4bn GDP. By comparison, according to UK’s ONS Britain’s general government deficit in 2015 was 5.1% of GDP and peaked in 2009/10 at 10.8%.
  • Jersey has barely any external debt; UK has £1.6 trillion (87.5% of GDP).
  • Jersey’s balance sheet shows £3.3bn (almost 100% of GDP) fixed assets. It’s almost impossible to find a comparable number for UK, but one figure suggests £158bn of liquid assets (8% of GDP).
  • UK central government expenditure is running at 35%-40% of GDP; Jersey’s (£674mn) is substantially less than 20% of GDP.

So, Jersey starts from a much, much better position financially than UK.

Mr Bullough then goes on to conflate Britain & the United Kingdom: yes, Jersey’s status is peculiar but it is far from unique. In fact there’s a term for it: Crown Dependencies. All have their own governments and the power to levy their own taxes (yes, Mr Bullough, Jersey people do pay tax).

It is also rather inaccurate to describe Jersey as “London without the rules or the taxes”. Jersey has a well-regulated financial services industry and does levy taxes — just not the same taxes as UK. Whilst some people might describe this as “unfair tax competition” in almost all other walks of life, we see competition as a good thing, so why is tax competition not also a good thing?

The article also talks about the Tax Justice Network and studies that “highlighted Jersey’s role in sucking wealth out of countries that need it most”. Let’s think about that for a second: for a start, Jersey isn’t “sucking” at all. People bring their businesses, their wealth and themselves to the island for any number of reasons, but if we’re talking about the “countries that need it most” then I suspect often that’s exactly the problem: a lot of governments in the Developing World just cannot be trusted. Indeed, when Cyprus is “bailing in” depositors (effectively, expropriating their money) who could blame a government in the Third World for thinking it’s OK to nick a bit off the rich every now & again to pay for their profligacy (or even just their lifestyles)? So a wealth-creator based in one of those countries might seek to put her money somewhere safe, just so it’s out of their reach. That’s not necessarily tax avoidance, tax evasion or anything untoward — it’s prudent risk management. Situations like the introduction of exchange controls, re-balancing of fixed exchange rates etc (think China, Argentina for example) are other examples of where Jersey has something to offer. All the evidence suggests that once governments clean themselves up and demonstrate they can be trusted, capital flight ceases and indeed reverses.

There is also a continued willful misunderstanding about what “tax neutrality” means with respect to vehicles such as offshore funds. If a fund has investors from UK, France, USA, Singapore etc etc it’s really important that the investors aren’t taxed twice. That doesn’t mean they’re not taxed at all: rather, that they are taxed in their home jurisdiction, not Jersey. Hundreds of jurisdictions (including Luxembourg & Malta) offer similar structures for the same reason. Does that mean they’re “aiding & abetting” tax avoidance? I think not.

I have some sympathy for Richard Murphy when he says Jersey’s business model is “fucked”. Tax transparency, moves such as OECD’s initiative on Base Erosion & Profit Shifting and just a shake-up in banking & finance generally; all have served to threaten Jersey’s continued affluence. Indeed, Jersey’s Gross Value Added is already more than 10% smaller than it was in 2000, having shrunk in ten of the next 13 years. Almost exactly 100% of this reduction has come from a collapse in financial services (from £2.52bn in 2000 to £1.69bn in 2014, a 33% fall).

The article quotes Unite that, “it’s depressing… seeing where the island’s heading.” But in part, unions are to blame because as tax revenues fell after the new Zero-Ten regime was introduced, the local population (many employed by government) resisted the idea of cuts in employment or public services. Having got used to the drug of finance money, they could no longer imagine life without it. Ministers need to get more realistic about the way they articulate this to voters.

Mr Bullough then goes on to look at Jersey’s tourism industry: to be sure, numbers have collapsed from 1.5mn people in 1979 to 338,000 in 2014. I couldn’t find a good break-out of tourism (the GVA report shows “Hotels, restaurants & bars” as a single category but then doesn’t mention all the other income derived from tourists when they are here); however one thing I’m certain of: the average tourist today is probably spending several times as much as a tourist in 1979. The hotels have gone up-market, offering spa facilities, Michelin-starred restaurants and so forth. The flights between Jersey & UK have never been more packed in my six years here, so someone is still visiting.

On the subject of Jersey’s agriculture, I’m not sure where Mr Bullough was walking but I can confidently assure him there are a lot of cows here. But there do seem to be some issues with farming here, although it’s not really an area I know much about (so feel free to email me if you do!)

It’s a bit unfair to blame Jersey for the UK’s mortgage crisis. Yes, banks may well have used Jersey-domiciled vehicles to package up loans, but all these UK banks were regulated by the (then) Financial Services Authority & the Bank of England; if a balance sheet has a bunch of assets on it that are rather vaguely described, would you not, as regulator, ask questions about these? Furthermore, typically opaque investments attract a larger ‘haircut’ in regulatory capital calculations, meaning they might hide the true nature of the underlying assets but not necessarily help the bank give a false impression of the state of its balance sheet. I don’t have time to dig into the extent to which Enron was using Jersey vehicles to, “hide the extent of its debts”… will come back on that later.

I love the quote, “Jersey did not contribute a penny to cleaning up the mess it had made”. What mess? These were UK banks, lending in UK & elsewhere and regulated by UK regulators. If their regulators failed to notice what was going on under their noses, in what way does it become Jersey’s responsibility to clean up the mess?

It’s also not true that Jersey isn’t conscious of its dependence on financial services and isn’t trying to do anything about changing this. For example, one of Senator Philip Ozouf’s roles is to develop a larger information technology sector in the island. The recently-published Innovation Report identified some key issues for Jersey to resolve in order to make this a reality, and let’s face it — Jersey’s never going to be Silicon Valley… or even Silicon Roundabout, but technology business have the perfect ‘footprint’ for the island — high revenue, relatively low employment. With a little more commitment from government it’s conceivable this could be a 5% of GVA sector in the not-too-distant future.

No doubt, things need to change in Jersey, but I found the tone of this piece disappointingly shrill.






  1. This is a good, well researched response to the Guardian’s article yesterday. Nonetheless, Jersey shouldn’t even begin to compare its balance sheet and P&L to that of the UK’s. The States of Jersey has a far smaller remit than its UK counterpart. Healthcare in Jersey is predominantly not free. Many government services are backed by private enterprise; ferries, buses, the waterworks. Local parish rates cover the cost of many of the road repairs, park maintenance, rubbish collection. Homes for the elderly are mostly run as private enterprises. Student loans are not a material budgetary consideration. Crime rates are fairly low thus policing costs shouldn’t burden government. The top rate of income tax is 20% (not forgetting the 6% social security charge); this is greater than that of Hong Kong, Singapore and the Cayman Islands. This all makes Jersey’s deficit hard to explain. The island should be a model of small-state efficiency, a prototype to showcase to the world, one running yearly surpluses to cater for innovation and future generations.
    Instead, the island’s government feels cumbersome and clunky. State employees are overpaid and work less hours than those in the private sectors. There’s a reluctance to cut staff even when an individual’s underperformance and inadequacy is overwhelmingly obvious. Culturally, this speaks volumes for the government’s modus operandi. It’s too nice, too sensitive, too accommodating. It has become a government that can afford to pay ‘flag bearers’ regardless of their positive financial contribution. Businesses in the private sector can’t afford to foot the wages of permanent discussants, so why does the Jersey taxpayer foot the bill for the Economic Development department?
    Refinement is required. Seasoned business leaders need to take the reins to create efficiencies and add ruthlessness to decision making. If the Jersey Finance Center doesn’t add up financially, scrap the project. It appears construction has begun against the advice of the net present value calculation – why?
    Within the Guardian writer’s facetiousness are many valid points that should be heeded by Jersey. The economy is wholly undiversified. The government is too big. There are too many out of touch politicians with not enough business experience to turn this situation around.

  2. There’s plenty to agree with here. A couple of further points. The Tax Justice Network persists in claiming that Jersey’s budget problem has been caused by falling revenue. A glance at the numbers shows that’s just not true – reduced corporate tax has been compensated by higher personal tax. Overall, revenue isn’t rising as fast as it was, but the primary problem is expenditure growth.

    Secondly, we need to figure out why the Jersey economy has been underperforming its old rivals Guernsey and the Isle of Man. One guess is that within finance, banking has made a disproportionate contribution and we are now suffering from the retreat (fee based businesses seem to be doing better). But that’s impressionistic – we need more data. Our business model isn’t as Murphy claims “f****d” but it’s certainly facing change.

    1. Indeed, John — this is part of what I was trying to point out in the article. Politicians find it far easier to increase spending than to reverse the process, as we’ve seen also in UK. I feel perhaps Jersey also felt it could rest on its laurels with its position as an offshore finance centre secure. They have not been very adventurous when looking at new areas such as e-gaming, shipping registry, technology and so forth: they seem to think letting someone else prove the concept and then copying is a lower-risk model. It isn’t.

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