Monday, November 19, 2012

Unwelcome headlines fuel Jersey anti-finance dissent

Reuters has just published a lengthy article under the headline Unwelcome headlines fuel Jersey anti-finance dissent.

We've no doubt the headline by itself will provoke fury among bankers in Jersey, not least former HSBC banker Geoff Cook, whose unenviable job is to repeat the mantra "Jersey is a well regulated and cooperative finance centres" from now until eternity, but the fact that prominent politicians and former civil servants from Jersey (including TJN's director John Christensen, formerly economic adviser to the island's government) are prepared to publicly express their concerns about over-dependence on offshore financial services, indicates the extent of dissent from what until now has been an unchallenged hegemony.

Jersey's problem, as we have previously noted, is that the island's economy is excessively dependent on offshore financial services.  About one quarter of the total workforce is directly involved in financial services, and the vast majority of the remaining workforce is engaged in secondary sectors like retailing, construction, and hospitality services.  As Reuters notes:
 "St Helier, seems an unlikely satellite to the financial hub of London, yet since the 1960s it has developed a formidable offshore banking and finance sector that now accounts for more than two fifths of the island's economy." 
 Two fifths of the total economy represents a very high degree of dependence, especially when the island's main attraction to offshore users lies with the opportunities for tax avoidance and evasion (the Reuters article was partly prompted by a recent Daily Telegraph article on investigations into tax evasion by clients of the St Helier branch of HSBC).

With tax avoidance (finally) moving centre stage of the political agenda, not least in Britain the public is finally noting that tax havens like Jersey have played a major part in depleting government revenues.  As Jersey politician Deputy Geoff Southern puts it:

"Whenever I hear that GVA (the main measure of economic output on the island) has gone up, I think, 'That's three hospitals not built in Britain, because that's tax revenue the UK Treasury misses out on'," 
 So Jersey's future depends on whether it can continue to get away with its economic warfare against other countries.  This is being called into question.  As TJN's John Christensen notes in the Reuters article:
 "Jersey will have to sign up to an automatic exchange of information (FATCA) that would lay bare the tax affairs of those banking in Jersey.  "If they don't sign up, the U.S. will come down on them like a ton of bricks," he said, "and then Europe will demand the same."
 The problem for Jersey is that despite endless rhetoric about diversifying the island's industrial base, offshore finance has been allowed to predominate.  As academics have previously commented, the island lacks a Plan B, arguably because the majority of Jersey's politicians are wedded to what they see as easy pickings from tax havenry.  This attitude is widespread, but as Richard Syvret (a former head of the island's financial regulatory authority) notes in the Reuters article:
 "I do feel very much that Jersey is obsessed with money and the finance industry.  I think a number of people would deny it, but ... the facts speak for themselves. We have devoted ourselves to it, and I think it's to our detriment."


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