Breathing Space, That's All

Breathing Space
The welcome news, that Jersey has made the G20 whitelist of tax jurisdictions, means that we shall not be losing our “finance” industry just yet. The fear is, though, that there will be a complacent declaration of “business as usual” from our ministers.

The white, grey and black lists were only the first stage in the backlash against tax havens, that their own success has provoked. The longer-term strategy for the G20 is to abolish large scale tax avoidance and havens altogether. Therefore, Jersey's long-term strategy must likewise be to wean itself off the wonderful boost that the finance industry has been giving our economy in recent decades, and return to self-generated wealth as the mainstay of the economy. Our place on the whitelist should buy us a little time to start preparing for a post-finance economy, while the money is still pouring in. But, it is only a breathing space, not a viable future. Nobody really wants to hear that, not the cynical right-wingers enjoying the ride on their gravy train, nor the envious left-wingers hoping to redistribute the gravy train's cargo, nor those of us who like to think we are just ordinary “Middle Jersey” making a living whatever way comes to hand. Not wanting to hear is not at all the same as not needing to know, however, and we should all start thinking about our personal contingency plans, faced with the catastrophic economic effects of 25% unemployment and no dole.

Worse still, the time frame is already looking an order of magnitude narrower than it did, when I started planning this article last week. Gordon Brown has now sent the heads of the Crown Dependencies' governments a curtly menacing warning that they will be expected set the pace in developing tax transparency, and meeting new international standards regarding tax avoidance as they are rolled out. (You can view it yourself at http://www.taxjustice.net/cms/upload/pdf/Brown_090408_Letter_to_jersey.pdf )

We have not been told to close the finance industry down in so many words. The huge problem for us will be that, if we are compelled to lock into a much less leaky international tax system than there has been since the mid-20th Century, the Unique Selling Proposition for much of our finance industry's traffic will be vitiated. The industry has already declared the depth of its commitment to Jersey in the wonderful soundbite “We can leave at the click of a mouse!”, so only a fool would hope for them to stay around as a favour to us.

From the finance industry's own perspective, we are not looking as good a deal as we did, until the 2008 Credit Crunch. Now the whole sector is in deep trouble worldwide. On top of that, many major players are now being propped up by the very taxes that their offshore operations try to cheat, leading to unprecedented pressure to reprioritise their duties to state and shareholder. And then the profitability of those offshore branches and subsidiaries is going to be driven downwards, by the elimination of substantial chunks of their custom. What will be in it for them, to keep Jersey alive as a financial centre on any grander scale than it was half a century ago?

Attempting to cling to “Business as Usual” as a motto will only bring disaster, as half the income and a quarter of the employment rapidly vanish, and the loss of all that spending power then drags local commerce into the pit after it. While all the ways that Jersey leaks money back out dry up more slowly, further starving us of cash, or even simply starving us.

The buzzwords of Jersey politics in the next couple of years must become “Exit Strategy” and “Contingency Plan”. If our ministers do not have them, and good ones, too, or those that have them do not become our ministers we are doomed to drop into the Third World with a very painful bump.