The Guernsey Post has published another response to the Maundy Thursday letters. They have said:
WRITING here yesterday, we highlighted the rather arbitrary ’standards’ demanded of the low tax jurisdictions by prime minister Gordon Brown - but it has taken publication of his letter to the Crown Dependencies to show just how much the goalposts have shifted.
Never mind gaining OECD ‘white list’ status, that is not good enough for the PM. The islands, he said, have to put clear water between themselves and those jurisdictions which only just meet international standards.
What he has not said is why. Or what happens if the dependencies do not.
While it is possible, as Jersey’s chief minister has done, to read the letter as ‘fairly non-committal’, it is also possible to see it as nakedly hostile and threatening.
Although there are clear standards to follow - and the islands do - Mr Brown now wants us to meet unspecified targets with unspecified penalties for failing to hit an invisible goal.
What makes this playground bully ‘watch it, or else‚Ķ’ approach worse is Mr Brown’s further threat that ‘it is vital to the interests of the Crown Dependencies’ that they meet any new international standards on tax avoidance.
By switching emphasis from illegal evasion to perfectly legal avoidance, Mr Brown seeks further to make these islands’ position untenable by introducing another unquantifiable ‘acceptability’ test.
And it then rumbles on about seeking support for its case from the right wing Adam Smith Institute before finishing:
What Guernsey needs to do now is to convince No. 10 that it needs us. How? By quantifying the huge flows of money from here to the City of London and the tax that is generated in the UK as a result.
Making a compelling case is the finance industry’s biggest challenge.
And I have to say I agree. But with good reason. I know that case cannot be made. Which makes me very comfortable that this is the ground on which they have chosen to argue.
The reality is that the money in Guernsey would always flow to the City if that is where the best rates of return are to be enjoyed. Why wouldn’t it? If better rates were to be found elsewhere that is where these funds would go instead. So it is nonsensical to argue that the City gets this money because of something Guernsey does. The fact is Guernsey has got this money because of something the City has done — and to which a blind eye has been turned to date because the City generated enough to allow that to happen.
But it no longer does so. Now the City is a sink into which taxpayer’s money is pouring — and in turn it is being lost to Guernsey. That is why Gordon Brown intends to turn the tap off. Ordinary people in the UK do not pay tax to subsidies wealth that evades its responsibility if not its obligations in Guernsey and elsewhere.
Nothing finance can write can overcome that fact. But I look forward to their efforts to do so and will read them with interest.
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Guernsey, Jersey & the Isle of Man and all the other so-called tax havens have created between themselves a ‘black hole’ in which trillions of Pounds Sterling have ‘disappeared’ from the British economy.
If there is a defence for such a system in the global economy (ie: that ultra wealthy people are free to place – & spend – their Stirling holdings wherever they wish) then they should exercise that choice AFTER they have paid tax on their income and assets that it generates.
The global solution to the financial crisis should involve the establishment of an internationally agreed tax mechanism through which tax is collected and distributed on a fair & equitable basis. Financial mechanisms designed to enable ultra wealthy people from paying tax should be rigorously outlawed. There should be no advantage gained by people using any jurisdiction such as Guernsey, Jersey or the Isle of Man to escape a liability to pay tax.
The principles are just but the problem will be in getting international agreement to create the instruments to put them into practice.
Jim Justice – The Channel Islands are part of the British economy. They are a part of Great Britain.
Almost all goods and specialised services have to be imported, and are mostly imported from UK.
Jersey contributes to UK defence, by funding the TA Jersey Field Squadron who are part of the Royal Engineers.
Jersey subsidises UK companies, i.e. airlines.
UK residents come here to work, when their is no work at home. They’re all made very welcome.
I could go on, but the point is that the UK does benefit from owning the Channel Islands. We could revert back to being French, if we so wished, and most people would not want to do that.
Dan
I think you forgot to mention the cheese used to make the moon was made in Jersey
Thought I’d do it for you
Richard
Dan
Just to clarify neither the Bailiwick of Guernsey or Jersey are part of Great Britain. We are in affect independent jurisditions within the British Isles with lose connections to the UK through the Privy Council. The UK certainly do not ‘own’ the channel islands, though I can see how it can be confusing. Technically the Crown Dependencies could declare their full independence tomorrow and Brown couldn’t do a thing about it, something that he should take time to remember.
As for the Maundy Thursday Letters, well I feel that their is an annoyance towards the ambiguity the letter contains. I have already stated I believe that Brown has sent such letters as political pandering. It gains a certain annoyance when you have to jump through some hoops only to be told to jump through more from an outside political entity, even though the hoops aren’t in exsistence. Only so much can be taken.
Dan,
Your suffering from delusions when you quote that the Jersey taxpayer contributes to UK defence.
Check out the States of Jersey’s own accounts for 2007:- http://www.gov.je/TreasuryResources/Expenditure/Accounts/2007Accounts.htm
In 2007/08 it cost the UK taxpayer £527 a head for defence in the UK.
The about accounts indicates it cost the Jersey taxpayer about 50p ahead.
Jersey knows where it’s bread is buttered!!
Tom
Please get the facts right. I’d draw attention to the fact that as my friend and colleague John Christensen recently noted:
The 1973 Royal Commission (a.k.a. the Kilbrandon Report) stated as follows: “the United Kingdom Government are responsible for defence and international relations of the Islands, and the Crown is ultimately responsible for their good government. It falls to the Home Secretary to advise the Crown on the exercise of those duties and responsibilities. The United Kingdom Parliament has the power to legislate for the Islands, but it would exercise that power without their agreement in relation to domestic matters only in most exceptional circumstances”.
“[The UK] Parliament does have power to legislate for the Island without their consent on any matter in order to give effect to an international agreement”
Source: Hansard, House of Commons Debates, 3 June 1998, cols. 471 and 465.
Independent? No way. Self governing by consent – like Northern Ireland, for example. Or the Turks & Caicos Islands.
Please live in the real world. When Westminster says jump you guys have to jump.
Richard
In one respect Dan is quite correct to say that in reality (substance over form), “The Channel Islands are part of the British economy. They are a part of Great Britain”. The obvious implication of this is that Britain, whether through parliament, privy council or simply by the PM’s say-so, can say what goes. This is the reality and this is why GB can send out his letters. He really doesn’t care what the legislatures in the islands think, having more weighty matters on his mind (economy falling apart, probably not getting re-elected etc etc!).
Hi Richard,
Not really related to this blog, but thought you might be interested in this little scam…
http://www.globalnomads.com/blog/archives/2008/07/26/how-to-obtain-a-legal-second-passport-by-supporting-the-sugar-industry/
“When Westminster says jump you guys have to jump.”
Not quite, Mr Murphy. You forget that the Crown Dependencies and Overseas Territories also have the option to jump ship, through the simple mechanism of a successful domestically administered referendum on independence. I think we can expect to see the emergence of quite a few new microstates in the coming years, as few benefits accrue from the association of the United Kingdom with these territories (and vice versa). Bermuda went down this avenue a few years ago, but the referendum was lost. Given the standard of government there (I can think of few premiers of democratic countries more incompetent than Gordon Brown, but his Bermudian namesake Dr Ewart Brown surely figures among them), I think the people of Bermuda probably reached the right decision in that instance.
Iliam
Have you met Terry le Sueur?
And please don’t fantasise – the IoM can’t live independently due to its subsidy from the UK and Jersey and Guernsey are rapidly going bust due to massive budget black holes
Richard
Richard
Firstly, Guernsey and Jersey have massive headroom to raise more taxes. After all, our personal tax rate is only 20%, not the 45% or even 50% rate that the UK is about to have. A higher rate of GST in Jersey’s case and the introduction the GST in Guernsey’s case are glaringly obvious methods of filling any black hole. There are various other methods as well which can be considered. Unlike the UK and most of Europe, who have no tax increase headroom whatsoever, we have that scope. Of course residents won’t like it (as anybody ever wanted to pay higher taxes ?) but if the alternative isn’t palatable then logically higher taxes will result.
Secondly, Iliam Dhone is quite right. The majority of islanders in both islands would far rather declare UDI than become the same as the Isle of Wight. Why on earth would we want to become part of the mess that the UK is and will be for the next 20 years as a result of Brown’s gross mis-management of the economy for which we are now being blamed ? Native islanders place far greater weight than you obviously recognise on the last 800 – 1000 years of our history, and a great many immigrants from the UK came here precisely because we are different from the UK. My view is that Gordon Brown’s antics will inevitably bring the “I” matter to the surface in the islands very soon. And I’m not talking about concerns about the anti-tax evasion initiatives….it should be taken as read that those will all be adhered to. But trying to do something that no UK government has attempted since 1204 ain’t going to go down well, particularly from somebody who will be free to tender his garden in a year’s time after this government is out of office.
But one thing that nobody has focused on is why the UK is not using what it has always used to address tax avoidance, which is to legislate in its own Budget, the next of which is on 22nd April. The Chancellor has always used the Budget to introduce specific anti-avoidance legislation to prevent UK taxpayers from using overseas structures in ways which cause a loss to the Exchequer. Is the UK Government saying that HMRC is no longer capable of plugging loopholes ? Does the UK Government not appreciate that if British Crown Dependencies and Dependent Territories cannot be used, then there are plenty of other jurisdictions which can be used by UK taxpayers to achieve exactly the same outcome ? That seems to be naivety at its extreme.
Rupert
I just think it so amusing when you talk about taxing local people, who already have a low standard of living because of the enormous cost of housing, until they squeal so you and your (no doubt ex-pat) colleagues can sell tax evasion and avoidance services to those who refuse to pay tax at all.
Get real. They agreed to be tax havens because it was meant to increase their standard of living. They won’t agree when they’re subsidising it.
The game is over.
Richard
Eight hundred years of history says the Channel Islands are British; that cannot be ignored, nor the cultural, linguistic and family links. Why should the islands declare independence just to satisfy the needs of Finance? Independence for Jersey was a Plan B pre credit crunch, pre Crisis and pre G20. All has changed, changed utterly in the economic and geo-political landscape. The hope was that if the EU got too close to the tax haven, then, with the tacit support of the City and Whitehall, independence would be declared and bingo, its business as usual. The Jersey Bailiff commissioned a report issued last year. A dry run referendum was even organised in the guise of time change. It’s all pure follie de grandeur on the part of Jersey’s rulers.
Islanders have just had a taste of life without subsidy in the removal of the reciprocal health agreement by the UK. University fees for CI students are rising close to those of overseas students. The burden of hosting the finance industry is beginning to dawn on islanders. Soon they will begin criticising their governments for allowing this situation of dependence on a monoculture when the money dries up and the job losses mount.
The Netherlands Antilles are anguishing over autonomy from the Netherlands. The less economically developed islands are petrified by poverty if they break the link, whilst the tax haven ones are considering their options. Bermuda, and island of 60,000 population, may have a government debt of $3 billion. The CI are not alone in facing ruin.
There is no appetite in the Crown Dependencies to declare UDI. It serves their interests to maintain their a costitutional relationship with the UK. The interesting question is: ” what interests to they have for preserving the status quo?” I have a hunch that as the nuts & bolts of tax advantage through ‘tax haven’ jiggery-pokery become unscrewed these islands will become more dependent on the UK than they do at present. It’s only a question of time before the Isle of Man will be asking for an increase in its UK subsidy; I would argue that if it is as ‘transparent’ and financially solvent as it claims then it should have its subsidy taken away altogether.
Richard
That’s completely nonsensical. Show me one piece of legislation illustrating that Westminster has the right to legislate any of the Channel Islands. Quite simply, non exsists. (Though I’m not sure about the IoM). The independence of the CIs goes back to 1204 and King John.
A UK ‘commission’ can state that they can legislate the CIs but the fact is they can’t. I’m sure you’re highly aware of the independent
spirit and heritage of the Channel Islanders which would prevent any such moves.
Richard
If you think that local people have a low standard of living in the islands then you are badly mistaken. The levels of disposable income, net of housing costs (after mortage or rent) is far higher than in the UK. And who says that the lower paid would bear the burden of extra taxes ? Have you not heard of tax exemptions and tax credits to reduce the tax burden on lower income-earners ?
And just to prove how out of touch you are, I am not an “expat” and I can assure you that the majority of people in the higher echelons Guernsey finance industry are not “expats” either. You clearly have been speaking to the wrong people if you think that you know the locals far better than I do. There are a small handful of contributors to this blog from the islands who support your views, and I know exactly who they are, and they are the very same small handful of people who make the same comments in our local media. But there are probably 4 or 5 of those in Guernsey, not tens of thousands of them. Sorry – but if you think that the likes of Armand are representative of the population of Guernsey then you are completely wrong.
If you are asking any group of people whether they would like to pay more tax, then of course they will say no. If you ask the same people whether they would prefer their island to be a destitute rat-hole as the alternative, then you may just get a different answer. Its human nature. And most island residents are only too aware of how little tax they pay compared to the UK or France or Germany. They aren’t quite as stupid as you make them out to be.
To Frightened and Jim Justice
Just to clarify – my view is that islanders would view a UDI as a last resort. But based on Gordon Brown’s recent behaviour the last resort option becomes increasingly more attractive as each day goes by. The day that any UK government ignores the constitutional relationship of the last 800 years is the day when islanders will really start asking that question. Its not just about economics. Its more about whether we really want to be a county of Southern England, governed by a clown like Brown.
“you and your (no doubt ex-pat) colleagues”
Unlikely Richard, given that 85% of finance industry workers in Jersey were born in the Island. It is a matter of fact that no other industry in Jersey employs a higher proportion of home-grown people.
The idea that the industry is simply ex-pats taking advantage of the Island is factually incorrect. You could, however, make that claim about the retail, agruiculture or tourism businesses.
Paul
Ditto Guernsey. In fact I suspect that 85% figure is even higher in Guernsey.
@Rupert
Sorry Rupert, when push comes to shove it really IS all about economics. 🙂 The Crown Dependencies could not begin to consider UDI unless they were capable of being economically independent. Gordon Brown has called ‘time’s up!’ on the offshore centres which means that the financial industry of the islands will inevitably diminish. The UK Government’s days are numbered but the days of the OECD are not. Undoubtedly challenging times lie ahead for the islands & the full implications of the g20 deliberations & the edicts of the OECD will have to be faced & resolved. It will take time but the clock is already ticking…
I really don’t understand why the changes being requested by GB would automatically lead to the downgrading of CI’s supposedly superior financial services. What precisely would the Singapore/Dubai financial sector be able to supply that the CIs could not, which is so essential for reputable companies and individuals?
@Carol Wilcox
The changes being called-for are not exclusively British but are being promoted by the OECD.
Offshore Financial Centres (the non-pejorative name for ‘tax havens’) throughout the world are in competition with each other within the wide spectrum of financial services on offer. If the CI’s ceased to be competitive in respect of the services they provide then other offshore centres will quickly grab their trade. Many offshore centres specialise in a particular financial product. Singapore & Dubai will not be slow to take on anything that is in there sphere of expertise & others will do likewise. In my view what is needed is a form of internationally agreed regulatory ‘intervention’ in the market place to mitigate against this activity. That is not easy to conceive but a global solution to problems in the world economy calls for it to be done. Overall though is the need to remove from the financial industry those mechanisms that permit people to evade tax.
Obviously I am not aware of how much you know about the operations of offshore centres, so at the risk of ‘telling granny how to suck eggs’ you might find this link helpful for a basic insight of what offshore financial centres are about:
http://en.wikipedia.org/wiki/Offshore_financial_centre
@Jim Justice. Your reference is simplistic. I ask again: what precisely would the Singapore/Dubai financial sector be able to supply that the CIs could not, which is so essential for reputable companies and individuals? Low tax? – surely this is not compromised by the requested changes. Secrecy? – yes, and why do reputable companies/individuals need this extra secrecy, which others do not. Not all companies can afford offshore financial services, yet they manage to survive. What’s wrong with a level playing field for all? I agree with Richard: secrecy jurisdictions are instruments of market failure.
I am disappointed that you did not respond to the post. It is about dialogue and argumentation and thus education.
It is really an inauthentic position, in total, if you choose duck a good question.
Bob
Pointing to the high level of participation by indigenous islanders in Finance only goes to show how it has occupied the islands socially and politically. It was ever so in the 17th and 18th centuries when leading island families made their fortunes out of smuggling disguised as international trade. Indeed the same family names reoccur in the modern day equivalent called Offshore. There is no real cleavage between expats and indigenous, however the latter tend to have the routine jobs as clerks and the imported “company men” act as managers. Finance has captured the islands, just like 18th century Caribbean pirates acquired islands or compliant states. They did not remain at sea their entire lives and money had to be enjoyed, not just buried under the sand. Pay no heed to the GEP’s editorial of indignation against Gordon Brown’s letter; they are well paid.
“If you wake at midnight, and hear a horse’s feet,
Don’t go drawing back the blind or looking in the street,
Them that ask no questions isn’t told a lie.
Watch the wall, my darling, when the Gentlemen go by!
If you meet King George’s men, dressed in blue and red,
You be careful what you say, and mindful what is said.
If they call you “pretty maid”, and chuck you ‘neath the chin,
Don’t you tell where no one is, nor yet where no one’s been!
If you do as you are told, likely there’s a chance,
You’ll be given a dainty doll, all the way from France,
With a cap of Valenciennes, and a velvet hood –
A present from the Gentlemen, along o’ being good!”
Smuggler’s Song (Rudyard Kipling)
External pressure once again is forcing the pace of history in the Channel Islands.
Bob
I have no idea what you are talking about
In addition please note no one pays me to write this – or to respond
Candidly, when I do or don’t is up to me
Richard
Frightened
What on earth are you talking about ? What has the 17th and 18th century trade got to do with anything today ? And why not mention quarrying which saw the biggest influx into Guernsey certainly than any 20-year period in the island’s history ?
“Imported company men” are the managers and indigenous population are the clerks doing the routine jobs. Really ? Not sure what you are looking at but it certainly isn’t the general case in most businesses that I know. And what’s an “import” ? Somebody with a non-local surname whose family may have come here 50 or 60 years ago ? Perhaps that person with a “foreign” (English) name was actually born and educated locally. There are a huge number of those.
Sounds to me like you’ve got a bit of a chip on your shoulder. Have you perhaps missed out on a promotion to someone who can’t trace their roots back in the islands for more than 200 years ?
Rupert
I don’t believe you
I hear this story time and time and time again
I believe it
Richard
Rupert,
I have no nationalist gripe; I remain cosmopolitan.
You missed my point. I appreciate just how many islanders are involved and at senior positions. Many follow successful careers across offshore. Such is the demand for labour that the indigenous have been sucked into jobs and rewarded with salaries beyond their objective talents. Islanders refuse menial jobs, perceived as low status, and these are performed by a gastarbeiter class of foreign immigrants.
Unfortunately finance has become a monoculture and there is peril in such reliance. The functioning of a democratic political system is stifled by the need for stability — there is no formal government and opposition; no parties to represent different social interests. Financial legislation is prioritised to the detriment of long overdue social improvement. Dissent is little tolerated and perceived as near treason. The interest of Finance is hegemonic. Furthermore, that dominance limits opportunities for returning graduates, or should they wish to return they must first acquire appropriate finance compatible skills. What will happen as the industry contracts, be it from recession or sanctions against tax havens? How will society cope with job losses and the, now certain, longer term withering away of the primary economic activity? All this constitutes a crisis.
Frightened
Some interesting opinions there although I am struggling to in any way link what you are saying in your latest post with the contents of your earlier post !
The reason why islanders refuse menial jobs is because there is full employment and so they don’t need to ! They are able to secure better-paid jobs in non-menial sectors. Its absolutely true that the islands could not survive without the level of imported labour from Madeira, Latvia, Poland, South Africa etc., but that’s no different from the UK over the past 15 years. That’s what results from times of full employment. Are you suggesting that we get rid of all of those immigrants so that those jobs can’t be filled, and then sack the locals from their better-paid jobs, forcing them to accept menial jobs on lower wages ? Not sure that I can see the logic or desirability of that !
Yes – there is no question that the islands should have created better-diversified industries years ago, basically before it became too late to diversify. The time to diversify has clearly not been when there has been full employment, and what do you diversify into ? Wage levels are too high here to make exported goods which can be sold at an acceptable market price to overseas markets, and the freight costs of importing raw materials and exporting finished goods also make that non-viable. So what industries are left ? Tourism died because of cheap flights and guaranteed better weather in the Mediterranean. Tomatoes died when the Dutch government heavily subsidised their growers in the 70s and 80s to the extent that they could sell Dutch tomatoes in the shops cheaper than we could export them for on a wholesale basis. There isn’t much left, hence the reliance on financial services became even greater as that industry expanded naturally. Not ideal, but very hard to prevent.
Returning graduates have better career earnings prospects in the islands than virtually anywhere else PROVIDED that they want to work in finance. My own children don’t want to, and Guernsey offers nothing to them. Very sad, but true, but equally unavoidable.
The islands will have to adapt, as they always have done, albeit with different challenges. The time to judge the likely success of that is not one which can be asked until probably 10 years time.
Interestingly, it was the British Government itself which actively encouraged its offshore territories to develop successful financial services industries, ironically to prevent those territories becoming an economic drain on the UK economy. Quite bizarre given the current situation don’t you think ?
Hi Carol…. if you Google ‘Dubai offshore companies’ I think you will find an answer to your question 😉
Sorry, Jim, I can’t be bothered. I’m sure your reference will not answer my simple question. Why don’t you do it so everyone can see and comment if necessary?
@Richard Murphy
Richard your predictions for the imminent demise of the offshore finance centres seem to have been a little wide of the mark, The Iles de Normandies are quite rightly on the white list of well regulated finance centres and I predict we will still be in business long after Gordon Brown and his sorry government are a distant memory, although their memory for the poor British taxpayer will linger at the end of their wage and salary slips for many years to come. You keep talking about Guernsey and Jersey being complicit in helping people avoid tax in their own countries which is simply not true, it is the fact that we are low tax jurisdictions which is what really annoys you.
We don’t in Guernsey have any death duties or inheritance taxes or corporation tax or VAT or any of the stealth taxes the people of the UK are burdened with. We have no borrowing and some of the best public services in the world and one of the highest home ownership rates in Western Europe with very few or no repossessions, very little unemployment and very good wage and salary levels.
I also believe the number of high earners in the UK who have now been hit by a 50% tax rate will look for jobs elsewhere and will certainly look to invest their money elsewhere, which will be good for places like us and bad for the UK. We are far from going bust and business is pouring in from countries across the globe many of which you and others will have no influence over whatsoever, all doing perfectly legitimate business. China and the Arab emirates, Asia, South Africa and many others who are pleased to use our financial services and our international legal expertise.
Deputy Dave Jones Guernsey