Offshore rise and fall Jersey Island
Barry Copeland
25 / March / 18
Visitors: 760
Offshore rise and fall Jersey Island has relied on its future as an offshore financial centre, but after 2007 it has faced difficult times and is struggling to cover its costs.
Doesn't Great Britain expect the same fate? When you descend as you fly towards Jersey, the shadow of your plane touches the rocks rising from the Channel, then the patchwork fields with wooded hollows between them, then the four-storey buildings with manicured lawns. Below is a lush green island surrounded by a procession of foam waves moving eastwards. From above, it looks a little like Devon County, which is at sea and well maintained. John Christensen grew up in one of these beautiful houses, Norman Manor, surrounded by fields. "It was heaven," he said. "Back then, there were fantastic beaches and many happy people thank to the tourism that was developing. The Beatles played in Springfield in 1963. It was awesome." Christensen, who was born in 1956, is almost the same age as the offshore financial industry in Jersey. While he was playing with his brothers in the grand halls of the family home, Jersey lawyers were creating one of the most lucrative loopholes in tax law in history. The emergence of an offshore. In the 1950s, the international money flow was severely limited. Politicians accused financial speculators of the Great Depression of the 1930s and introduced capital controls to prevent a repetition of something like that. The pounds were trapped in Britain, where there were high taxes. When a rich man was dying, his heirs were to give 80% of their inheritance from £1 million to the state. Jersey saw this as a financial opportunity: there was no inheritance tax on the island at all. Some now forgotten financial genius realized that if rich Britons invested their millions in Jersey, the British Treasury could not reach them. The money flowed because the schemes were not limited to inheritance tax: almost any tax could be evaded with a properly planned scheme. Rich people were soon followed by banks, completely transforming the island. The bankers and tax evaders moved to St Peter's Parish (St Peter is one of the 12 parishes or territorial districts of Jersey Island) where Christensen grew up, resulting in incredible price increases and making the place an analogue of the City of London. "Who wants to pay income tax in London if it can be done in Jersey?" Christensen recalls, "It was an extraordinary change, particularly in the early 1970s, when major players in the financial industry in Jersey began to create themselves. Today, the offices of these major players form the glass walls on the waterfront of the capital Jersey St Helier: Credit Suisse, Citibank, HSBC, Société Générale, PwC. They move a huge amount of money. From the financial center on the quay, the money spreads to other areas. Saint Helier is a thriving resort with cafes, theatres and indoor markets. You will not find a cleaner, more business-like, neat and remarkable seaside town in the British Isles. But looks are deceptive. Jersey looks rich, but it's heading for bankruptcy. "Black Hole." In 2015, the island's authorities projected a budget deficit for 2019 of £125 million. Later, the annual deficit, now referred to as the 'Black Hole', was revised upwards to £145 million, more than £1 of every £5 spent by the island's authorities (The 2019 budget forecasts that the structural deficit for 2020 has been reduced to £30 million). How can the island authorities make up for this deficit? The solutions are not very pleasing: voluntary and forced layoffs, new taxes, more expensive utilities but less. Jersey has staked on its future, relying on a thriving financial industry to provide for all other needs indefinitely. If that hope was false, wouldn't another major island off the coast of France, whose economy also depends entirely on the financial industry, expect the same fate? In other words, does the future of Jersey not await Britain? As you descend towards Jersey, the shadow of your plane touches the rocks rising from the English Channel, then the patchwork fields with wooded ravines between them, then the four-storey buildings with well-groomed lawns. Below is a lush green island surrounded by a procession of foam waves moving eastwards. Above, it looks a little like Devon County, which is at sea and is well maintained. John Christensen grew up in one of these beautiful houses, Norman Manor, surrounded by fields. "It was heaven," he said. "Back then, there were fantastic beaches and many happy people thank to the tourism that was developing. The Beatles played in Springfield in 1963. It was awesome." Christensen, who was born in 1956, is almost the same age as the offshore financial industry in Jersey. While he was playing with his brothers in the grand halls of the family home, Jersey lawyers were creating one of the most lucrative loopholes in tax law in history. The emergence of an offshore. In the 1950s, the international money flow was severely limited. Politicians accused financial speculators of the Great Depression of the 1930s and introduced capital controls to prevent a repetition of something like that. The pounds were trapped in Britain, where there were high taxes. When a rich man was dying, his heirs were to give 80% of their inheritance from £1 million to the state. Jersey saw this as a financial opportunity: there was no inheritance tax on the island at all. Some now forgotten financial genius realized that if rich Britons invested their millions in Jersey, the British Treasury could not reach them. The money flowed because the schemes were not limited to inheritance tax: almost any tax could be evaded with a properly planned scheme. Rich people were soon followed by banks, completely transforming the island. The bankers and tax evaders moved to St Peter's Parish (St Peter is one of the 12 parishes or territorial districts of Jersey Island) where Christensen grew up, resulting in incredible price increases and making the place an analogue of the City of London. "Who wants to pay income tax in London if it can be done in Jersey?" Christensen recalls, "It was an extraordinary change, particularly in the early 1970s, when major players in the financial industry in Jersey began to create themselves. Today, the offices of these major players form the glass walls on the waterfront of the capital Jersey St Helier: Credit Suisse, Citibank, HSBC, Société Générale, PwC. They move a huge amount of money. From the financial centre on the quay, money is spreading to other areas. St Helier is a thriving resort with cafes, theatres and indoor markets. You will not find a cleaner, more businesslike, tidier and more remarkable seaside city in the British Isles. But looks are deceptive. Jersey looks rich, but it's heading for bankruptcy. The heyday of the Jersey offshore. When the old colonies gained independence, many of the English living in them returned home, and there were fewer and fewer places left for them to hide their blood pounds from Her Majesty's tax collectors. In 1974, the UK ceiling investment tax rate was 98%. Faced with the prospect of saving only a penny per pound on their earned dividends, rich Britons invested as much in Jersey as they could. "They know that Jersey has political stability and no political parties. They will not face a sudden departure to the left or a swing to the right, or any other direction that changes tax mechanisms. And Jersey has also gained financial stability," Powell explained during a long evening interview in his remarkably modest St Helier office. In the three decades since Powell started running the island's economy, Jersey's annual budget has increased five times in real terms. New schools, new hospitals, new roads, a new port and new marina have been built in Jersey. Unemployment barely reached 2%. The government had so much money that it reserved its expenses for the year ahead, just in case. And all this time, the income tax was only 20 pence per pound. There was no inheritance tax in Jersey; there was no VAT; there was no capital gains tax; there was no income tax for companies registered outside of Jersey. Compare this to the worst situation in the UK at a time when, until the end of Margaret Thatcher's 11-year premiership, the income tax ceiling was 60% and one in eight adults was unemployed. A sparkling article published in 1984 by the World Today magazine of the Royal Institute of International Affairs (Chatham House) noted that Jersey residents had almost twice as many phones and more than twice as many cars as Brits. The island was a horn of plenty and somehow managed to combine general welfare with low tax rates. In the midst of the political turmoil that gripped the UK, it gained a reputation as a well-regulated financial refuge where money could be saved. When in the last days of the Soviet Union officials in Moscow wanted to hide Communist Party funds, they invested them in Jersey. When post-Soviet oligarchs wanted to hide their ownership of assets, they structured them through Jersey. When South Africans wanted to avoid apartheid sanctions, they did it through Jersey.
