Thursday, 21 June 2012

Jersey's problem

Jimmy Carr is not the problem. Why does this always have to come down to personalities? Perhaps Jersey is the problem. Jersey has a strange constitutional relationship with the UK - it is another territory of the Queen, not part of the UK and not subject to Parliament's laws 1, and is not in the European Union, even. It gets the benefit of relying upon the UK's defence and foreign affairs networks 2. And there's an implicit guarantee of rule of law that the UK provides. It's used this pseudo-sovereignty to reduce taxes to attract corporations, to provide employment and revenue.

You'd, therefore, think that the States of Jersey were rolling in it from all the foreign companies having nameplates there, right? It turns out that it's a bit more complicated than that. Supposedly, the UK exchequer subsidises Man, which has therefore been able to put its corporation tax to nil. Consequently Jersey and Guernsey have had to put their taxes down to match, and their public finances are running at a deficit! I had assumed Jersey was actually getting some benefit out of this arrangement. But no, they're being screwed as well. They even had to introduce a new VAT-like tax in 2007 - at the height of the bubble, to cover the gap, and then had to raise it from 3% to 5%, while looking at cutting spending by several millions still.

Ultimately, it doesn't matter whether this is the result of subsidy from the UK to Man - either way, it's a dangerous game for Jersey to be in. The only reason they're competing against Man in terms of tax rates is to be the best English-speaking northwest European tax haven. It's not like you'd decide to put your business in either Man or Jersey on some other criteria and then pick the lower taxed one as a second factor. So presumably they must see some benefit in playing that game in the first place? A non-tax haven Jersey might be more like the Isle of Wight than the Isle of Dogs. It could be better off like that in the long run, but that would be a fairly revolutionary change, and the current state is probably a local maxima. If they raise corporate taxes slightly, then everyone goes to Man, and revenue declines.

In short, this is a classic race-to-the-bottom situation. There's a simple solution, though. Give it (and Guernsey and the Isle of Man) a choice: incorporation into the United Kingdom (presumably as additional home nations with devolution akin to Scotland's, or greater), or full independence. If you want to be part of our polity to the extent that you are, you have to pay our taxes. If you don't, that's cool, you can go off and become a Commonwealth Realm or republic or whatever you like. No business of ours. If you chose annexation, we'd hope to raise so much extra revenue as a result that we can afford to offer subsidy to you, for improvements in people's lives there, that you can't afford because of being trapped in this tax-haven rut. We'll even guarantee that subsidy if the revenues don't materialise. I see both options as better than the status quo for everyone, and there's also the extra bonus of addressing the undemocratic nature of the crown dependencies status.

  1. Parliament still claims the right to legislate for Jersey, but it would be pretty undemocratic considering there isn't an MP for Jersey
  2. which it does, in fairness, pay a contribution toward
  3. an earlier version of this said, rhetorically, "protected by our Navy". Of course, the last time this came into question, the Navy wasn't much use.

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