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In a very clear presentation, Phil Austin outlined three issues facing Jersey’s finance industry today.
This was a clear presentation of the problems thrown up by the OECD requirements, the EU Savings Tax Directive, and the EU Code of Conduct on Business Taxation.
It was clear that the problems of the first two had been largely resolved, but the greatest problem was posed by the EU Code of Conduct, requiring as it did the dismantling of the Exempt Tax companies and IBCs. While Mr Austin explained that what was required was a suitably acceptable alternative vehicle to replace these entities, he did not suggest what it could be, or on what lines any research was taking place. One could not help but be reminded of Mr Micawber’s catchphrase - "Something will turn up."
Finally the mention of the special talk between Tony Blair and Pierre Horsfall also raised a good many questions. While the talk may have helped improve relations with the UK government regarding the EU Code of Conduct and its implementation, mention should also have been made no minutes were reported as being taken, and no assurances have followed in writing. How is the relationship between Jersey and Britain perceived? Would a similar model be between Britain and the USA, where a non-specific "special relationship" is deemed to exist, but in practical terms can mean as much or as little as any specific situation reveals?
This part of the talk focused upon problems within the industry, such as quality, high costs and complacency, as well as the increasing burden of regulation.
What I felt was missing was the historical perspective and mode of explanation. There was no consideration of the effects of population, and little attention given to the inflationary pressures and expectations which have developed, which has led to both spiralling costs, and the tendency to delegate as much work as possible to the lowest paid workers to contain costs - a strategy which has unfortunately undermined quality. While he did mention that wage settlements were becoming more reasonable, this was purely descriptive, and did not explain why this should have been so in terms (for example) of changing market forces.
My own hypothesis would be that the reduction in quality and increasing cost of business in the island has led to relocation of some back office business elsewhere, and this has clearly increased the labour market without increasing the population. It has also changed the employee’s perspective of the labour market as being much more vulnerable to job losses, which in turn reduces the rate of job migration. As the rate of job migration is directly correlated to wage inflation, this will in turn mean more reasonable wage settlements.
I would suggest that this kind of understanding of the historical dynamics of the situation is essential to understanding why problems of quality and expense have come about, and in turn how they might be contained.
It is also clear that spiralling costs, and the increased cost of travel (which I have already explored elsewhere in my essays on tourism and finance) have led to what Mr Austin calls "complacency". It is clear that there is an increased cost to venturing out of the Island to market a company’s services, and if the level of take up is reduced, this leads to less return on this kind of investment, and consequently less incentive for it. I would hypothesis this circular dynamic as a means of understanding why "complacency" in chasing work abroad has come about.
On the matter of regulation, increased regulation was seen as a problem driving prospective clients elsewhere, and the impression was given by Mr Austin that Jersey was to some extent over-regulated.
Lastly, it is clear that the fact that Jersey is better regulated than many offshore and on-shore finance centres can be an opportunity for Jersey to take a proactive rather than reactive stance on the international scene. It is clear that the raft of regulations coming from the Financial Services Commission are designed to minimise the risk of malpractice, money laundering and other illegal financial operations. Rather than using this as a rather ineffective marketing tool it would be more effective, in my view, to go on the offensive and push for increased international harmonisation on those regulatory measures (which are already in place in Jersey but not elsewhere), and be seen publicly at the forefront of such matters, asking (very visibly) for letters of commitment from other countries with which we do business.
This was in many respects the least factual part of the lecture, and the weakest.
We were treated to anecdotes of how outsiders find the Island to be a marvellous place, and wonder why there is so much criticism of it by the locals. This is a very ill-considered opinion. If Mr Austin visited (for example) London on business, I am sure that he would think much the same of the Londoners. If one lives in a place, naturally attention is drawn to problems and crises, especially as such is more interesting and newsworthy; it is the stuff of gossip. Newsreader Martin Lewis even criticised the BBC for never reporting "good news". The only kind of countries were there is no general vocal criticism of the Government are generally characterised by dictatorships. Today, Mr Austin has cited the "Cavern overspend" as an example; a survey of the letters to the papers of times past would reveal the same kind of criticism over different matters in the past, and in no way indicates a "loss of self-belief".
Lastly, Mr Austin called for the concept of "strong leadership" in Government in order to tackle the demanding external negotiations with other jurisdictions. While many of his points were valid, he did not address the problem of how well this must cohere with democratic controls and scrutiny and the need to balance the necessary demands of the finance industry with other equally valid demands.