The ritual of the UK budget is over and the Island has survived relatively unscathed.

There are definitely issues for the future, but the UK Chancellor has been too busy worrying about the UK economy, to do anything nasty that might impact on what author Nicholas Shaxson describes as one of the ‘Treasure Islands’ to the south.

Anyone who has read Mr Shaxson’s book about ‘ tax havens and the men who stole the world’ will know how important taxation is. However they will also have realised that the title ‘Treasure Islands’ is totally inaccurate.

The book has very little to do with island tax havens or the people based there, but a lot to do with the hypocrisy, deceit and greed to be found in major world players such as the US and the UK. If there’s a problem with tax havens, it’s mainly an onshore problem not an offshore one as Mr Shaxson’s book makes clear. It’s just easier to point the finger at small fry.

Having said that, the obsession shown by Jersey’s finance industry in what the UK Chancellor does and does not do in his budget, is rather distasteful. It has become a regular ritual to worry about every word the Chancellor utters in his speech, and the even more voluminous words in the documents published after the speech.

The finance sector is looking for loopholes that have been closed by the Chancellor, and new loopholes that have been opened up and are ready to be exploited. So UK taxation is still a very important factor affecting the prosperity of the Island’s finance industry.

It’s not as bad as it was when we were a simple tax haven. In those days it was very obvious that the finance industry depended on offering loopholes and tax dodges for UK taxpayers. It was all perfectly legal and legitimate business, and the UK didn’t worry too much just so long as it didn’t lose too much tax revenue and the dodges weren’t too obvious. They would quickly plug any major loopholes, in any case.

So the game developed whereby the Chancellor would close down one loophole and the finance industry would find another one to exploit. On and on in went, much to the satisfaction of tax inspectors, lawyers and other tax advisers who were kept very busy. Indeed, some even lost sight of the purpose of saving and investing, they were so busy trying to avoid tax.

Not any more, of course. Things have changed. Jersey can say with some justification that it is no longer a tax haven, if ever it was one. We’re a reputable finance centre, there to help investors and savers and oil the wheels of international commerce and investment.

We are even trying to adapt to a new world order where there is supposed to be little difference between tax evasion, which has always been illegal, and tax avoidance, which is not. That presents quite a challenge to a finance centre which used to rely heavily on keeping to the letter of the law but going no further. We made money from products and services that met every legal requirement but still helped to avoid tax. If the amount of tax avoided was substantial then it would now be considered ‘aggressive’ tax avoidance, and frowned upon. It’s no longer sufficient to act legally to have a good reputation. You have to abide by the spirit as well as the letter of the law.

This is even more difficult for a finance centre, such as Jersey, which appreciates only too well the value of a good reputation. The finance sector may want to act morally as well as legally, but there’s not much point if the business being done is poached by finance centres that couldn’t care less about morality.

So it’s no longer easy being a tax haven, low tax centre or reputable finance centre with tax advantages. Anything to do with tax is fraught with problems.
Unfortunately, this message has not got through to some in the finance industry who hang on every word that the UK Chancellor utters. Obviously there are very good practical reasons why tax changes in the UK have such an impact on Jersey’s finance industry.

Much of the Island’s business is still heavily reliant on UK-based investors and foreign investors wanting to do business in the UK. It’s no longer totally reliant on the UK, but it is very much more reliant than many in the industry try to make out. While there has been some diversification, UK-centric business is still absolutely crucial for the Island.

There’s nothing wrong with that, of course, except it’s risky relying on one market, even if it is a diversified one. It’s also risky basing almost an entire economy on something as changeable as taxation.

You only have to look at what’s happening to the Island’s fulfilment industry. That is firmly in the sites of the UK Chancellor who has reduced the threshold for Low Value Consignment Relief and could abolish it entirely. So where does that leave the fulfilment or ‘pick and pack’ industry? Probably as dead as the dodo, because it relies on one feature only – taxation, or rather the lack of it. What does Jersey’s fulfilment industry have to offer customers other than LVCR?

The same can be said about wealthy 1(1)k residents. If all the Island has to offer is low taxation, then we will attract wealthy people who are only worried about tax. That’s a pretty poor basis on which to decide where to live, and most people will take many other factors into consideration. But you wouldn’t think that hearing some of our political leaders talk.

There’s more to life than tax, and while it’s obviously an extremely important factor (particularly because of our history), there are other ways in which we should seek to compete.

Tax has to be kept as low as possible, but more emphasis should be placed on expertise, service and integrity, and I don’t mean just talking about it but actually doing it.

Neither Jersey’s finance industry, fulfilment industry or wealthy residents will prosper solely because of low taxation. It’s important, but not enough on its own.

Peter Body is the editor of Business Brief magazine