An original version of this blog was by published by Private Client Adviser, 11 December 2013.
Research shows how important the Crown Dependencies are to the UK, says Fiona Le Poidevin of Guernsey Finance. If only the media would pass on the good news.
You may remember that in my last PCA blog, I referenced comments made by UK Prime Minister David Cameron in the House of Commons where he said it was unfair to refer to Guernsey as a tax haven.
In responding to a question from Labour MP Fiona O’Donnell, the Prime Minister said the Crown Dependencies had taken action to make sure that they had fair and open tax systems and that the focus should instead shift to those territories and countries that really are tax havens. He then added: “The Crown Dependencies and Overseas Territories, which matter so much – quite rightly – to the British people and members have taken the necessary action and should get the backing for it.”
These were certainly encouraging comments from the Prime Minister but it made me stop and think as to whether the wider British public completely understand the added value and benefit that an international finance centre such as Guernsey brings to the City of London and the wider UK economy. We of course know the substantial contribution that Guernsey makes, but it is often easier for those in the UK media to beat the drum on perceived tax loopholes as they make for more outrageous headlines.
Indeed, the media coverage given to the Prime Minister’s comments back in September was near enough non-existent apart from in Guernsey and its neighbour Jersey. It was a similar scenario when Nick Clegg, the UK’s Deputy Prime Minister, recognised our contribution to the UK back in September 2012. Describing the Channel Islands as “hugely important”, Mr Clegg said the islands were “an important gateway for the wider financial sector and indeed the economy in the United Kingdom”.
But what is the type of contribution Guernsey makes to the UK that both the Prime Minister and Mr Clegg refer to?
Well, one area they could be recognising is that of private equity funds. Guernsey is a jurisdiction with a proven track record in private equity funds because of our first-class financial services infrastructure. It means that many UK-focussed private equity funds, a number of which are based in Guernsey, are in fact raising capital from the likes of pension funds and other institutional investors for investment into UK companies. This in turn creates jobs for the benefit of the wider economy – often filling the void left as a result of reduced lending from high street banks to British businesses over recent years.
Also, at a time when the UK Government is trying to kick-start the economy following the effects of the global financial crisis, private equity investors have continued to invest in the UK, creating (and saving) many jobs and businesses which generate taxes.
Indeed, figures from the BVCA show that, in 2012, around £5.7 billion was invested into 820 UK businesses by private equity firms, such businesses employing around 135,000 full time equivalents. Typical employment growth was 0.7% compared with a national average of 0.1%. Guernsey – with its tax neutrality – has certainly played its part as a gateway to this increased investment which allows for more to be spent on vital public services, infrastructure and commerce in the UK, creating jobs and raising taxes from such employment. The Island also ensures that investors – many of whom are ultimately UK taxpayers investing in UK pension funds – are, in effect, not taxed twice on the same income.
Let us also not forget that Guernsey’s captive insurance sector, the largest in Europe, provides a product not otherwise available in the UK and has been integral to the UK Government’s NewBuy scheme to boost home ownership in the UK.
As well as this, it’s also been evidenced how Guernsey banks play a key role in underpinning the whole UK banking system, with City of London based banks heavily reliant on global offshore centres for net financing. Figures made available from 1999 – 2008 showed that the Crown Dependencies provided on average 75% of the net financing from all offshore centres to the City, while banks in Guernsey provided more than US$70 billion of net finance to the City throughout 2008, supplying much needed liquidity at the height of the financial crisis.
More recent research undertaken by our counterparts in Jersey has painted a similar picture of the important part their island’s banking system continues to play in the operations of their UK parent banks and Guernsey should be viewed no differently. Indeed the Capital Economics report, published in July, revealed the Channel Island helps the UK generate around £2.3 billion in tax revenues each year and supports 180,000 British jobs.
What this shows is that Guernsey and the other Crown Dependencies do indeed help to facilitate investment and employment in the UK economy. Perhaps this is what the UK Prime Minister and his deputy have been alluding to with their comments and, just as I said in October, they recognise that we are part of the solution and part of the fabric which helps to drive forward British society. .