Guernsey’s economy shows signs of recovery despite protests
High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/
A seafront car park in St Peter Port overlooked by Guernsey’s financial district witnessed an unusual event last month, as a couple of thousand locals protested about the economy and austerity measures.
Across Europe, there has been widespread — and sometimes violent — opposition to painful economic reforms. But what incensed people in Guernsey was the prospect that they might have to pay a goods and services tax for the first time or — worse still — lose their right to park free of charge anywhere on the island.
High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/
Six years on from the global crisis, Guernsey’s comfortable, slow-paced lifestyle remains largely intact. The economy enjoys almost full employment, with 343 people on the jobless register in June out of a workforce of 30,000.
Although the island has been running a budget deficit since 2008, it recorded growth in GDP in each of the past four years after tipping into the red in 2009. Financial services, the dominant sector that accounts for 40 per cent of both output and employment, have proved remarkably resilient.
The recovery may still be fragile, but bank deposits in the most recent quarter were up for the first time in 18 months. Investment fund launches are starting to pick up. Earnings from the insurance sector, which by its nature tends to be counter-cyclical, have levelled out rather than declined.
Gavin St Pier, treasury and resources minister, describes Guernsey as a “global warehouse” for financial services. The industry’s roots go back to the early 1900s, when the first captive insurance company was incorporated. Offshore banking took off in the 1960s, when Kleinwort Benson — followed by Rea Brothers, NM Rothschilds and SG Hambro — set up operations to serve their international clients.
The first Guernsey fund was admitted to the London Stock Exchange in 1953. Today, Guernsey accounts for more listings than any jurisdiction bar the UK.
But in the wake of the financial crisis, governments have been under pressure to clamp down on tax avoidance. And offshore centres have been subjected to increased scrutiny amid concerns about the financing of terrorism and organised crime.
High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/
In response, the Guernsey authorities have been early adopters of international protocols on money laundering and have been ahead of larger economies in putting in place tax information exchange agreements.
Ministers are confident they have a unique offering, a well-regulated tax-neutral jurisdiction which has shown innovation and flexibility in building structures and products to channel investment to the UK and Europe.
Guernsey pioneered the protected cell company, which lowers the barriers to entry for captives but is also popular as a funds structure. In the private wealth management area, it has enacted legislation regarding foundations, important for family office and wealthy individuals from civil law jurisdictions unfamiliar with trust structures.
In a further move to diversify, Guernsey launched the world’s first image rights regime. The authorities are eyeing the potential of “fintech”, using strong telecoms connectivity to host peer-to-peer lending and cryptocurrency platforms, and online gambling and gaming sites.
The island traditionally positions itself as a business location outside the EU but close to the City of London. As a crown dependency — represented by the Queen rather than the UK parliament — it has its own executive and legislature, a separate courts system, and crucially for the financial services industry, its own independent regulator.
The crown is formally responsible for the island’s defence and international relations. So when the UK joined the EU in 1973, the island negotiated a special relationship that means it is part of a customs union for goods but not for services.
“We have a choice as to what financial services directives we comply with,” explains William Mason, director-general of the Guernsey Financial Services Commission, the regulator.
The island decided not to adopt the EU Solvency II rules on capital requirements for insurance companies. However, it established a dual regulatory regime to accommodate the new EU directive on alternative investments — offering fund promoters a choice of targeting either EU or non-EU investors.
High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights
Guernsey is now a leading domicile for private equity funds, attracted by business-friendly limited partnership law. Property funds are also popular, with a large chunk of London real estate owned through Guernsey structures. Another development is the promotion of green energy funds, with a number of UK solar farms financed via Guernsey.
“When governments are short of money and short of infrastructure investment, and while pension funds have a liability gap to fill, we have a place in the world,” says Mark Huntley, managing director of Heritage, a local fund management and administration company. He believes global uncertainty plays to the advantage of offshore centres, and cites the growth of Dubai in the wake of the Arab spring unrest.
One big uncertainty for Guernsey is what happens if the UK leaves the EU, with an in-out referendum promised by the British Conservatives if they win next May’s general election.
Jonathan Le Tocq, chief minister, acknowledges this is a live issue and says Guernsey has met other microstates such as Liechtenstein to discuss the possibility of keeping open trade links with Brussels by joining the European Economic Area.
Throughout its history, whether in its role in licensed piracy against Napoleon or the second world war occupation, Guernsey has had a gift for survival.
But John Clacy, a partner with Deloitte, says the prospect of the UK leaving the EU would present a new challenge. “We’d be looking about for who is going to stick up for us. The French or the Germans? That’s a different kettle of fish, but it’s being thought about.”
