The Mother of All Parliaments

I had the opportunity to address the 1922 Committee on Tuesday evening this week at the Houses of Parliament sharing a platform with Graham Brady, the 1922 Chair, and Peter Davis Vice Chair of Enterprise Forum, at their Parliamentary Business reception. I rarely give speeches verbatim but a brief introduction to the 1922 and the broad content of my presentation follow:-

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"The 1922 Committee, also known as "the 22", is a committee of backbench Conservative MPs. The committee allows the leadership and the backbenches of the Conservative Party to keep in touch with each other's opinions. It meets once a week. It is a very influential committee within the party and the Committee Chairman has direct access to the party leader.

The 1922 Committee is named after the year a group of Conservative backbench MPs voted to end the coalition formed by the Liberal Party with the Conservative Party. It was April 1923, however, before the Conservative Party agreed to form the committee, elect the Officers and Executive and meet on a regular basis throughout the Parliamentary session."

Jersey – The International Finance Centre

Jersey, home to 34 international banking operations and a skilled finance industry workforce of more than 12,500 people, has been established as an International Finance Centre (IFC) for more than 50 years, and attracts billions in banking and investments from around the world.

For a long time we believed that Jersey was a benefit to the UK but did not have the data to demonstrate it. But in 2013, Jersey Finance commissioned an independent study to determine just what value we brought to the British economy. The report, produced by leading independent macro- economic research company, Capital Economics, and entitled Jersey’s Value to Britain, is the first in depth analysis of its kind, illustrating that Jersey provides vital liquidity to the UK economy, facilitates inward investment from around the world and consumes UK exports, all of which support UK jobs.

Its most significant findings included that:

  • £1 in every £20 invested by foreign individuals and companies in assets located in Britain reach the UK via Jersey
  • Jersey is a conduit for nearly £500 billion of foreign investment into the UK, comprising 5% of the entire stock of foreign owned assets
  • The contribution from Jersey banks to parent operations in the UK represents 1.5% of the funding of the whole UK banking system
  • Jersey helps the UK generate around £2.3 billion in tax revenues each year and supports an estimated 180,000 British jobs
  • Two fifths of all assets administered or managed across Jersey’s financial and wealth management sectors come from markets outside the UK and EU

It has also demonstrated the truly international nature of Jersey’s finance industry, with global capital flowing to the UK from some of the largest and fastest growing markets in the world.

The study estimates that three quarters of the wealth attracted to Jersey originates from ultimate beneficial owners who are not domiciled in the UK and concludes that Jersey has become a major conduit for non UK domiciled foreign wealth which, says the report, ‘has been a consistent plank of British policy for attracting wealth and talent under successive governments.’

Jersey’s banking contribution is particularly impressive, which is perhaps unsurprising given the long term nature of Jersey’s relationship with the City of London. Jersey’s banking model attracts capital from approaching 200 countries around the world. Its security and strength is further complemented by subscribing to the Basel standards and holding an average core capital ratio, across the banking sector, of 14.8%, some 50% higher than the required international standard.

The Capital Economics study also looked at the potential for tax leakage and the broad conclusion drawn from the findings was that substantially more British tax is generated by Jersey than is lost through it. Tax evasion in 2011 was estimated to be no more than £150 million and is probably much less. While still unacceptable, it is set to fall substantially, following the information sharing agreements Jersey has signed up to. However the amount is far outweighed by the tax receipts that are obtained from Jersey generated activity which as previously noted, according to the study, is in the region of £2.3 billion per annum.

The study reports that the wide geographic spread of Jersey’s clients means that it is attracting investment from businesses and individuals who wouldn’t necessarily see the City of London as their first choice of financial centre. Around 30% of the investment through Jersey originates from outside the London time zone and the study concludes, if Jersey was not available to facilitate the funds, they would most likely gravitate towards New York, Hong Kong or Dubai to the detriment of London.

The survey results also indicate that 84% of Jersey’s financial services business would be at risk of leaving the sterling zone if Jersey was not present as an IFC. This business and the consequent investment would likely migrate to other offshore centres and not London and could, according to the study, cost the equivalent of around 150,000 British jobs.

The overall conclusion is that Jersey and the City of London have a symbiotic relationship with one benefiting and supporting the other.

In addition to this study, a report - Moving Money - was published this year by two leading academics. It found that allegations of international finance centres facilitating illicit capital flows, which allow multi-national enterprises to avoid paying a fair amount of tax, were unfounded and based on mistakes about how financial transactions are conducted.

Furthermore, the report concluded that reducing trade barriers actually help both developed and developing countries.

These findings are an extremely important contribution to the global debate in this area and will hopefully go some way to alleviate the distracting, over-heated rhetoric that often over shadows crucial discussions around tax policy and international business. 

 

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