We should tighten up the UK’s own regulations – and increase demands for financial transparency
Jersey, Guernsey, Alderney, Sark. These are the most prominent members of what the British call the Channel Islands. But perhaps after our investigative series this week, we might give them a nickname: The Loophole Islands. Because what these island economies rely on for their living is exploiting the gaps in international law.
As we have shown, for instance, the fact that Guernsey has opted out of European standards on what claims can be made about vitamins and minerals means that it has effectively become the supplement capital of the continent, bustling with firms that for years have made unsubstantiated health claims for their wares. The number one market for these 21st-century super supplements is the UK. And of course, there is tax avoidance. As has become infamous, rich people in Britain can declare themselves to be not domiciled here, which exempts them from paying tax to the UK on money made abroad. This loophole effectively demands a place offshore through which non doms can run their affairs. Step forward Jersey, where 40% of finance employees hail from the UK and which has become a second home for the City of London.
Easy though it would be for the British to wag their fingers at the Loophole Islands, the truth is that their existence should as often as not be the cause of shame for the UK as well as regret for the islanders. For the islands, it is easy to see the downside. Some of the smallest places are effectively overwhelmed by big and footloose capital. Entire islands run the risk of becoming “company towns“, unable to provide decent careers and lives for their residents. But if the UK was tougher in cracking down on tax avoidance, it would kill off the excesses of this corrosive shadow industry.
Rather than just moralise at the islands, Whitehall and Westminster should tighten up the UK’s own regulations – and increase demands for financial transparency. Barack Obama has pushed through the Foreign Account Tax Compliance Act which will force financial institutions outside the US to report to Washington on income and interest paid to the accounts of American clients.
The US president famously took power fulminating against a building on the Caymans housing thousands of American corporations as “the biggest tax scam on record”. But there are British counterparts; as the New Statesman recently noted “the New Raj Tandoori in St Helier is home to around 800 UK businesses“. One Indian restaurant in Jersey housing 800 British corporations: is this any way to run Jersey’s economy – or the UK’s? A similar tax-avoidance rule in the UK would help both Britain and the people who actually live in the Channel Islands – rather than those who use them as a haven for loophole-seeking.