03 Economy

Members of the New Economic Development Committee

President: Sasha Kazantseva-Miller 8794
Vice President: Andy Niles 5846
Members: Rhona Humphries 5630, Hayley Camp 5886, Lee Van Katwyk 7063

Guernsey needs to live up to the promise of being small and fleet of foot

It’s easy to presume ‘The Economy’ is a default – it just happens. By and large, that is not an unfair view to take. However, Guernsey’s economy is very skewed towards Financial Services, which has provided Islanders with a considerable economic boost for several decades. However, it has evolved and is now a highly regulated industry which is very exposed to International requirements that increasingly, place a burden on Guernsey as a small, subscale Jurisdiction to comply with. It has also brought its own pressures in terms of sufficient numbers of qualified staff and in turn, competition for housing.

Furthermore, it has now consolidated many of the original early entrant companies that were once very largely owned by local Islanders – into pan-jurisdiction entities, that are increasingly headquartered elsewhere. With so much of our taxation revenues emanating from those employed (directly or indirectly) in this sector, these developments introduce vulnerabilities in our economy that need to be addressed.

Cost of doing business in Guernsey

Historically, it would be reasonable to say that our Finance Sector developed largely on Tax and Regulatory arbitrage. This provided the experience to develop considerable local skills in International Finance and we now compete on a global basis. But a number of developments have demanded that we accept a very high degree of Compliance and oversight to remain part of that global market for Financial Services. Notably, the attack on the Twin Towers led to a forensic inspection internationally on terrorist financing and the major crash of 2007-2008 brought in a range of further measures aimed ostensibly at preventing such an event reoccurring. Now of course, we also have considerable restrictions on any business connected with Russia following their attack on Ukraine.

This burden of Compliance cannot be avoided and it adds considerable cost to doing business. By means of example, Government recently had to spend something north of £23 million in preparation for a Moneyval inspection that we must undergo (and pass), if we are to be a recognised Centre for Financial business. Now that regulation is pretty much worldwide, and without a doubt is designed not just to ensure probity, but also is intended to put pressure on the entire offshore sector which is often viewed as a threat by larger jurisdictions and blocs. It is against this backdrop then, that our local cost of living pressures of housing particularly, but also in competition for available skills – that we risk in the future, becoming sufficiently cost-effective to do business from.

But it doesn’t end there. The rise and rise of Artificial Intelligence (AI), the use of crypto currencies and the enormous threat posed by online security attacks all conspire to provide challenges. On the one hand, technological advances that improve productivity are to be welcomed. We have been experiencing an overheated economy for quite some time, whereby we have more business than we can service with available resources. Theoretically at least, technologies such as AI could be of considerable help. But the same AI advances also increase the threat to doing business online and remotely – that in itself requires the development of new skills and abilities – and those may not be commensurate with current capabilities.

It has long been common practice for the Guernsey Finance Sector to offshore more straightforward administration to lower cost jurisdictions. Add to that new developments such as the more recent Pillar 2 tax arrangements which seek to impose a 15% tax rate across much of the world on larger companies and the subsequent levelling of the playing field makes the cost of doing business from Guernsey an even bigger consideration. We have other sectors of course, but none that come close to the contribution that Finance makes in terms of employment and ultimately tax revenues. Our Tourism and Hospitality sector is a minnow in comparison and ideally, we need to attract low footprint, high value industries that can help to re-balance our economy and developing digital skills is certainly one way in which that could come to fruition. But that requires sufficient investment in developing those skills – from tax revenues that are already very strained. Alternatively, we could seek to develop more niche expertise in areas of existing business that give us a unique strength or provide opportunities and they might include things like digital asset management, use of crypto, security and designated trade or investment zones.

The new Assembly will be confronted by all of these threats and opportunities and they will likely evolve very fast. Guernsey needs to live up to the promise of being small and fleet of foot – and be ready to move quickly. To do that, it would be my contention that our existing Machinery of Government requires urgent overhaul. In the meantime, please read/listen to the attached ECONOMY POSTS below which explore these issues in more detail.

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