From The Guardian:
Jersey bet its future on finance but since 2007 it has fallen on hard times and is heading for bankruptcy. Is the island’s perilous present Britain’s bleak future?
Jersey looks like a bit of Devon that ran away to sea and did rather well for itself. Photograph: Alamy
As you approach Jersey by air, your plane’s shadow touches cliffs rising from the English Channel, then patchwork fields with wooded dingles between them, then four‑square buildings with groomed lawns. Down below, the island is lush and verdant, set in a sparkling procession of eastward-marching waves. It looks like a bit of Devon that ran away to sea and did rather well for itself.
John Christensen grew up in one of those handsome houses, a Norman manor surrounded by fields. “It was heaven,” he said. “There were fantastic beaches, a strong sense of fun, because of the tourism industry. The Beatles played at Springfield in 1963, stuff like that. It was cool.”
Christensen, who was born in 1956, is almost exactly the same age as Jersey’s offshore finance industry. While he was playing with his brothers in the grand rooms of the family home, Jersey lawyers were spotting one of the most profitable loopholes in history.
At that time, the world severely restricted the movement of money. Politicians blamed financial speculators for the Great Depression of the 1930s, and had imposed capital controls to prevent something similar happening again. Pounds were trapped in Britain, where taxes were high. If a person died wealthy, their heirs had to give 80% of any inheritance over £1m to the government.
There was Jersey’s business opportunity: the island had no inheritance tax. If wealthy Brits invested their millions in Jersey, some now-forgotten genius realised, the UK exchequer could not touch them. The money poured in, because the schemes did not end with inheritance: almost any tax could be avoided there, if you planned it right. Where wealthy individuals started, banks soon followed, utterly transforming the island. Bankers and tax exiles moved into St Peter, the parish where Christensen grew up, driving up prices and importing the values and conversation of the City of London to this improbable place.
“Who wants to pay taxes on profits in London when you could do it in Jersey?” Christensen recalled. “It was changing enormously, particularly by the early 1970s when the really big players began to establish themselves.”
Today, the offices of those big players form a wall of glass along the seafront of Jersey’s capital, St Helier: Credit Suisse, Citi, HSBC, Société Générale, PWC. And they oversee a vast amount of money. By 2007, Jersey – home to just 100,000 people – held almost £220bn of deposits, and administered another £221bn of funds, as well as hundreds of billions in trusts. The finance sector’s profits that year were more than £1bn, unemployment was barely 1%, and gross national income per person was significantly higher than in Britain or the US.
From the waterfront, the money spreads inland. St Helier is a prosperous resort with cafes, theatres and covered markets. It is cleaner, busier, neater, brighter than almost any seaside town you will find on the British mainland. Appearances are deceptive, however. Jersey looks rich – but it is heading towards bankruptcy.
In April, officials announced that the budget would be short £125m a year by 2019. “What went wrong?” asked the Jersey Evening Post. And that was just the start of it. By June, the annual deficit – now known on the island as the “black hole” – had been revised upwards to £145m, more than £1 in every five that the government spends. “The black hole is so big,” according to Connect, a Jersey business magazine, that “filling it will take the equivalent of shutting down every school in the island, laying off every teacher, letting the parks turn into overgrown jungles and having our roads literally fall apart.”...MORE