Staring into the abyss
WITH the seismic shockwaves still spreading from last week's news – broken by this newspaper – that Guernsey's entire zero-10 tax strategy lies in tatters, it is clear that there is much that remains unsaid and some key questions that are unanswered.
WITH the seismic shockwaves still spreading from last week's news – broken by this newspaper – that Guernsey's entire zero-10 tax strategy lies in tatters, it is clear that there is much that remains unsaid and some key questions that are unanswered.
Looming large among them (and to paraphrase Senator Howard Baker's famous aside during the Washington Watergate scandal), what did the chief minister know – and when did he know it?
As the man credited with being the architect of zero-10, might he be to blame for the so-called dash to the bottom to have a zero-rated tax 'product', given that so many industry figures are now saying they had doubts all along about the regime ever being seen as compliant?
Before the finger of blame is pointed, however, let's look at how some of the other tectonic plates have shifted.
Perhaps the most interesting is the altered landscape facing the Isle of Man.
That dependency, you might remember, started all the trouble by being the first away with abolishing tax on business profits and thus killing off corporation tax.
It could do so with impunity (a) because it had a robust economy and, more importantly, (b) its treasury got a whopping £100m. or thereabouts share from the UK's VAT receipts. So that island could scrap a large slug of its tax revenues without generating a financial black hole.
As competitors, Guernsey and Jersey were left scrabbling around and this island, under the guidance of the then Treasury minister Deputy Trott, enthusiastically went zero a year early to get an edge over rivals Jersey.
That may actually have been the biggest mistake of this sorry saga since the cost to us all of not waiting another year would be 'only' £100m. or thereabouts.
As it is, well in excess of £200m. has gone – more than £4,700 per taxpayer – in lost revenue and the direct costs of implementing and planning for zero-10.
So should Deputy Trott put up his hand and say, 'yep, it's all my fault' and resign?
Given the support current Treasury minister Charles Parkinson had for his alternative 'zero-20' plan, there are plenty of islanders who would unhesitatingly say Yes!
But is that fair?
Scrapping corporation tax was always going to be a gamble, as this newspaper indeed headlined immediately before its introduction. But that little flutter was on whether the economic growth supposed to flow from a zero product combined with States expenditure savings (ha!) plus some drawings on the rainy day fund would lead to the books balancing or not.
What wasn't in doubt was the advice received from the UK that zero-10 itself would be tax compliant. While no one expected the Crown Dependencies to scrap corporation tax to level the playing field, there was little doubt at the time that it was an acceptable move, while Deputy Parkinson's was, apparently, not.
So, we were all having a little wager on the outcome of zero-10, not on whether the game itself was kosher. One up to Deputy Trott, then.
But then events got in the way. A small matter of the global credit crunch, squillions of taxpayers' money shoring up banks and economies everywhere going into debt-ridden meltdown meant that governments started looking very closely at where they could raise cash – and where they were losing it. Step forward the offshore islands, aka tax havens. Culprits and scapegoat in one.
Actually, it's a little more complicated than that. The tipping point was the Isle of Man getting up the nose of UK Chancellor Alistair Darling to the point where he named them as a tax haven.
It's one thing to receive millions in a VAT handout, quite another to throw it away funding dodgy tax schemes designed to take tax revenue away from the UK.
Turn off that tap, mused HM Treasury officials, and our Manx cousins will swiftly come to heel and reinstate at least some degree of corporation tax.
More on that will emerge when the IoM's chief minister briefs Tynwald tomorrow.
What the Treasury schemers also worked out is that take out the Manx competitive pressure on the Channel Islands and they have no need for zero-10.
But with both islands having their strategies in place, how to engineer that?
Simple. Prime some non-UK members of the code compliance panel to question the legitimacy of the CI action and then apologetically tell the southern dependencies that, ahem, because of Britain's weakened condition on the international stage, cough, it will no longer be able to mount a sterling defence of Guernsey and Jersey to shout down Johnny Foreigner. Sorry about that, chaps.
So, at a stroke, the UK gets to punish the Isle of Man and put the Channel Islands in their place for being way too bold on the tax front. Result!
Curiously, also a result for Deputy Trott. With our two-phase approach to black hole and zero-10, the axe has fallen on the strategy without Guernsey having implemented a VAT equivalent, unlike Jersey which has imposed the pain and cost on its businesses and population of an entire new tax.
When it comes to getting the blame, then, it looks like the chief minister's Teflon coating's still working.
Where this gets a bit more involved, however, is in the UK's not speaking up for the islands.
Didn't the much-vaunted international personality framework put an obligation on Britain to do so?
What was that phrase it used again?
Ah, here it is:
'The UK recognises that the interests of Guernsey may differ from those of the UK, and the UK will seek to represent any differing interests when acting in an international capacity.'
Nothing there about bottling out or not giving it a go when the UK's feeling a bit off colour, is there?
When it comes to blame, there are two things to say.
Firstly, at the time, zero-10 was the only game in town. Secondly, if a week is a long time in politics, two years is an eternity and nothing lasts forever.
But while Guernsey and Jersey try to extricate themselves – jointly, which is a good thing – from the mess triggered by the Isle of Man, there's another thing to contemplate.
When the Crown Dependencies needed support from those to whom they swear fealty, it was withheld.
That is gravely worrying.
