Still waiting for ‘terawatt islands’

LAST month one reader was so concerned with the depth of my blue funk with the lack of accountability in our public sector they appealed to me to write an uplifting piece on the virtues of public service to encourage better quality candidates to stand in next year’s election. Perhaps I’ll tackle that another time. But today I promised to return to this column’s core topics of international economics and sustainability, and I also promised to be a bit more upbeat in my tone. I think.

Let’s face it, being upbeat is tough. Just ask Sir Keir Starmer. His strategy of highlighting the UK’s problems and pinning them on the Tories has been so effective that now he has to backtrack, promising no return to austerity in the autumn budget. Now the risk is that this could be seen as an admission that the Tories didn’t leave things as bad as Labour claimed. I’m sure some editor at GB News is toying with that narrative. ‘And with all the recent public sector pay deals it’s getting quite hard to pin the blame for the £22bn budget ‘blackhole’ on the Tories.

It’s improbably ironic that Starmer’s £22bn. hole mirrors in size the £16m. revenue shortfall announced by Deputy Trott at the start of the month. Proportionally, both represent about 2% of total public revenues. I kid ye not. Perhaps Sir Kier and Deputy Trott took the opportunity to joke about the irony during the Labour Party conference this week, where Lyndon led a (quite large if you ask me) delegation to convince Sir Keir’s party that our offshore finance sector has nothing to do with UK tax loss. Good luck with that – this isn’t the Labour Party of Blair and Brown. Particularly if with the other hand we’re promoting the island as a route to escape Labour’s autumn tax rises.

The morning after the UK election, I tweeted my concern over Margaret Hodge’s elevation to the House of Lords, which gives her a clear vantage point to continue her vendetta against offshore finance. Our response? Rolling out the recent Frontier Economics report commissioned by Guernsey Finance, which has a central claim that the UK would lose £13bn of investment if its ties to Guernsey were severed. The exact words are ‘the UK would have been unable to recoup approximately £13bn. of this investment [from alternative sources] if existing linkages were broken’. But frankly £13bn. is peanuts. It’s less than half a percent of all UK foreign direct investment – not even a rounding error. It reminds me of Dr Evil’s misstep in the first Austin Powers movie in wanting to hold the world to ransom with a nuclear warhead for ‘one million dollars’.

This isn’t a cheap dig. I mean this isn’t just a cheap dig. Small figures like this won’t win any arguments, perversely they could be used to justify the argument that the UK could put us out of business with negligible economic cost to itself. What’s needed is a demonstration of the positive economic impact the UK receives from the offshore sector as a whole – and linking that to its economic growth. Only then is scale of the argument persuasive. After all, visit YouTube and you’ll find John Christensen’s ‘The Spider’s Web: Britain’s Second Empire’ explaining how Britain used the network of the Crown Dependencies and Offshore Territories to maintain its role as a global finance centre. Oddly enough, I’m talking about revisiting the same argument but presenting it in a positive light, tying it to economic growth.

Let’s be frank, the socialist consensus in Europe now targets even the principle of free flow of global capital. Thomas Piketty dismisses it as a motto of the neo-colonialists, the propaganda of the rich. Offshore centres like ours have no role in a world that rejects this principle.

With The Economist reporting last week that ‘peak woke’ is behind us (attempts in the US to censure academics for their opinions peaked in 2021), is it a sign that public opinion is turning and might soon be once again open to listening to policies aimed at expanding the economic pie, rather than just slicing it differently? Could it be that we just need to dig deep and demonstrate that offshore finance has a role in creating economic growth? We should at least try.

Economists may debate long-term growth rates to the confusion of onlookers, but as I know I’ve bored you with before, our economic geography places us within the group of slow-growth western European economies. And our personal economic malefactor is that the traditional engine of our economy – offshore finance – is no longer a global growth sector. Just compare and contrast the numbers 15 years before and 15 years after the global financial crisis. Mind, don’t tell the States officials that – last year when I was being briefed on the Guernsey economy as part of the fiscal policy panel, there was scant recognition that anything had changed in the last 15 years.

Obviously, I’m not in favour of just giving up on the finance sector. I’m all for promotion and policies geared to its development. The rationale behind the green finance strategy I developed in 2018 was to help the sector, and by extension ourselves, become a force for global good. That strategy was supposed to be about policy and actions, not purely marketing – there’s still an opportunity to turn that back round. And there’s always the old-fashioned (and rather hard work) strategy of trying to attract firms from new markets to the island. Time was, the Chinese were coming.

But we’ve been sticking our head in the sand for too long on this one. Never mind Lyndon’s £16m. loss, we’ve still got the revenue impact from losing Credit Suisse, which will have completed moving its business to Jersey by the end of 2025 (I’m told we didn’t even put up a fight, not even a token, to keep them here), and revenue and job losses from RBC’s migration to Jersey to factor in. It’s a shrinking finance sector. You don’t need to be able to read tea leaves to see the need to develop another pillar to our economy.

If only there was an opportunity to leverage a natural resource and exploit growing global demand for clean energy. A natural resource which we were blessed with in abundance. That would be perfect. Turns out there is. The Royal Society estimated that up to 20% of UK demand could be generated from renewable sources around the Channel Islands. ‘We could be the terawatt islands’ I wrote in these pages some two years ago. Exporting billions of pounds’ worth of energy. What are we still waiting for? I’m not deluded, it’s likely to be hugely costly initially. But please let’s scope it out as an economic strategy pretty damn quick. And while we’re at it, let’s make the island’s built infrastructure energy neutral, a point I’ll get into another day.

I’m not running around doing a Corporal Jones. Yes, the UK is growing this year, the spectre of recession is receding, and the interest rate cycle has turned, but my structural concerns about our economy and the prospects for our finance sector are genuine. As is my frustration with the lack of strategy or thinking to emerge from the States on this potential new economic sector. Space precludes getting into practicalities, but I wanted to get these thoughts out in the open this month.

When they kicked out the tax review two Februarys back, the States resolved ‘to direct the Policy & Resources Committee, working with Principal Committees and wider States Members, and after effective engagement with the community, to identify a longer-term vision for the island and an accompanying economic, social and environmental model and report back by the end of 2024’.

I’m not holding my breath that we’ll see anything in the next three months. And I suspect no one’s going to hold their hands up and claim responsibility for the inaction. Bother, and there I am, back where I started this month, having a go at the States, despite my best intentions.