Structure of the economy
There are several different ways of measuring the size and structure of an economy. For Jersey, the most relevant is “gross value added” (GVA), which is the value of the output less the value of inputs to produce that output. Table 1 shows the gross value added by sector in 2019.
Table 1 Jersey, Gross Value Added by sector, 2019
|Sector||Gross value added £||Percentage|
|Other business activities||560||11.7|
|Hotels, restaurants and bars||205||4.2|
|Rental income of private households||760||15.5|
|Electricity, gas and water||64||1.3|
|Wholesale and retail||322||6.4|
|Transport, storage and communication||184||3.5|
Source: Statistics Jersey.
The table shows that financial services dominate the economy, accounting for 39.5% of gross value added. Agriculture, one of Jersey’s traditional industries, accounted for just 1.2% of GVA. Hotels, bars and restaurants accounted for 4.2%. Part of this represents the tourist industry, which at one time account for over xx% of the economy, but much of it reflects consumption by residents. Rental income of private households needs some explanation. It is a theoretical concept and is basically what home-owners would pay themselves to rent their property. No actual payments are made. The concept enables meaningful international comparisons to be made.
A second way of looking at the economy of Jersey is to examine the distribution of the working population. Table 2 shows the figures.
Table 2 Jersey, Distribution of the working population, December 2020
|Financial and legal activities||13,510||22.5|
|Miscellaneous business activities||5,890||9.8|
|Hotels, restaurants and bars||4,440||7.4|
|Agriculture and fishing||980||1.6|
|Wholesale and retail||7,060||11.8|
|Construction and quarrying||6,110||10.2|
|Transport and storage||1,950||3.2|
|Utilities and waste||710||1.2|
|Private education, health and other services||8,130||13.6|
Source: Statistics Jersey.
A word of caution is needed here. The table shows the position in December 2020, when Covid-related restrictions were in force. This means that the figures, particularly for hotels, restaurants and bars, are distorted to some extent.
There is a reasonable correlation between the two tables. However, it will be noted that financial services accounted for a much higher proportion of GVA than of the working population. This largely reflects the fact that pay in the financial services sector is very high compared with other sectors.
Jersey is one of a number of international financial centres (IFCs), an expression that is best defined as a physical area from which financial services are provided for people and activities in other countries. A successful IFC has to be attractive to businesses not operating in the jurisdiction. In practice, this means that an IFC has to meet a number of inter-related requirements, predominantly relating to stability and resources -
- Political stability, that is no prospect of a radical change in the governance of the jurisdiction.
- The rule of law, that is a skilled and independent judiciary, free from corruption and political influence, combined with a legal system that provides a reasonable degree of certainty and efficiency.
- Financial services are heavily regulated activities. IFCs need to strike a balance between having attractive regulatory regimes in relation to other financial centres while at the same time operating within internationally accepted norms.
- Regulatory stability. The key features of the regulatory regime need to be stable, with any changes being introduced only after very careful consideration and with an adequate lead-in time and also that regulatory actions should not be subject to political interference.
- A tax regime that is low tax rather than no tax, stable and predictable and meeting international standards. It is particularly important that there should be no retrospective taxation.
- Economic stability, broadly speaking an inflation rate around the norm for comparable jurisdictions and a relatively stable exchange rate.
- Appropriate infrastructure including modern offices, high quality and reliable electronic communication links and good international air links.
- Access to talent, which requires an open and welcoming environment for foreigners and an education system that produces the many qualified people needed to fill lower and middle level positions.
No IFC fully meets all of the requirements, but Jersey scores very well in respect of each of them. It also has the advantage of being a British Crown Dependency, a status that reinforces its political stability. These factors explain why over a period of many years Jersey has been successful in attracting international business.
Jersey’s finance centre activity covers several different types of finance (figures apply to the end of 2020) -
- Banking. 24 banks operate in Jersey. All are major banks, with headquarters in the UK and other leading financial centres. They held £132 billion of deposits, 56% held by residents of Jersey and the UK, 29% by residents elsewhere in Europe and the remaining 15% by residents in other countries. £58 billion was held in sterling and the remaining £74 billion in other currencies.
- Administration of regulated collective investment funds. Jersey has developed particular expertise in fund administration. 750 funds were authorised in Jersey and funds under administration totalled £378 billion.
- Investment management. £28 billion of investments were directly managed.
- Company administration. 33,626 companies were on the company register.
- Insurance. 171 businesses were authorised to conduct insurance business.
The finance industry also recognises the unique potential for the island to become a leading sustainable international finance centre. In 2020, Jersey Finance published the Sustainable Financing report, outlining the Island’s guiding principles and commitment to becoming a sustainable finance centre. Recognising that Jersey is well positioned to respond to trends in sustainable financing, the report set out specific recommendations and the vision that by 2030, Jersey will be recognised as the leading sustainable international finance centre in the markets it serves.
The Jersey Government has been determined that the Island strikes the right balance between being competitive in a very competitive market and operating in accordance with the highest international standards. It achieves this by ensuring that appropriate legislation is in place and most importantly by having a strong independent regulator, the Jersey Financial Services Commission.
Finance centre activities are sometimes controversial – in the jurisdictions in which they are based and globally. Jersey is not alone in having to justify its finance industry, and it does so by participating fully in international fora, including being reviewed by international organisations, for example on money laundering controls. It also publishes a great deal of information. An important role is played here by Jersey Finance, the promotional body for the industry.
The importance of finance to the Island’s economy is well illustrated in the two tables above – 22.5% of the labour force and 39.5% of GVA. Perhaps a more important indicator is the proportion of tax revenue derived from finance centre activity. This is estimated at over 70%. Most of this derives not from the taxation of businesses but rather of the personal tax paid by people employed in the businesses.
To consider the wider implications of Jersey’s finance centre activity, Jersey Finance (the industries promotional body) commissioned the consultancy Capital Economics to evaluate the economic, financial and fiscal linkages between Jersey and the United Kingdom The resultant report Jersey’s Value to Britain was published on October 2016. Its conclusions included -
- Jersey is a conduit for an estimated almost £500 billion of foreign investment into the United Kingdom, which is equivalent to 5% of the total stock of foreign owned assets in the country.
- Although Jersey benefits from the United Kingdom’s defence and foreign representation activities to the tune of £55 million per annum on a pro rata basis activity in Jersey generates around £5.0 billion in United Kingdom tax revenue per annum.
- Jersey supports an estimated 250,000 British jobs, of which 190,000 from foreign investment alone, and adds £14 billion to the United Kingdom economy.
Agriculture and fishing
At first sight agriculture and fishing play a minor role in the Jersey economy, accounting for under 2% of output and employment. However, these bare figures understate the importance of these sectors to the economy and to society. Over half of land in Jersey is cultivated, so many areas of the Island have a rural feel. Cultivation contributes to the appearance of the Island, which makes it attractive to visitors and as a place in which to live.
The Jersey cow has a worldwide reputation as a result of its delightful appearance and the quality of its milk. The breed has remained pure though a recently relaxed ban on imports of other breeds that dates back to 1763. Since 1860 the lineage of every cow in Jersey has been recorded in the herd book. Today there are large herds of Jersey cows in many countries. In the USA and New Zealand, it is estimated that Jerseys account for about 10% of milking cattle, about 850,00 cows in the USA and 450,000 in New Zealand. Worldwide there are about 4 million Jersey cows. Today in Jersey there are 21 herds of Jerseys with 2,631 milking cows out of a total of 4,430. Jersey Dairy is responsible for collecting milk from farmers and turning it into milk products – butter, ice cream and yoghurt as well as milk itself. Sales of milk to Jersey Dairy are worth about £16 million a year. Milk products are exported to a number of countries. 150 people are employed on cattle farms and a further 70 at Jersey dairy.
Jersey new potatoes are another industry of huge historical significance. Today, potatoes are the main crop grown in the Island but accounting for just 478 vergées, 1.5% of the 32,748 cultivated vergées. Exports are about £30 million a year.
Fishing is another traditional industry that remains important today. In 2019 1,696 tonnes of shellfish were produced of which 1,350 tonnes were farmed. Whelks, oysters, mussels, scallops, crabs and lobster are the main varieties. Much of the shellfish has been exported to France. The UK’s exit from the European Union has had significant implications for the industry which are still being worked through.
Jersey also has one vineyard, which produces wines, spirits and other products and there are tea gardens and medicinal cannabis cultivation.
Tourism was the Island’s principal industry for much of the post-War period. The climate, beaches, cheap alcohol and tobacco, low-cost ferry travel for British Rail employees and relative ease of accessibility from the UK combined to make Jersey an attractive destination for families. However, over time the growth of cheap air travel and package holidays have made other destinations comparatively more attractive. In 2017 it is estimated that there were 727,000 visits to the Island, compared with over 1,000,000 in 1997. 580,000 were holidays, 80,000 were business visits and 100,000 were visits to families and friends. In addition, there were 109,000day trips. On-Island expenditure totalled around £250 million. The number of bed spaces was estimated at 10,000.
Other business activities
10% of the economy is accounted for by ”other business activities”. This covers a variety of activities, increasingly in respect of technology. An important role in this respect is played by Digital Jersey, which describes itself as –
The Government-backed economic development agency and industry association dedicated to the growth of the digital sector. We develop strategies to help on-Island industry thrive and remove barriers for inward investors choosing Jersey as their world-leading base for digital innovation.
It is estimated that there are over 500 specific digital economy businesses in Jersey, employing 2,750 people and that the sector has been growing four times as fast as the economy as a whole.
The Jersey Chamber of Commerce, established in 1768 (and so is the oldest in the English-speaking world) is the largest independent business membership organisation in Jersey, representing businesses of all sizes and sectors. It hosts networking events and has an input into Government policy through a number of specialist committees.
IoD Jersey, founded in 1966, has over 600 members from all sectors of the business community. It seeks to influence Government policy and runs a professional training programme to help promote high standards of corporate governance.
Jersey Business is not a representative body but rather provides free, independent, confidential advice and support to businesses and start-ups in Jersey.
There also a number of sectoral bodies. Jersey Finance has already been mentioned. Others include-
- The Royal Jersey Agricultural and Horticultural Society, founded in 1883, represents Jersey’s traditional farming sector. It also runs an educational programme and a showground.
- The Jersey Hospitality Association represents the hospitality and tourism industry.
- Locate Jersey which encourages new businesses and high net worth immigrants to move to Jersey
The Fiscal Policy Panel
The Jersey Government’s Fiscal Policy Panel provides independent economic advice on tax and spending policy. The Panel comprises three eminent UK economists and is currently chaired by Dame Kate Barker. It publishes an annual report and regular “economic assumptions”. These publications provide the best regular analyses of the state of the Jersey economy.
Jersey has a tax system that is simple and stable. There are not the frequent changes in the structure or rates of taxation that are common in many other jurisdictions.
Personal income tax has been levied at a standard rate of 20% since June 1940. A system of “marginal relief” exists which reduces the amount of tax paid by lower earners. The 2022 threshold for paying tax is £16,550 for a single person, £26,550 for a married couple with an allowance of £3,060 for each child. By comparison, in the UK the single person threshold is £12,740, the basic rate of tax is also 20% but higher rates of 40% are levied on income over about £50,000 and 45% on incomes over £150,000. In common with many jurisdictions, Jersey offers certain tax incentives to high-net-worth immigrants who can offer economic and social value to the island.
Jersey does not tax capital gains or inheritance. Jersey's Goods and Services Tax (GST) rate is 5% and is broadly applied with few exemptions. The annual turnover threshold for registering for GST is currently £300,000.
Companies are taxed on their profits at the rate of 20% for a small number of businesses including, for example, utility companies. Certain financial- services businesses are taxed at 10%. The standard rate of income tax for the majority of companies is 0% helping to ensure the tax neutrality of much of the business on which Jersey’s international competitiveness relies.
Jersey is part of a customs union with the United Kingdom and two other Crown Dependencies that operate a common tariff for levying customs duties where due. Excise duties are levied for certain fuels (including petrol and diesel); alcohol; and tobacco. A number of additional levies, taxes and duties exist covering, for example, property transactions; Vehicle Emissions (on first registration of vehicles); and a Long-term Care contribution.
|Health and community services||240||26|
|Customer and local services||207||23|
|Children, young people, education and skills||153||17|
|Justice and home affairs||72||8|
|Treasury and Exchequer||67||7|
|Infrastructure, housing and environment||63||7|
|Office of the chief executive||35||4|
|Chief operating officer||30||3|
|States Assembly and other bodies||28||3|
|Strategic policy, planning and performance||12||1|
The 2020 figures were significantly affected by the pandemic. Covid related expenditure and lost operational income totalled was £190 million. Major components of expenditure were a payroll co-funding scheme (£98 million – included in the customer and local services figures in the table), a test and trace scheme (£16 million), and economic stimulus programme (£12 million) and a Nightingale Wing facility (£10 million).
Capital expenditure in 2020 totalled £173 million, made of –
|Expenditure of housing by Andium Homes, the Government-owned social housing provider||£60 million|
|Liquid waste facility||£21 million|
|Roads, drainage and sea defences||£11 million|
|Hospital development||£11 million|
|Housing and office development by Jersey Development Company||£10 million|
|Airport and harbour||£6 million|
Income raised in 2020 comprised –
|Income tax paid by individuals||£463 million|
|Income tax paid by companies||£120 million|
|Goods and Services Tax (GST)||£94 million|
|Stamp duty||£37 million|
“Other income:” is largely accounted for by a contribution of £30 million from Andium Homes, the Government-owned social housing provider (which can be regarded as the equivalent of notional interest on the value of the housing stock transferred to it) and dividends.
The pandemic had a significant effect on tax revenue as a result of reduced economic activity. Income tax paid by individuals fell from £475 million in 2019 to £463 million in 2021.
While Covid caused a significant budget deficit in 2020 the Government’s policy is to fund revenue expenditure from income rather than borrowing and to hold reserves in a number of funds.
The Strategic Reserve Fund was established in 2005 to be used in exceptional circumstances to insulate the Island’s economy from severe structural decline or from major natural disaster. The fund totalled £968 million at the end of 2020.
The Stabilisation Fund was established in 2006. The intention is to build up the fund in buoyant economic conditions and make payments from it at times of economic downturn. £50 million was paid into the fund in 2019, with all bar £0.6 million spent in 2020 in response to the pandemic.
There is also an Insurance Fund of £7.4 million.
Additionally, a number of relatively small funds totalling £12.4 million exist for specific purposes, such as a £4.7 million as a Climate Emergency Fund.
Jersey has its own social security system, providing the full range of benefits. The basic pension is £226 a week. Both employers and employees pay a contribution rate of 6%. In 2020 contributions totalled £174 million and benefits were £257 million. The contribution figure was affected by a payment holiday introduced as a consequence of the pandemic. The social security fund had a balance of £76 million. Unlike in the UK State pensions are not simply met by current contributions. At the end of 2020 the reserve fund to meet future pension liabilities totalled £2,093 million.
In addition, there is an income support scheme funded by general taxation.
The funding of long-term care is a challenge for all countries. Jersey operates a long-term care scheme under which care cost in excess of £58,230 are met by a fund, paid for by an additional tax rate of 1%. In 2020 contributions totalled £36 million and benefits £54 million. The fund totalled £37 million at the end of 2020.
There is a separate Health Insurance Fund. In 2020 contributions, which are part of social security contributions, were £30 million and benefits £54 million. The fund totalled £108 million at the end of 2020.