Jersey warns of £125m budget shortfall

Jersey, known as an offshore financial services centre, is facing the prospect of cuts to public sector jobs, charges for hospital visits and a tax on sewage collection in a bid to close a looming hole in its public finances.

The crown dependency says it is facing a £125m budget shortfall by 2019, largely as a result of the weak recovery in the financial services industry the island depends on.

An independent panel that advises the Jersey administration warns of a "significant risk" of a structural deficit, saying "current economic trends will not lead to sufficient growth in tax revenue for [Jersey] to balance its budget by 2018 or 2019".

Ian Gorst, the Jersey chief minister, told the local parliament: "We now have to reprioritise our spending so we can put the money where we really need it."

The deep cuts are likely to be opposed by trade unions. Nick Corbel, branch officer of Unite, says the crisis is unprecedented and questions how the government has allowed it to develop. "There is no deficit at the moment, but these forecasts have just come out the blue," he says.

The Jersey Council of Ministers says it is looking for savings of about £60m from the public sector.

There are also likely to be personal tax increases. Alan Maclean, the island's treasury minister, says 80 per cent of households may have to pay more tax next year. An increase in the marginal rate of income tax from 26 per cent to 27 per cent is under consideration for 2016. The move could raise £8m from lower and middle income earners.

Geoff Southern, a deputy from the Reform Jersey party in the parliament, is calling for rich residents to pay higher taxes. He calculates a 5 per cent increase in tax for those earning more than £100,000 would raise £46m a year.

The slowdown in the financial services industry, which accounts for about 40 per cent of Jersey's economic output, is a big cause of the crisis.

However, some tax experts say the situation has been exacerbated by the 2007 decision to introduce zero corporation tax for most foreign financial services companies on the island in a bid to woo foreign investment.

Richard Murphy, a tax campaigner, says: "When so many companies using Jersey pay no tax at all, and those in the finance sector that do pay tax at half the normal rate, of course there is going to be a financial crisis in the island."

However, island officials will be relieved about last week's British general election result, given the Labour party's stated position that it wants to take tough action to clamp down on offshore centres.

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Unite's Mr Corbel also recognises the island's dependence on the sector. "The finance industry is the only means of income for the island and the community," he said.

"It supports our infrastructure, it pays for our health, for the maintenance of the roads, for schools. It would be very worrying indeed if businesses were to move out of the island, because we have nothing in its place."

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