When the politicians of Jersey and Guernsey agree on something and you don’t, you are in a very uncomfortable position. They agree so rarely that when they are of the same opinion, surely they must be right?
Well, in the case of the so-called fulfilment industry, they might well be following a similar line, but I for one think they are wrong.
To begin with, there’s a certain amount of hypocrisy at work in the moves both islands are making against companies that use them to avoid VAT in the UK.
Low-value products can be packed in the islands and posted to the UK and if they are valued at less than £18 they benefit from a VAT concession.
Both have quite rightly pointed out that this isn’t some clever wheeze thought up in the islands - we’re far too busy thinking up clever wheezes for the finance industry.
Rather it is an EU agreement which is to members’ benefit because it costs more to collect VAT on low-value items than they earn from the excise.
Jersey and Guernsey businesses have been successfully using this concession for many years and there’s a thriving export industry in everything from plants to vitamins.
It was only when some of the big UK high street names cottoned on to it that the government became interested.
The islands started being used by major retailers who simply shipped in large quantities of items, such as CDs and DVDs, broke them down in Jersey or Guernsey, packed them, put a label on them and posted them back to the UK VAT-free.
Small, independent retailers in the UK, who were already struggling against competition from big suppliers, cried foul and began a concerted campaign against the use of the Channel Islands for what they saw as a tax dodge.
They were so successful that the UK Government got involved in a little sabre-rattling and it was generally assumed that they would do something about the VAT concession.
Quite what they could do is unclear, but all the UK had to do was make its displeasure felt and the islands obediently rolled over and did their dirty work for them.
First Jersey and now Guernsey have decided that they don’t want these UK retailers apparently abusing our hospitality.
In Jersey, they complained that it was just giving the island a bad name for no economic benefit.
Apparently the fees paid, the employment offered - particularly useful for those looking for a few hours of casual work - and the postage revenue were not enough.
They had to be stopped, although locally-owned companies could carry on because they paid taxes in Jersey.
I doubt whether the small UK retailers could care less whether the competition is coming from UK or Channel Island companies. It’s the concession that damages their business.
Inevitably, the big retailers who were kicked out of Jersey simply moved to places such as Switzerland, where they carry on as before except they have longer distances to cover and therefore are making a bigger contribution to CO2 emissions.
Now Guernsey is likely to follow suit. Commerce and Employment minister Stuart Falla has asked for a review but says he is only targeting the large retailers selling CDs and DVDs, not local companies. That’s because they are not manufactured in Guernsey, he said.
But neither are the thousands of jars of Glucosamine and other health supplements that local companies will continue to export free of VAT.
The minister wants to protect those local companies and that’s one of the reasons he hopes that by making UK companies unwelcome, he will avoid the UK being forced to get rid of the concession altogether.
However, by singling out DVDs and CDs (pardon the pun), he’s not helping Jersey’s argument much.
One of the largest suppliers delivered by mail in the UK is actually a Jersey company - Play.com.
So it’s just as well they are not based in Guernsey, where they would be considered to be involved in an unacceptable activity.
So the whole thing is a nonsense. The basic problem faced by some UK retailers is that they can’t compete against bigger suppliers who take advantage of a generally accepted VAT concession.
The big suppliers don’t have to be in Jersey or Guernsey, they could be Switzerland or any number of other jurisdictions. Kicking them out of the islands simply means they move elsewhere.
If the UK finds that the concession is causing a problem, that’s its prerogative and it is free to do something about it.
It’s for certain it won’t worry about the impact on the islands.
If this happens and local companies do suffer then that would indeed be unfortunate, but we
couldn’t really complain.
The fulfilment industry would probably adapt, as the finance industry has constantly adapted whenever a loophole has been closed to it.
Article posted on 31st August, 2007 - 12.00am
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