New ‘general’ rate of 10% tax planned
Friday 23rd October 2009, 1:00PM BST.
A REVIEW of zero-10 needs to go ahead ‘on the presumption of a 10% general rate of corporate tax,’ according to the Policy Council.
The recommendation is made in a special Billet d’Etat published today and which will be debated by the States on Tuesday.
This follows last week’s announcement that zero-10 would need to be amended in the light of an increasingly hostile EU reaction to it.
It is also hoped all three Crown Dependencies will end up with very similar regimes.
‘Given the unprecedented global economic turbulence over the last 12-18 months and the significant worsening of the fiscal position of many European countries, it is believed that it is now the situation that several EU member States no longer consider a zero-10 corporate tax regime to be compliant with the spirit of the code,’ said Chief Minister Lyndon Trott in the Policy Council report.
The EU code of conduct for business taxation was designed to eliminate harmful tax practices.
Deputy Trott (pictured) said there was now an increased tendency for the EU to require ‘equivalence’ for third party countries to access the EU market without being discriminated against.
‘In order to maintain its position in the global economy, Guernsey must provide certainty for its investors and maintain the respect of the international community,’ said Deputy Trott.
Alternatives to zero-10 must receive UK support to achieve code compliance, he added.
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Alternatives?
An alternative maybe. You can only have one alternative.
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Firstly I must point out that I thought Zero 10 was a bad idea as it placed too much responsibility on normal working people to fill the black hole it would create – but what do I know I`m only a normal working woman who pays my tax and insurance. But the states decided that this was the way forward for Guernsey and so we were made to go along with it and now he is changing the structure again to appease some unelected officials in the EU – amazing.
Has Dep. Trott forgotten that we are not, thankfully, part of the EU, who in the EU has decided that our island is not part of the spirit of the EU. Its really none of their business.
Maybe Im just ignorant to the bigger facts, but what are the benefits to our island if we change for the EU? Just more regulations, if we change for this what else will Dep. Trott agree to change for the EU. We need someone in the States who will listen to us and support what we want.
Remember it wasnt Guernsey who created this current climate of money worries in the world. Which countries who are regulated by the EU have done that I wonder?
Its about time our Island told the States that enough is enough, whats next? the EU says “jump” and Guernsey says “how high”. Be aware that Dep. Trott will lead us down this road. Mr Trott start listening to the Guernsey people and do what you were voted in to do. Stand up for this island. WE ARE NOT PART OF THE EU, AND HOPEFULLY NEVER WILL BE.
Guernsey politics, no wonder people are stopping voting. Whats the point. The people that got voted in have stopped listening to us and have their own agendas. Trott/Blair any connection I wonder? where does Trott feel he will be living and working in five years time – Politicians are all the same.
I recommend anyone who wants to really understand politics watch reruns of yes minister/prime minister – very funny because it is so true.
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Any alternative must receive UK support.
I thought that 0/10 originally had UK support!
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Caz
Guernsey was forced into Zero 10 as the 3 Crown dependencies attempted to keep a level playing field in order to hang on to financial business. The IOM started the race to Zero and we reluctantly had to follow or become hugely uncompetitive. Nobody wanted to create a black hole in our economy but as I said we were left with little choice. I am with you in telling the unelected in the EU to mind its own business, however it is their club not ours and they are saying that their club has rules and if we want to trade in the European financial markets then we have to observe the rules, they can also change the rules anytime they like and it is us who has to adjust, not them. I agree it is not fair but you don’t expect fairness from a bully. It matters not one jot whether we are a member of the EU or not, Switzerland is not a member either and is a fully independent sovereign state but it still had to alter some of its tax practices in order to trade with the EU. Now we have a choice we could choose not to trade with them and do our own thing, that of course would result in a huge downturn in business as we loose all the financial trade done in the City of London which of course is a member state right at the heart of the EU and bound by dictates from Brussels. It is no good trying to personalise this by making Deputy Trott a scapegoat for zero 10, the final decision to go with it was made by the States of Deliberation after exhausting all the arguments. He cannot and does not change anything without the will of the States. Caz we did what we had to do at the time and unfortunately the EU have moved the goal posts yet again, the only thing we can do is react to that change in the rules and attempt to keep our economy solvent, if you think some of these decisions that the islands Deputies have to make are easy for any of us, then I suggest you try it for a while. The EU is like a moving target; its ultimate aim is to make us so uncompetitive that we cease to be an offshore finance centre I am going to try hard together with other States members to see that they don’t succeed. Lastly I have both series of Yes Minister and Yes Prime Minister and I have to agree with you there are elements of truth in many of those sketches.
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Dave Jones – have you looked at how Bermuda raises its revenue from duties (not a good idea for Guernsey) and its employment taxes (a very good idea if structured properly)?
If this looks familiar it’s because I posted an identical question on 19th October but never noticed any response. Here’s a good website to visit to learn more on this topic: http://www.taxbermuda.gov.bm/guide_payroll.htm
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Aeschylus
Yes I have, a payroll tax is a tax on jobs, our people already pay some hefty social security contributions and I don’t believe that we need a PT, we can get through this latest attack on us just as we have always done.
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The Bermuda payroll tax is not paid by the employee, it is paid solely by the employer.
It would be less likely than 10-10 to be inflationary. Also, it can be collected at the same time as Income Tax/Social Security contributions are taken so there would be no need for a new government department as there would be if a sales tax were introduced.
It is selective in that reduced rates and exemptions can be arranged for those less able to pay.
A 10-10 tax would mean that companies would be paying less tax than sole traders, partnerships which is hardly right.
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Aeschylus – no, thanks. I’d rather have VAT/GST.
Employers will simply apply pay freezes, cut benefits and otherwise recover the tax from employees eventually.
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Can anybody identify another jurisdiction anywhere in the western world which has neither a GST or a VAT, other than the Bailiwick of Guernsey ? I’ve struggled and I can’t.
Yes that makes us unique, but does that uniqueness bring us any benefits ? We aren’t getting many tourists and if they didn’t come here then they’d be paying VAT or GST wherever they went instead, so its not a unique characteristic benefit which brings any benefit whatsoever.
We know that such a tax is a regressive tax in that it hits the lower paid at exactly the same rate as the higher paid, but every other jurisdiction seems to have accepted and dealt with that. Guernsey could deal with it even better by combining it with direct monthly tax credits and/or social security credits, using existing systems already in place, to effectively reimburse all the lower-paid for whatever GST they are likely to have paid.
So, assume somebody earns say £25k gross, then after deductions for social security, tax, rent or mortgage they might have say £15k left to spend each month on items subject to GST. A 10% GST would mean that they would be paying out £1,500 per annum in GST, pretty much spread monthly throughout the year. So the system would automatically pay them £125 in cash straight into their bank account every month.
Rough estimates are that a 10% GST would generate £90m a year, but assume that we would “give back” £10m of that by such a credit system. We could probably give back an extra £20m or so of that by raising the income tax exemption threshold to say £30,000 so that those earning less that £30k pay no income tax at all.
Net result:
1. The coffers would be boosted by around £60m per annum.
2. The lower paid are completely protected from the regressive effects of GST.
3. We collect enough GST to justify installing the system (far better than Jersey’s 3%).
4. The burden of the GST is borne by the middle and upper earners.
5. Tourists contribute towards our island’s running costs.
Doesn’t sound so bad to me as a package, even if GST has far more issues if introduced in isolation.
Personally I would go even further….I’d look at 15% GST and drop the income tax rate to 10% up to £100,000, 15% up to £250,000 and 20% over £250,000.
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I reckon we should put an environmental tax on the businesses so we can have a way of funding renewable energy projects – we’ll look like a world leader. This would then down the line help cut energy costs for Guernsey people and businesses.
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Dave Jones,
If the island had not gone for the zero-ten approach would it have cost us over one hundred million pounds in lost financial business during the last couple of years?
Somehow I think not!
Another top decision by our politicians.
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Kevin
in fact it is estimated that we have lost around £200 million. We jumped in too fast, much against the feelings of the majority of the island. The consultation process was twisted to suit the agenda of Trott and Morgan who kept last minute dealings with the UK Treasury to themselves until two days before the debate, then too late to open further public discussion. Rhoderick Matthews had it right, delay a year, save £100 million and see how things go. What a different story that would have been, but the agenda was set and zero ten had to come only in the format set by Trott & Morgan, nothing else was acceptable. Well, it failed totally as most knew it would, and the blame falls with those who forced it through. The States passed it, but only because of the information fed to them by those in the know and only enough information was passed to ensure it succeeded in getting passed.
It has cost the Island a fortune, lets hope they consider carefully in the coming debate and don’t jump in with both feet. There needs to be a lot more transparency between the Chief Minister, Policy Council and Deputies.
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Maybe we could just go back to the way it was before. But this time we could have the finance industry chappies standing in the road with buckets so we can a sort of whip round for them, that way they will stay here and take care of us all.
Actually thats not far from what weve already been doing.
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Kevin
Guernsey was forced into Zero 10 as the 3 Crown dependencies attempted to keep a level playing field in order to hang on to financial business. The IOM started the race to Zero and we reluctantly had to follow or become hugely uncompetitive. Nobody wanted to create a black hole in our economy but as I said we were left with little choice. We did however recoup substantial amounts through property taxes on the banks & offices and don’t for get the finance houses are still paying 10%. It is very easy to sit around and look at these things with a huge amount of hindsight, I voted for Zero 10 as I believed it was exactly the right decision at the time.
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David
That’s all very well but you are assuming that a reduced States Tax service, always an easy hit in ‘efficiency drives’, first to go, often, already performs with a potential for improvement – anyone been efficiently processed? – and with the extra burden of something extremely arbitrary would it deliver the clawback in the period it was needed. Do you know what the monthly margin of error is on a young, mortgaged, low level finance job type of family is? Can they wait for the next 1 Whatever the numbers, the slightest income variation is the difference between self sufficiency and tying up manhours in SocSec evaluating a till based tax with the rest of the system.
It works because it is simple and the public think because it is more expensive for everyone then it is worth not opposing.
Far better for the economy would be to tax the top earners an acceptible rate to plug a gap with a promise to reduce it once an agreed target is met.
Despite the rich’s disdain for the low paid, their part in the economy is essential. Without money in their pocket they cannot sustain the real, local economy. GST means finance has failed.
Quite simply.
They could not provide so they call on the average. Remember that the majority earn less than the published ‘average’.
There are people that earn enough to distort the real picture, I would hazard quite significantly, so any GST percentage choice would be based on the buying power of the poorer majority or it doesn’t work (unless punitive at luxury level – maybe?). What do they buy, this majority, with most of their income?
So we introduce a disincentive to buy ‘better’ and encourage ‘bargain’.
We already don’t have GST. We have the Bridge full of charity shops. We have boarded up premises in prime Town locations. No manner of zero tens incentivise the real Guernsey economy. Only easy credit to small business, support through the bad times, and a willingness for the lenders to take a punt in the interests of stability.
This is the accepted wisdom for the banks in these times. Without us on the street wanting to buy, the chain rusts and eventually, at a disconnect, something happens that makes things worse.
Fiddling about with rebates is a nightmare.
Assess the consumer habits of those who benefit most from flat tax, the richest, then tax on that.
Taxing bread and milk and children’s food and any food or anything that everyone needs everyday is not good. Already the supply chain is creaking. The prices on our shelves seem high, which reflects a flaw, but added tax will force buyers to shove down prices.
Creating a worse effect than a spider’s web in front of a hidden failed businessman.
Well, do successful businessmen have closed shops?
If he’s not a businessman, why does he have a shut shop ruining the place?
If it’s owned by a fund, or a trust, why isn’t there a recourse to opening shops that would enhance consumer confidence and stop us moaning about stuff?
The rich get away with paying many taxes by buying a service that is unaffordable to the majority. This fact undermines the local population. GST will enhance this effect. Rebates, if immediate may work to some extent, but it belies a fact that we are equal consumers on an equal playing field.
Study the rich and find a tax there. Hands off my children’s milk.
Do you see the problem, David. Fantasy.
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Gary Blanchford, I understand that the figure of £200mio being wasted keeps being thrown around, but this “estimate” is surely very wide of the mark considering the losses made in the financial sector in 2008.
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Arnald
I fully accept that you don’t like the concept of GST/VAT. Prima facie its a regressive tax. I’m only in favour of it if the regressive aspects of it are addressed. But the rest of the world has adapted to it, and at much higher rates too.
You will have noted that I suggested coupling it with lower rates of income tax for the lower paid, a higher exemption threshold
and higher marginal rates for high earners. That goes a long way to addressing the issues that you raise.
If you tax people too highly with income taxes, then that’s taking even more money out of islanders’ pockets to be recirculated within the economy and keep shops open etc. All higher income taxes do is help fund the public sector so that it carry on expanding.
But think this through Arnald. If low earners are having less taken out of their pay packets as income tax each week or month, and are getting monthly credits back for their estimated GST spending, surely they are likely to better off, not worse off as a result. Its an effective redistribution of the tax burden, which I thought you would be in favour of.
Have you thought this through, or do you just see GST/VAT and (understandably) dismiss it as regressive ? I reiterate that it is ideal for Guernsey but ONLY if accompanied by measures along the lines that I suggest.
I accept it needs to be more extensively researched to achieve the best model but I on’t think you should rule it out just based on pre-conceived views of GST/VAT in other jurisdictions where such issues have not been factored in.
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We could be like the rest of the world (excluding the offshore micro economies) and simply introduce progressive income tax rates! I’m sure we could get Mr Hands and co to pay 30%
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David
This is Guernsey. They took six years with 0-10 and ended up with a scam to last for a bit, whilst lying to us, and costing the taxpayer £200M and rising by decommission date.
You seriously want me to believe that they can introduce tax credits and they work? And basically any modicum of ‘fairness’?
Did you see what happened in Jersey about the “poor credit”? Does anyone know if they got it yet?
I have thought about it and my conclusions will always be rich first. Why no debate about it like there is about everything else? Do you think that rich people are special people that need extra love and care?
It’s conveniently evolved like that, hmm?
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Arnald
Nobody “lied” to us. You can get into a lot of trouble for making such allegations.
Yes – I seriously think that such a credit system can happen. Your cynicism is all-consuming.
I couldn’t care less what happened in Jersey. They got it wrong.
Who says it won’t get debated ? How can you draw that conclusion ? You make it sound as though I have the power to legislate.
Your last point is your usual tripe. I will ignore it.
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David you are a revisionist.
We were told in no uncertain terms that we were EU compliant. We could never have been. We were never told. Unless they are going to publish documents succinctly expressing just that, then that is the case. Finance and Trott have been marketing Guernsey as just that. Why isn’t that lying? Show me the serious problem.
And anytime any proposal is raised to tax the rich it gets shouted down in snorting derision.
We were scamming it. Giba suggests that by saying it knew but doing nothing.
Of course it will happen because of your kind of view that prevails amongst those with your kind of salary. Duh.
It won’t do it well and it’ll breed yet more resentment. Just because you are happy, eh.
You seem hell bent on complicating things when the answers are starkly obvious and fair: tax your level to fill the hole primarily, and then fill in the gap.
Tell me why you are so opposed. You live here. You want the best for it. You (as in finance) benefitted from 0-10.
Why the hell is that not fair?
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Arnald
I don’t know about your definition of “lying” but its obviously different to mine.
Is a misinterpretation a lie ? Is being told that we comply with the lette of the Code and then subsequently being told that we don’t comply with the mysterious “spirit” of the Code a lie? Why did the UK Government back us at the time if we were “lying” ? I’m all ears.
Re the rest of your posting I will once again ignore it other than to invite you to crawl back under your stone.
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If nobody lied to us it does seem that “they” were at best reckless in assuming that zero 10 was compliant.
What is of concern is the confusion amongst the politicians and professionals as to whether we were told that zero 10 was compliant.
We also had the comment that the news about non compliant was inevitable (GP last week)
Absolutely barmy.
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“Fully EU Compliant” hasn’t it been repeated by the Trott Roadshow and various self defence blubberings?
If we weren’t then it’s a lie, surely?
And who else but the EU Panel could have told us, and where is the signed authority, or email exchange or anything even confirming this much.
I comply with seagullness, but if I don’t tell them about my fancy sideline in eaglery, then they gonna squawk when they see the claws
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One thing that puzzles me about we were told that zero 10 was compliant is that lack of mention legal action to recover monies lost
by reason of such advice.
I note David uses misrepresentation instead of lie. In law, if misrepresentation is negligent or careless there will usually be liabilty in negligence.
The weakness is that the States and its advisers seemed determined to go for zero 10 at all costs (yes David, I know the well rehearsed competition angle)
Seems the negligence might also have been closer to home.
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Were we ever “fully EU compliant”?
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Stephen, I guess the amount “lost” is not quantifiable and therefore legal action would be difficult. I think it’s very laughable when people talk about £100mio lost for each year. Do people not remember what happened in 2008? There weren’t any profits to pay tax on!
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I’m sure the majority of people fail to see what is laughable about the loss of zero 10 taxes and the pleasure of making up the difference with increase formal and stealth taxes plus cutbacks in service.
In 2008 I am sure the Guernsey tax paying institutions were not such poor performers as you seem to suggest.
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Stephen our tax rate was compliant, we were told as was the IOM and Jersey that it was compliant it did what the EU wanted and treated everyone the same, what they are saying now is that it might be compliant but it is not within the sprit of the code. The EU have just decided to move the goal posts yet again. As for the GP you know as well as I do that it will say anything with the benefit of hindsight.
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I am not wholly convinced that, pace Dave Jones, “The IOM started the race to Zero[-10] and we reluctantly had to follow or become hugely uncompetitive.”
Historically we were spun a story which largely omitted reference to IoM. However, as is becoming increasingly clear with every passing day, the IoM led the way because it reckoned that it could survive zero-10 (and it thought we could not survive if we followed suit) because of the huge subsidy it receives from the UK through a centuries old ‘common purse’ agreement.
That was known when we started down the blind alley of zero-10. If we had concentrated on the situation we could have observed that the subsidy was (a) unfair and (b) probably illegal in the eyes of the EU. A strong complaint to either the UK or EU, or both, might have persuaded the UK to curtail their agreement with the IoM rather earlier than now. And the IoM would not have initiated zero-10. And we would not have had to follow.
It is really exasperating to note that the UK has been hinting for years that we should represent ourselves internationally, and particularly when our interests run counter to theirs, and yet we seem to insist on talking to the UK even when they give us duff advice based on their interests, as they see it.
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Greg
You mention that because loss is not quantifiable then legal action will be difficult.
That would be true if i had been referring to breach of contract but you will see that I was speaking of negligence where the rules are different.
I note Dave Jones is still insisting that we were told we were compliant. If such advice had come from the EU, Guernsey should be telling the EU where to go and what it will cost them by saying the proposal was compliant but now infringes the spirit.
If it was compliant is was within the law. if the law at the time allowed various levels of spirit, so be it. It certainly is no reason to reject something you say complies because of later events. That is nonsense on stilts.
The thing that worries me is that the usual opinionated, publicity seeking lawyers on the island are keeping their expensive mouths well and truly shut.
Surely if Guernsey had been done an injustice then one of them would have said something?
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Stephen, i’m not so sure. Look how many banks in Guernsey were involved in state intervention. I think a tax take of £100mio in 2008 would have been incredibly unlikely. So there would have been a large difference to make up anyway. Yet everyone conveniently seems to ignore this.
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Stephen, sorry but I only have a limited knowledge of the law and possible remedies.
However, I guess it depends on what we asked for. Did we ask for a scheme that was compliant with the code? If so, we got what we asked for. If we asked for a scheme that was not only compliant with the code, but also with the spirit of the code then it appears we didn’t. But was anyone in the EU talking about the “spirit” of the code a couple of years ago? Or has the EU just invented this because they realise we have been a bit “clever” and got around their rules and given ourselves a great advantage?
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Greg
I am referring to the consequence of negligence.
Very different rules apply regarding loss.
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Just noticed David Cranch’s excellent post and especially his comment “That was known when we started down the blind alley of zero-10″.
I would add that instead of going down the blind alley we should have concentrated on the positives of what Guernsey had to offer and why guernsey was, and is, a better place for most to do business with.
Sadly, the merchants of doom in finance, navigated the good ship Sarnia down the blind alley of Zero 10.
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Go back to 10% but reduce Income Tax to 0% and employers contributions to 0%
simples…
My point is why should EU dictate competitivenes or maybe its the fact they themselves will never be able to compete?
“your cheaper than we are so we will not allow your companies to trade with the citizens/corporates of our members because you do not charge your companies tax!!!”
They will be one nation soon and if we do not have the same VAT rate, Income Tax rate, PC laws we will not be allowed to trade with them.
Do we have nuclear weapons? Do we dicriminate against a culture/colour?
Competitiveness RIP…Long live Independance
If i had a European flag I would burn it
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PC,
Is it yet clear that the EU objects to the zero-rated company tax, or does it object to the tricky way we have zero-rated that tax for some companies and not for others.
I am at this moment listening to the States debate as to whether we should host the BIC meeting or finance some new cancer screening program.
Clearly it does us no good talking to people in the British Isles: we need to talk to the EU.
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Absolutely, David Cranch.
You’d think that a week would have been long enough to provide a staunch rebuttal, but acquiesce nevertheless. It would be so much more acceptable if they could produce evidence of explicit “no problems anticipated” from some sort of EU rep, as Primarolo may have been compromised by the nature of her roles. Even then, is there evidence that she said anything?
Too me it’s quite clearly a smash and grab. They knew the ‘approval’ process wouldn’t start before implementation, they knew that goalposts are movable, (although which ones Dave Jones?) and as the Foot report asserts, they knew we regarded ourselves as ‘out of scope’ or ‘other’ to real countries so that the chances of provocation through aggression would be seen as ultimately unacceptable.
So why did Trott repeatedly say “fully EU compliant” (was it on GuernFin docs?) and “fully transparent” when within a week or so we have been categorically told that we are neither?
It waas an immoral move in the first place let alone sustainable, and it’s made Guernsey look worse than it did. I’d say that should result in a debate about their competency and arrogance.
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Deputy Jones
Interesting comments – but PLEASE could you divide your longer prose into use short, succinct paragraphs to make them easier to read.
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Taxator
I will do my best
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