Tiny British Islands Boom as Tax-Free Utopias

ST. PETER PORT, Guernsey, Channel Islands —  Rumors to the contrary notwithstanding, this is no Utopia.

Consider, for example, that there was a five-minute traffic jam just the other day as tourists vied with the many residents who customarily go home for lunch. And a visitor personally witnessed litter in the form of a discarded hamburger container.

People who leave their cars unlocked have lately reported things stolen from inside, and there was even a murder last year. Or maybe it was the year before. Chief Police Inspector Geoff Denning apologized for his uncertainty. “You know how time flies,” he said.

All those clearly exaggerated reports about what an idyllic place this is stem from a Gallup Poll, published late last year, indicating that the world’s happiest people live on Guernsey.

About 43% of responding residents declared themselves “very happy,” and another 54% said they were “quite happy”--results topping any that Gallup had previously recorded elsewhere.

Few questioned the results, presumably because they seemed consistent with the island’s reputation for great wealth, low taxes, comparatively balmy weather and leisurely pace of life.

Surface Satisfaction

A reporter probed deeper, however, and after two, sun-drenched fact-finding trips found beneath all this surface satisfaction some serious reservations about Gallup’s evidence.

Residents on the neighboring island of Jersey were not polled, for example. If they had been, insisted Brian West, a banker in Jersey’s principal town, St. Helier, the results would have proved that Guernseymen are only “the second happiest people in the world. Because undoubtedly the happiest are on Jersey.”

Another Jersey resident, asked why he thought the 60,000 inhabitants of Guernsey are so happy, replied: “They’re thick as two planks, that’s why!”

Life’s Downside

While longstanding interisland rivalry might be a factor in such comments, even Guernsey residents concede that there is a downside to life on the island. Things have gotten so good, they say, that it’s almost bad.

“Twenty years ago we lived in a civilized island,” resident Jan Dyke wrote to the Guernsey Weekly Press the other day. “This is no longer the case. . . . Money dominates everything and everyone in this island today.”

Ancient Occupation

Humans have lived here for more than 4,000 years, but it is only in the last 20 or 30 that the Channel Islands have attracted much international attention. That’s when they were recognized as potential tax havens--or, as the islanders prefer to call them, offshore financial-services centers.

Located in the English Channel, just a few miles off the northwest coast of France, the islands are dependent territories of Britain, but with their own legislatures, judiciaries and administration. The two principle islands are Jersey, population 82,000, and Guernsey, with much smaller populations also inhabiting Alderney, Sark and Herm.

The islands gave their names to two famous breeds of cattle (Jersey and Guernsey) and one American state (New Jersey). In England, the islanders were perhaps best known as “Britain’s truck farmers,” the source of about 80% of the country’s tomatoes.

There is still a tomato museum here on Guernsey, but the islands’ once-famous hothouses have mostly been in decline since after World War II. Now their favorable tax structure and popularity as vacation resorts are much more important than their “passion fruit,” as the tomatoes are known.

Reduced Liability

There are no sales, capital gains or inheritance taxes here, and the top income-tax rate, applicable only to residents, is 20%. Guernsey property taxes, based on 1948 evaluations, are a tiny fraction of those on the British mainland.

The islands have thus become both an increasingly popular home for British and other expatriates anxious to reduce their tax liability, and a haven for absentee companies trying to do the same.

By the end of last year there were more than 12,000 companies registered on Guernsey alone, double the number a decade earlier. Deposits in the island’s 56 banks totaled more than 10 billion pounds ($16 billion), about 10 times the level of a decade ago.

Jersey is even a bigger finance center, with about 25 billion pounds on deposit.

“I think Jersey has gotten just a little bit too busy,” commented Paul Carre, 20, who works for the Guernsey Tourist Board. “We’re trying to prevent that happening here,” he added, reflecting a rivalry between the islands that goes back at least to the 17th Century, when Jersey was Royalist and Guernsey “Roundhead”--pro-Parliament--in the English Civil War.

Deliberate State

Guernseymen like to point out that the speed limit here is 35 m.p.h. compared to 40 m.p.h. on Jersey. Also symbolic is the official name of the island’s parliament, the “States of Deliberation.” A popular bumper sticker, referring to a fictional Jersey detective in a popular British television series, asserts: “Bergerac Takes His Holiday in Guernsey.”

Still, relatively speaking, Guernsey is booming. And the signs of prosperity are everywhere. Even though the entire island covers only 24 square miles, for example, automobile ownership is twice as high as in mainland Britain. There’s a 10-year wait to get into the Royal Guernsey Golf Club, and despite the recent opening of a new, 900-slip marina in St. Peter Port, there is still a shortage of berths for all the island’s private boats.

Island economist John Dickson said that average incomes here are about 10% higher than on the British mainland. While the cost of living is also somewhat higher because most consumer goods must be shipped in from outside, the islanders still have an edge, even before considering their more favorable tax situation.

Demand for Jobs

Insurance Authority administrator Michael H. De La Mare said only 50 persons are currently unemployed on the island, less than 0.2% of the work force. Most of those are between jobs, he added, and the daily newspaper advertises several times that many openings.

The labor situation is so tight that the island’s financial institutions recruit youngsters for entry level jobs at age 15 and 16. Hotels and the horticulture industry, meanwhile, import staff from Italy, Portugal and other countries.

To try and keep a balance between economic prosperity and the quality of island life, local leaders have introduced a number of controls. A two-tier housing market reserves 90% of available accommodation for natives, those who have lived here for at least 15 years, and a handful of others, such as air-traffic controllers and psychiatrists, whose professional services are deemed essential to Guernsey’s welfare.

Open Market Housing

The remaining 1,800 homes are available on an “open” market to anyone who can afford them. The average “open” market home now sells for nearly $600,000.

“The housing control laws are meant to restrain the demand for local property in order to keep prices down,” said Ben Lovell, a leading Guernsey real-estate agent and vice president of the legislature’s powerful advisory and finance committee. And they do keep “local” property prices at about half the level of comparable housing on the “open” market. But still, the cost and limited availability of shelter, particularly for young families, is perhaps the island’s biggest problem, said Lovell.

New construction is limited by strict planning controls, enforced by an Island Development Commission. The commission reportedly approves only a small fraction of all applications brought before it. A new building or addition “mustn’t block anyone’s view of anything remotely pretty,” said one longtime resident.

Uneven Distribution

Some residents claim that Guernsey’s is increasingly a two-tier society of “haves” and “have-nots.” But while there is clearly an uneven distribution of wealth on the island, John Guilbert, district secretary for the Transport & General Workers Union, said that most of his 4,000 members here “are probably better off than their compatriots in the United Kingdom.”

There’s a prehistoric granite statue in front of St. Martin’s Church here that was found nearby. Note, said Guernsey Tourist Board senior marketing manager Michael Paul, that even this ancient stone figure has a slight smile on her face.

While the marketing man’s suggestion that Guernsey residents were unusually happy even 4,000 years ago might get by some, however, others won’t be fooled. Right there on the plaque it admits that the statue’s facial features were only added in the Gallo-Roman period, a mere 2,000 years ago.