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Members of Guernsey’s financial, insurance and investment community voted unanimously in favour of Guernsey issuing government debt at a recent event staged by Saffery Champness.
The motion, as proposed in the Treasury and Resources 2015 budget, was one of the many topics covered by leading investment professionals at the 2014 Saffery Champness Big Debate. More than 70 people attended the inaugural event, which coincided with the publication of the Guernsey budget.
On the Big Debate panel were Mark Despres and Paul Garrard Investment Managers with the Saffery Champness specialist fixed income investment team in Guernsey, along with highly regarded City investment professionals and industry commentators Marc Ostwald, Jim Goodey, Phil Jordon and Nigel Webb.
The debate was chaired by solicitor Ajay Wiltshire, General Counsel at Saffery Champness, who asked the audience to vote on a number of key issues, including the question of government borrowing.
Mr Despres said: “I’m disappointed that the borrowing proposed in the budget appears only to cover the cost of finance, which is rather like rearranging the deck chairs. The key rationale for borrowing should be to invest wisely for future growth, and I am not currently aware of any proposed plans for the utilisation of funds for the long term benefit of the island.”
On GST, which had not appeared in this budget but also proved unanimously unpopular with the audience, Mr Despres said: “It would be a regressive tax for Guernsey, especially for low income earners, and would remove the marginal benefits of doing business in Guernsey for some key sectors.”
The concept of a confederation of the Channel Islands was also raised but held no attraction for the panellists.
Mr Ostwald, Global Fixed Income and FX Strategist, said: “If Guernsey and Jersey got together what would be the purpose? They have survived apart until now.”
He also recommended that Guernsey considers using its other resources to diversify its income streams by perhaps exploiting alternative energy generation, or the establishment of a university.
Fellow panellist and regulatory conduct expert Mr Webb agreed: “There’s no harm in your independent identity. You’re better apart.”
He also added that in the course of his regulatory conduct and compliance work in the UK and USA, Guernsey was seen as a highly reputable jurisdiction, although it did suffer guilt by association simply by being included on the list of tax haven.
Mr Webb recommended Guernsey be more forthright in advancing its top-tier regulatory status with more intensive public relations. The panel also commented on the quality of staff within the Guernsey financial services sector, and expressed a desire for the States of Guernsey to look to utilise local intellectual capital from industry stakeholders instead of constantly looking to overseas consultants.
Also covered during the Big Debate were a range of hot topics that impact on the investment environment, including the impending UK General Election, EU membership, monetary policy and the ever present question of regulation and regulators.
On the question of whether Europe was too big to fail Mr Garrard said: “An issue for Europe was that we are a long way from the adoption of a single currency across the entire Eurozone to allow a full fiscal transfer to occur.”
Mr Ostwald thought the Eurozone had not learned the lesson from the US, where the primary course of action in the face of a balance sheet crisis had been to completely cleanse the banking sector, after which they could then address government balance sheets. On the question of quantitative easing he said:
“Quantitative easing won’t solve anything. It’s led investors to become tourists venturing into asset classes they shouldn’t be in,” he said.
Jim Goodey discussed asset “bubbles” and made the prediction that there are still some significant sharp shocks to come.
“Bubbles burst, and they burst quite nastily. There’s quite a painful period ahead,” he said.
Recent monetary policy had left nothing in reserve for governments to stimulate the economy in the event of a further downturn, according to Mr Garrard.
“There’s little room for policy error or further weakness,” he said.
Mr Webb added that the weight and cost of regulation had made banks “unappetising” so that they may end up with the purest of balance sheets but, in the process, become unviable as commercial entities, completely hamstrung by monetary policy inertia, regulatory constraints and political uncertainty.
Mr Webb also cautioned against disproportionate regulation, and used the USA as an example where in one matter he advised a major international bank dealing with 14 separate regulators.
