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Britain’s Trillion Pound Island

23 March 2016

We recently got tempted into watching “Britain’s Trillion Pound Island – Inside Cayman” which seemed more like a channel five spoofumentary than a real piece of journalism from the BBC (which I had expected it to be, given it was aired on BBC2). The journalist, Jacques Peretti, explained that the “administrative powers of the Cayman Islands allowed me in to have a nose around”.

In the end, it seemed to me to be a poorly researched, badly presented, ignorant and rather misleading program about how the Cayman Islands should be a warning for the UK not to go down a similar philosophy of tax-free living. Mr Peretti did not seem to grasp that the Cayman Islands had a more complicated revenue structure in place and it wasn’t simply a case that the Government’s revenue only came from adding sales tax to £8.50 fishfingers that were bought by a British expat who appeared to be otherwise enjoying life out here but also seemed to think that buying frozen fishfingers imported from a UK supermarket was (a) a good idea; and (b) an essential human right.

Now, I haven’t bought fishfingers in a supermarket for a long time, but I do know that Cayman employers pay a substantial work permit fee to the government for the pleasure of employing me out here. Thankfully (for me at least) my employer is not allowed to pass that cost onto me. But it is largely equivalent to the tax that I could be paying on this salary, and therefore simply becomes an expense of my employer, rather than a deduction from my payslip. It certainly amounts to more than I would ever spend on frozen fishfingers in a year.

Mr Peretti seemed a little uncertain as to what he was trying to achieve, seeming to relish in the lifestyle of long-term residents, and the “success” stories of a few who had benefitted from the system, whilst also trying to paint the financial sector as a real detriment to the island.

Mr Peretti sympathised with a lady whose house had been damaged in a hurricane (and there hasn’t been a hurricane in the four years that I’ve been here…) and who could not afford her $2,200 per month mortgage. He suggested a solution could be that the Government could pay her mortgage, or give her a million dollars. At one point he calculated that the Government could give each person on the island $17m of the money on the island. Now, I sympathise with anyone who can’t pay their bills, and am actually in favour of a social support system (my theory being that the ill fortune of the one is so much less if shared between the many – but not as extreme as full social labour support, my views are more complicated than that simple statement). I would even flag that I regularly volunteer pro bono (for free) at a clinic to advise people in difficult legal situations, be it family or financial, but:

  1. That money does not belong to the Cayman Islands Government or the people of Cayman. It is like saying that everyone in London should get a share of the bank accounts in London. If you are paying into a pension, then there’s a good chance that your pension fund invests through structures that benefit from Cayman tax efficiencies – the Cayman Government does not take your profit, but does impose a transaction cost on dealings here;
  2. What country in the world just pays off a $2,200 mortgage of a privately owned home? At best, you are offered social housing and/or money towards your rent, but where are you given property, and the means of paying for it. Even full on communism doesn’t give you the benefit of property rights, without the burden.
  3. Is not the true antagonist here the insurance company who has not paid out…or did she not take out insurance when purchasing her home?

Mr Peretti seemed to switch between blaming tax havens (which he confirmed that Cayman was based on the evidence of a taxi driver) for drawing money out of the UK, and saying that the UK will go the same way as Cayman if the UK Government stops charging income tax.

I thought initially his point was related to companies like Google, Starbucks and Manchester United booking income here and therefore not paying tax upon it. I’m not a tax lawyer (we don’t have tax out here, so they’re all generally based in colder countries) but if any Government wanted to require a company to pay tax in their country, they could do so. Perhaps they don’t because the company brings jobs and services which it would be unpopular to drive away. Also, my understanding is that companies like Man United issue bonds in places like Cayman to pay for developments in places like Manchester, England…

Shutting down Cayman’s economy would simply ruin the Cayman economy, other countries (such as Ireland with its low corporation tax) would quickly step into the gap.

As to his second concern, that having no taxation brings about a loss of social cohesion and is ultimately to the detriment of Cayman (and the UK if it follows suit)? Well, I don’t know if Mr Peretti has visited many other Caribbean Islands. I have visited a few, and they are beautiful. But nowhere else (even Puerto Rico which benefits from being a territory of the US) have I seen such a good quality of life and such options available to the “local” population. There is a restrictive work permit system, which means that if a Caymanian has skills for a job, he must be given that job first. As a result many Caymanians are in well paid positions in both the Government and the private sector. The only inhibition on their ability to get a job is their willingness to get the experience and qualification. The senior partner of our firm is a Caymanian, and you can’t get higher than that in our firm – I will likely get rolled over (i.e. come to the limit of my term here) long before I can have his level of experience.

Don’t get me started on the fact that he apparently opened a bank account here (he only got a form and even confirmed that he needed to have a letter from his employer and a utility bill – a Cayman employer Jacques and a Cayman utility bill, he clearly didn’t talk to a new expat about how onerous it is to open an account to get paid your salary).  He also showed how easy it was to form a company online and that more companies could be registered in an office building than workers. Sterling work Mr Peretti, except the UK Companies House offers same day incorporation and, unlike in the UK where my Dad can have a company registered in his front room to trade a business, in Cayman you need a registered office provider (more fees to the Government Mr Peretti) who are required to follow certain requirements as to identification and corporate records…

Yes, there are badly paid jobs here, generally the tough and menial ones, but most of these are taken by Hondurans, Jamaicans or Filipinos – who come here because they earn significantly more for those low paid jobs than they could do at home. Like in the UK, jobs are filled where there is either a lack of skill or a lack of will locally. Fortunately for me, my job involves a skill. But there is nothing more stopping a Caymanian from learning that skill than stopped a man from a state school in Dudley.

One redeeming feature of Mr Peretti’s program – it did make the Cayman Islands look like a stunning holiday destination!

Read more about my experience in the Cayman Islands here (no more about law and corporations, I promise!).

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