Introduction
I‘m delighted to have been asked to give the keynote address today, and to be here at the inaugural State of the Cities conference.
The organisers of this event, the members of Aberdeen City Council and the people of this city, should be proud of hosting such an innovative and forward-looking forum.
From watching the presentations and panel discussion this morning, the desire to drive economic revitalisation and position Aberdeen as a world-leading centre of business is clear.
To succeed will require the right economic framework, and a commitment across local government and business to provide investment for the infrastructure, connectivity and workforce required to realise this vision.
It is a position I understand very well.
In my role as Minister for Economic Development, Tourism, Sport & Culture in Jersey I have a broad ranging portfolio. But central to my work is a focus on ensuring that our Island economy is agile, sustainable, and encourages inward investment.
I want to start by providing some background on Jersey’s constitutional position and the journey we have taken to our present economic model – which I hope will assist in explaining our successes, and the lessons we have learned.
When I say Jersey, some of you will have one of two thoughts:
Bergerac.
Or complex tax arrangements.
I want to be very clear that neither is an accurate representation of Jersey in the 21st Century.
In the first instance, we just can’t provide all of our police detectives with Triumph Roadsters!
On a more serious note, we have worked tirelessly to overcome the negative stereotypes and popular misconceptions about our financial services industry.
In the last 35 years, the island has transformed from a tourism-centric economy to a successful international finance centre, recognised as a leader in transparency and regulation by the OECD and other international bodies.
It was not an easy or rapid journey.
Today we continue to look at how we can diversify our economy to ensure resilience against changing international pressures and to meet local needs.
I believe that the success we have experienced in Jersey is a very real demonstration that you can revitalise and diversify your economy to provide a high standard of living, high levels of employment and attract global investment.
But you need political will, business confidence and – most importantly – the economic levers necessary to achieve that success.
Jersey
This is the ‘State of the Cities’ Conference, and in that context, it is useful to think of Jersey as quasi city-state.
We have Ministerial government exercising control of local municipal services, as you do in Aberdeen.
But we also set our own fiscal policy, delivering a £ billion budget as well as developing our international identity and relationships around the world.
The island itself is not part of the United Kingdom but a Crown Dependency – like our neighbours in Guernsey and, further afield, the Isle of Man.
This relationship is largely unchanged since 1204, when King John lost continental Normandy to the French King Philippe-Auguste. Jersey, which had been part of the Duchy of Normandy, chose to remain loyal to the Crown in exchange for the domestic autonomy we still enjoy today.
Jersey has its own Parliament and is autonomous on all domestic matters. On behalf of the British Crown, the UK Government is responsible for the Island’s defence and, as a matter of international law, our foreign affairs.
We are not represented in the UK Parliament, which does not legislate for Jersey without its consent.
It is that unique relationship, and the powers that have developed over the course of the last eight centuries, that are central to our agility and success.
Jersey has long been a centre of international trade. As a small island with finite resources, we have always relied upon trade in goods and services internationally to boost prosperity and improve the quality of life for Islanders.
Jersey has a fair climate with fertile soils and abundant waters. But we do not have the natural reserves of oil and gas that Aberdeen enjoys; nor do we have the economic pulling power of a large population.
Instead, we have relied on the ingenuity and talents of our people – to be creative in spotting global opportunities, and to prize quality over quantity in developing niche products.
Because of that, Jersey has a rich economic history, traditionally based on fisheries, agriculture and tourism, and now led by the financial and business services sector.
We have successfully maintained all of these sectors within our current economy and recognise their importance in our shared history, culture and prosperity.
What relevance then does the experience of a Island economy - with a population of some 100,000 people - have to Aberdeen, and the challenges faced by one of the UK’s northernmost cities with a population of almost a quarter of a million?
Synergies between Aberdeen and Jersey
Actually, the Granite City and the island of granite share much more than may appear at first instance.
Whilst we are undeniably different geographically, we are aligned in our pursuit of innovation, international relationships, digital connectivity and infrastructure.
And we share a credit rating.
We share the dominance of a single industry.
Aberdeen has long been recognised as a global leader in the oil & gas sector. And whilst the city has recently seen an acknowledged slowdown in this area, combined with the rise of renewable energy solutions, oil and gas still dominate local employment.
In Jersey, the financial, business and professional services sector has been the bedrock of our economy over recent decades. Our financial services industry today employs more than 13,000 people, representing more than a quarter of total Island employment, and 40% of GVA.
Both Jersey and Aberdeen provide significant economic benefit to the United Kingdom.
In total, Jersey supports an estimated 180,000 British jobs and adds £9 Billion to the UK economy.
Aberdeen, in the same way, is the best performing city economy in Scotland, and the oil and gas industry still supports more than 300,000 jobs across the UK.
Both Jersey and Aberdeen have sought to redefine their tourism offerings.
And we are both seeking to develop international relationships to encourage business links to open new markets.
Our Global Markets team in Jersey is working to build sustainable links in China, Africa and the Middle East, whilst Aberdeen has a series of broad MOUs with cities in Canada, South Korea and Mozambique.
Finally, we are both committed to investment in digital economy and ultrafast fibre connectivity.
In Aberdeen, the Digital Place scheme is a commitment to invest in the physical infrastructure of the region and to provide first-class, fixed and mobile digital connectivity.
In Jersey, last month, we completed the rollout of our full-fibre network to all homes and business premises.
Sharing solutions
Whilst we do share a great deal, our challenges are different.
Productivity remains a critical challenge for Jersey.
In the last year, we’ve seen significant falls in the finance sector – largely driven by the low-interest rate environment. But there’s also been small measurable growth in non-finance productivity.
Aberdeen, by contrast, has shown extraordinary resilience to productivity downturns. Aberdeen City had the highest labour productivity in Scotland during the previous decade, with a productivity level 11% above the UK average in 2018.
Skills shortage is also a critical challenge for Jersey – attracting skilled graduates back to the island, and providing a diversity of jobs for them has become a perennial concern.
Getting it right will help our government control migration and manage the pressures that this brings on housing, infrastructure and services.
Aberdeen, by contrast, is ranked in the top 10 cities with the highest percentage of high level qualifications, and your working age population is forecast to increase by at least 15% to 2039.
Where Jersey has excelled – and it is the very subject of this conference – is in fiscal policy and exercising the controls over taxation that make the Island an attractive centre for investment and residence.
Aberdeen needs to look carefully at opportunities it can exercise, within its current powers, to increase the attractiveness of the City to investors, and provide financial incentives for businesses to choose Aberdeen as their home.
Powers and Freedoms needed for economic growth
As I identified, the key differentiator between Aberdeen and Jersey is the economic freedom we are able to exercise by virtue of our constitutional position.
As a result, the Island has been able to develop an independent fiscal policy which has allowed us to meet the needs of Islanders whilst remaining attractive to global investors.
We have a low Goods and Service Tax rate, our equivalent to VAT, of only 5%.
Income tax has been levied at a flat rate of 20% for decades.
Our zero-tencorporate tax exempts all businesses except those in financial services from having to pay any corporation tax, while leaving financial services to pay a low tax rate of 10%.
Combined with an ongoing efficiency programme in government, we are able to maintain sustainable public finances whilst meeting any potential deficit.
Standard and Poors assess us on a bi-annual basis and in 2018, we maintained our AA- rating for long-term borrowing and A1+ rating for short-term borrowing.
In 2014 we also successfully finalised a £250 million bond issuance, attracting strong interest from investors. The bond was two and a half times oversubscribed before closure. This has enabled the States of Jersey to secure a low fixed rate of interest, with a final maturity of 40 years.
As you will all be aware, Aberdeen City Council also successfully secured index linked bonds of £370 million.
In 2008 Jersey also reached agreement with the United Kingdom, who had previously represented the Island in all foreign affairs, to develop our own international identity.
This has allowed us, in short order, to develop a broad range of MOUs, Double Taxation Agreements and partnerships globally. In 2019 we hope to sign the first Bilateral Investment Treaty with a global partner.
By a combination of our tailored taxation, and the ability to represent our interests internationally, we have achieved financial stability, funded the provision of quality public services, and achieved a GDP per capita which is among the highest in the world – whilst maintain a low tax regime for our citizens.
Lessons and opportunities
How then can Aberdeen replicate the financial successes of Jersey achieved through fiscal and political autonomy?
The economic policy framework you are establishing is a critical first step.
It will be a political decision for your councillors and local politicians if you wish to seek wider powers that allow you the fiscal controls to make fundamental changes to the City’s economic model.
Having the vision is the first step to success – one that many cities, and Islands too, fail at the first hurdle.
You are already putting in place the funding needed for innovation and growth. You must match this funding with a strong governance structure that provides transparency and accountability.
Investment in infrastructure is critical to sustainable growth – we are experiencing those challenges in Jersey right now as we look to develop new hospital and other critical facilities. You too must see through your ambitious plans for infrastructure development.
I would encourage you to follow your instincts and become a city partner with international links in Europe and globally. Show that Aberdeen is open to broad Memorandums of Understanding – not only in energy matters, but in culture, education, digital and scientific research.
Whilst you diversify, do not ignore the strength of your expertise in the energy market. In Jersey, as we continue to expand into the digital sphere, we have found strong links with our core industry through FinTech and Blockchain technologies.
Communicate your vision for an economically revitalised Aberdeen . Provide a compelling narrative for your citizens so that the outcomes of today, and the plans you are proposing can be shared in a simple and accessible way.
If this is done right, they will be your greatest advocates.
A vision for economic growth
The publication today of the first Economic Policy Review of Aberdeen represents a watershed moment for Aberdeen and for the future prosperity of your city.
The plans you have proposed, if brought to fruition, will bring benefits to the region, Scotland and the UK now and for generations to come.
I believe, from what I have already seen today that there is a strong will to succeed, and a viable plan in place.
I also believe there is a willingness to seek to exercise greater freedoms over economic and fiscal levers that are key to unlocking success. That is a discussion you must have within the Council, with your citizens and with your politicians.
That ongoing exercise must be linked to a strong vision, one that the leaders, the businesses and the people of Aberdeen can share.
I look forward to seeing your vision made real and an increasingly confident, productive and prosperous Aberdeen.
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