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Wednesday, 21 November 2012

Price challenge to Senator Ozouf

Well it seems that Phil Ozouf has decided NOT to run for election in 2014 and has alienated what one would consider to be his natural constituency, the small to medium sized businessman (there are no big businesses in Jersey).

The fundamental assumption upon which he has erred is that the tax component of the price of goods in Jersey is limited to GST and impots, this of course is not the case.

We could of course respond with our own question, how come government in Jersey is so much more expensive than in either the UK or in Guernsey and, of course, in asking that question we also answer Senator Ozouf's.

So let us examine in great detail why the difference between £1.22 and £2.34 (being the quoted cost of a packet of cigarettes in the UK and Jersey respectively) actually demonstrates that profits in Jersey are lower than in the United Kingdom.

We will assume that the production costs are the same up to the point that they leave the factory, we will also assume that the distribution costs are the same to either a) the point of sale in the UK or b) the harbour in Portsmouth from where the goods are shipped to Jersey.

Therefore the cost of shipping from Portsmouth to Jersey is a cost which must be borne above and beyond the UK retailers.

There are two key points to note here; firstly that Jersey has the highest landing charges anywhere in the United Kingdom (for example EasyJet have stated that they could fly a person from the UK to Jersey for £15 in the summer months (with a full plane) and yet the cheapest deal you will find is £52.00 and that is not available for every seat on the plane. The reason is because the taxes on landing are levied at over £40 per person. Who sets this charge? The government and it is only set to rise as the Harbours and Airports are soon to become a company which is determined to make a profit. Compare this with the height of the Tourism industry when the States recognised that in making a loss on the operation of the harbour and airport they at least encouraged people to come and spend their money here.

The second point is that the States of Jersey deliberately chose to build a harbour which would limit the competition that Condor would face (i.e. one with a shallow draft). This of course means that much less cargo can be carried in on each boat which of course raises the cost of importing goods, and Jersey is never going to be self-sufficient economically.

Two decisions made by the States which mean that the cost of the goods you buy is greatly increased.

Next there is the simple size of the market in Jersey compared to the UK, the administrative cost of importing the goods into Jersey is no cheaper than it is in the UK but the number of cigarettes is far lower. Therefore the administrative cost must be split between far fewer items, making the cost per item far higher.