Today’s edition of the Jersey Evening Post leads with an article headed ‘Official: Why food costs so much more in Jersey’. Food prices, according to a new study, are one third higher than in the UK. Worse, once taxes and duties are excluded, the difference rises to 50 percent. This suggests that the situation has deteriorated significantly since 1998 when this blogger – who used to direct Jersey’s retail prices index – conducted a comparable survey using like-for-like comparisons between Waitrose in Berkhamsted and Le Riches store at Les Quennevais – and arrived at differential of slightly over one fifth.
Several factors contribute to this dramatic difference in the cost of living: first, transport costs are high; second, land values and rents in Jersey are extraordinary (even by comparison to SE England); and, third, retail competition is weak. These are all attributes of a small island economy. But another factor to add to the equation is the crowding-out effect of hosting an oversize offshore financial sector, which induces a Dutch Disease effect similar to the Resource Curse that afflicts oil and gas exporting economies. This economic crowding-out is part of wider phenomenom we have termed The Finance Curse, which has afflicted many small island economies that host offshore financial centres.
The table below, drawn from a recent Oxera report on Jersey, illustrates the problem. Financial intermediation accounts for fully 43 per cent of the gross value added of Jersey’s economy. The finance sector employs 23 percent of the entire workforce, with average weekly earnings of £850 per employee. Public administration – doctors, teachers, etc – employs 22 per cent of the workforce, with average earnings of £810. Now look at the other sectors: the once dominant export earners – tourism, agriculture / horticulture – have shrunk to 5 per cent of GVA, with earnings less than half of those prevailing in finance. Prices in the retail shops will inevitably be pulled up by the demand (and lack of price sensitiveness) of all those vast workforces employed in finance and public services, and employees in other sectors will have to struggle with one of the highest costs of living in Europe.
Jersey is a poster child for the Finance Curse phenomenon, but the problem afflicts other islands, including Cayman, Cyrpus, and Britain (yes). Read more here.