Jersey may split from UK to save low-tax status

The island of Jersey is preparing a referendum on independence amid fears that the Government will accept European Union demands to end its low-tax status.

The island of Jersey is preparing a referendum on independence amid fears that the Government will accept European Union demands to end its low-tax status.

The island, which will debate the idea next month, would end 900 years of association with the British Crown if enough voters back the radical proposal to break away.

A formal request for a referendum has been submitted to Jersey's Bailiff by one of its senators and a vote on independence could occur next year, The Independent has learned.

The move follows islanders' anger at EU plans to dismantle low tax regimes that have made the Channel Islands among the richest financial centres in Europe.

Although the islands are British dependencies and as such are not part of the EU, several of the UK's European partners believe that they offer unfair tax advantages and want to end their special status.

With 80 per cent of the islands' income and most of its jobs derived from the financial industry, senators are determined to campaign hard to fight the move. More than £90bn is held on Jersey, £1bn of which goes to the City of London every year in trade.

Gordon Brown is under intense pressure from his EU counterparts to crack down on Jersey and Guernsey and islanders fear that he is set to act in return for Brussels abandoning plans for a "witholding tax" for the City of London.

An EU finance ministers' committee on "unfair tax competition", chaired by Dawn Primarolo, the Paymaster General, has already identified 22 tax measures that could be taken against the islands.

Pressure on the Government to act also increased after the OECD described the Channel Islands as "tax havens" in a report published last year.

Jersey's chief executive has written to the OECD to complain that the island's tax regime, with 20 per cent income tax, higher corporation tax than Ireland and regulated financial services, is far from lax.

However, fears that Mr Brown may intervene have prompted the Jersey's authorities to draw up a "doomsday option" of independence from the British Crown.

Senator Paul Le Claire has submitted to submit a formal request for a referendum of Jersey's 90,000 residents and a debate on the issue is expected in St Helier next month.

Mr Le Claire said yesterday that the UK Government had so far failed to offer reassurances that it would not dismantle the island's tax regime.

"The Government has so far not shown any real willingness to stand up for Jersey. If it continues to ignore our concerns, then independence has got to be considered," he told The Independent.

"The financial industry is our main source of income. To discuss this now is only proper. I personally don't feel independence is impossible and we should be looking seriously at it. We elected politicians have a duty to seek the opinions and inform the electorate about the future of the island. I have no faith that the Government will safeguard our long-held rights to govern ourselves and set taxes."

John Redwood, head of the Tory Party's Parliamentary campaigns unit, said that it was clear that the Chancellor was preparing to offer Jersey and the other islands as "sacrificial pawns" in a wider deal to stave off the witholding tax.

"Gordon Brown should listen to the real concerns of the people of Jersey. They don't want to be ruled by Brussels any more than the rest of us," he said.

Jersey's leading politician, Senator Pierre Horsfall, led a delegation of the island's authorities to the Home Office last year to complain about any move to change tax measures.