Jersey advised to save an extra £600m in case Brexit disrupts financial sector

Jersey should cushion its 'rainy day fund' with an extra £600m as a precaution since the fall-out of Brexit and the possibility that the City of London could become an offshore competitor jeopardises the jurisdiction's finance industry.

That's the warning of a leading group of economists who advise Jersey's government on its financial plans.

The Fiscal Policy Panel warns about the potential fragility of the Jersey economy because it was so heavily reliant on the finance industry, adding that precautions should be taken now because the economy was still strong, The Jersey Evening Post reports.

The Fiscal Policy Panel warns £340m was taken out of reserves, or rainy day funds, between 2009 and 2017 to balance the books.

It warns more money needs to be set aside from 2020 to 2023. Among the proposals, a call to increase the percentage people pay towards the Long Term Care Fund. The report reveals the Social Security Minister is considering increasing it to 1.5% in 2020.

The panel believes Jersey's ageing population will cause further strain on the public purse, with proportionally more retirees and fewer workers.

Treasury Minister Susie Pinel said that it would be "prudent" to act on the advice, adding that she would rather not raise taxes to fund an injection of cash into the Strategic Reserve.

At present the value of the reserve, often dubbed the ‘rainy day fund', is £800m, which the panel has recommended increasing to at least £1.4 billion, which is 30% the size of the Island's economy, in the coming years, rather than spending it on capital projects, like the future hospital.

"We can't tell when a crisis might be but what we can say is the current fund is not big enough in case a crisis arises. So the government needs to think in its long-term plans how to increase the reserve," Fiscal Policy Panel member Francis Breedon said. 

"Jersey is very dependent on the financial services industry and you can imagine scenarios where that industry moves [elsewhere] or shrinks very rapidly," he added.

During a briefing, Breedon and panel chairwoman Dame Kate Barker warned that the City of London, a traditional ally of Jersey, could become a rival finance centre post-Brexit.