Jersey threatens to break with UK over tax backlash A barrage of regulatory clampdowns and political attacks on the Channel Islands' controversial financial industry has prompted one of Jersey's most senior politicians to call for preparations to be made to break the "thrall of Whitehall" and declare independence from the UK. Sir Philip Bailhache, the island's assistant chief minister, said: "I feel that we get a raw deal. I feel it's not fair ... I think that the duty of Jersey politicians now is to try to explain what the island is doing and not to take things lying down. The island should be prepared to stand up for itself and should be ready to become independent if it were necessary in Jersey's interest to do so. In a Guardian interview, he said strained relations with the UK over the past five years had made it "very plain" that Jersey's interests were not always aligned with those of Britain. I hope that the constitutional relationship with the UK will continue. But if it becomes plain that our interests in fact lie in being independent it doesn't seem to be that we should bury our head in the sand and say we're not going to do that. For decades Jersey's tax, legal and regulatory framework has been structured to draw in the financial activities of multinational businesses and wealthy individuals. But a growing backlash has seen politicians in the UK and elsewhere lashing out at aggressive schemes leeching tax revenues from the increasingly stretched public wallets. François Hollande swept to power in France last month with a manifesto pledge to stop French banks operating in tax havens. Meanwhile, Barack Obama has introduced draconian anti-avoidance laws that from next year will require financial companies around the world to report to US tax authorities the details of assets owned offshore by wealthy Americans. Failure to comply will result in punitive taxes. David Cameron took the unusual step last week of condemning the personal tax affairs of the comedian Jimmy Carr, who was found to be using a controversial avoidance structure involving a Jersey trust company. The prime minister said it was "morally wrong." Jersey's chief minister, Ian Gorst, has attempted to distance the island from this type of activity: "There is no wish or need to accommodate or give encouragement to those who seek to involve Jersey in aggressive tax planning schemes to avoid UK tax." But his views are understood to have sparked heated debate among the islands' senior politicians, with the Treasury minister, Philip Ozouf, later tweeting: "I don't think it's the place of our government to comment on the moral application of activity which is legal." Ozouf has always said he supported the chief minister's statement. In his March budget, George Osborne announced measures designed to claw back tax revenues leaking from Treasury coffers. "I regard tax evasion - and, indeed, aggressive tax avoidance - as morally repugnant," he declared as he outlined initiatives on stamp duty avoidance, offshore pensions and VAT-free websites. His comments echo those of Treasury chief secretary, Danny Alexander, who last week repeated his claim that "people who aggressively avoid tax are the moral equivalent of those who cheat the benefit system." He claimed the coalition was doing "more than any previous government" to crack down on avoidance and evasion. The chancellor has ordered a Treasury team led by Graham Aaronson QC to work up proposals for a general anti-avoidance rule designed to deter the most artificial tax schemes. Action to create fresh avoidance-busting laws was spurred by the court of appeal's reluctant decision last summer to wave through one of the most egregious tax schemes in recent years. The scheme, known as SHIPS 2, involved transactions through Jersey and other tax havens, generating a tax loss that 70 wealthy UK residents were able to offset against income and capital gains tax bills. It was marketed by the Mayfair firm Matrix Tax Solutions, a now defunct arm of the financial conglomerate Matrix Group. The group's co-founder and chairman, David Royds, has given £110,000 in donations to the Conservative party since 2008. Lord Justice Toulson said the ruling to back the structure was made despite knowing "it instinctively seems wrong." Lord Justice Thomas noted the beneficiaries "received benefits that cannot possibly have been intended and which must be paid for by other taxpayers." Matrix told the Guardian: "SHIPS 2 was marketed almost 10 years ago, and attitudes have changed." But Aaronson has singled it out as a prime example of a scheme that "shows the inadequacy of the existing means of combating highly artificial tax avoidance schemes." Not everyone shares the moral outrage at legally permitted tax schemes, particularly in the Channel Islands. "Every state in the world has a different tax regime which every individual, wherever they sit, has a right to take advantage of," said Julian Winser, head of Schroders' Channel Islands private banking arm and president of Guernsey Chamber of Commerce. The principle of the free market is that it [legal tax avoidance] is available to all - even if some of them can't reach it. You could argue exactly the same thing from a job perspective by dint of the fact someone didn't have the right education. Ultimately the politics of envy creeps in to it. Bailhache is equally robust in defending tax structures. I think this idea that there is some kind of grey area where things are within the law but you shouldn't do them is potentially quite difficult ... People have to ask themselves: 'If you feel strongly [about] something people ought not to be doing, why don't you change the law to make it unlawful?' In an interview before Carr's tax arrangements were condemned last week by Cameron, Bailhache said Jersey's financial industry had to deal delicately with moral outrage in the UK at legal tax avoidance. Another senior Channel Islands politician, who asked not to be named, said there was much private frustration at suggestions a Jersey trust company should be blamed for Carr avoiding UK tax. He said: "The UK tax code is horrifically complicated. It has all sorts of exemptions and allowances and schemes - and that's fertile ground for tax avoiders. In the face of ferocious political attack, Jersey is for the first time opening an office in London and frantically building lobbying contacts in Washington in an effort to repair relations. It has hired a top London public relations firm, Brunswick. We want to educate. We want to explain what the island is doing," said Bailhache, who is also the minister in charge of Jersey international relations. We understand that the movement is towards collecting as much tax as the UK legitimately can do and it's not part of our function to help UK citizens to avoid paying their dues in the UK. Previously relying on Britain to look after its international interests, Jersey last year began forging its own relations in Brussels. Meanwhile, the island's powerful finance lobbying arm, Jersey Finance, is looking at ways to reduce the heavy dependence on UK and continental Europe, recruiting representatives in Abu Dhabi, China and are considering a new bureau in Brazil. Lord McNally, the UK minister responsible for dealing with the Channel Islands, said he was well aware of disgruntlement. The Crown Dependencies [the Channel Islands and the Isle of Man] are quick to point out their rights. A couple have independence movements and talk about going completely independent. I think it would be rather ill-advised of them to do so. Back from a tour of the islands this month, McNally told the Guardian he had left them in no doubt the days of Britain turning a blind eye to aggressive loophole industries in the Channel Islands were over. "Treasuries all over are making tough decisions in these difficult times," is his message to the Channel Islands. Following a series of tough measures in the budget, he recalls being asked: "Is this the last time [the UK] Treasury is going to come stopping us doing things?" His reply was firm: "No. The Treasury will continue to do its job.