What are we getting in return? That has been the question critics of the Government have been asking over surrendering the Chagos Islands to Mauritius. You can call it a ‘sell out’, as we are making a payment. In a way, though, that query misses the point. When some of us flick a globe and pause at the Indian Ocean to spot the words ‘British Indian Ocean Territory’ next to some small dots, we might feel rather pleased.
That is not how the negotiators at the Foreign Office, recently led by Jonathan Powell, former Chief of Staff to Tony Blair, see it. Or Labour politicians generally. They regard any territorial remnants from the British Empire as an excruciating source of shame and are desperate to withdraw from it.
It follows that some of the other outposts that survive from our colonial era may be under threat. How can this be averted? One way is to ensure that these territories that are ‘dependencies’ in constitutional terms are able to pay their way.
It is easy to see how a remote island with a tiny population might offer challenges for economic viability. But there is no such difficulty for the British Virgin Islands, Cayman Islands and Bermuda. They are prospering as tax havens. Some progressive neo-imperialists want the Empire to strike back at this tax competition. ‘The UK and its network of British tax havens – where the UK government has full powers to impose or veto lawmaking, and what is often referred to as the UK’s “second empire” – are responsible for a third of the corporate tax abuse risks identified by the Corporate Tax Haven Index today’, declares the Tax Justice Network, in a report this month.
What is that ‘abuse’? Sometimes concerns about money laundering for drug dealing or other forms of criminality are raised. But if you have such pursuits in mind, there are plenty of other locations that will be far more indulgent for you to register a dodgy shell company. The ‘abuse’ being complained of when it comes to these British territories is of the tax rate being lower than elsewhere. The assumption behind the objection being that the world has a fixed amount of wealth, that it is a ‘zero-sum game’ – that a firm that was thwarted from paying low tax in one jurisdiction could be relied upon to make the same investment even if it was obliged to pay a higher tax elsewhere. The reality, of course, is that high tax seizes everything up.
The economist Julian Morris notes that ‘the World Bank consistently ranks Cayman among the top 25 per cent jurisdictions for rule of law, quality of regulation, and other governance indicators’. So why should it be blacklisted or ‘greylisted’ by the European Union or the G7’s ‘Financial Action Task Force’. Naturally, these reports come up with lists of regulations and details about compliance with all the technicalities.
But the Cayman Islands:
requires service providers to verify the beneficial owners of Cayman entities. They must also verify the source of funds used in financial transactions. Failure to comply with these obligations are criminal offences punishable with fines and custodial sentences. Together, these measures are highly effective at discouraging potential money launderers from using Cayman. In other words, the low rate of prosecution of money laundering in Cayman can be explained by Cayman’s tough and rigorously applied laws, which encourage money launderers to go elsewhere.
Morris adds, rather pointedly, that it has rather higher ‘standards than many EU jurisdictions, so to the extent that the blacklisting caused EU-based persons to use EU-based structures rather than Cayman structures, it may have made it more difficult to identify instances of money laundering and terrorism financing’.
Similar points apply in Bermuda and the Virgin Islands. They are prospering and any attempt by the UK Government to sabotage their economies would be pretty outrageous given the higher standards they maintain than other countries.
I also think it would be rather challenging politically for the Labour Government to dispose of the Falkland Islands or Gibraltar –with populations respectively of 3,500 and 33,700. The principle of self-determination would have to be jettisoned in the most outrageous manner.
My concern is for some of our poorer territories with smaller populations. St Helena in the South Atlantic where we sent Napoleon. Montserrat – which was devastated by a volcano in 1995. The Pitcairn Islands near New Zealand with a population of under 100 – the first place in the world to give women the vote, in 1838.
The more remote you are, the more important it is to be open to the world. Low tax rates send out that message. Prosperity might take the form of financial services, or tourism or oil exploration. But celebrating enterprise, innovation and wealth creation is the starting point. The success achieved in Hong Kong gives a spectacular example – as does its handover to China of the dangers of that being put at risk. HM Treasury should not adopt the colonial mindset so rigidly as to insist that the same high tax rates be imposed in British subjects overseas that it imposes on us in the UK.
The Conservative politician Francis Maude once declared:
We should be unequivocally believing that Britain being a country where it is a good place to do business is a crucial test. 20 years ago when I was the Financial Secretary to the Treasury, a Labour MP said to me indignantly: ‘You are just trying to turn Britain into a tax haven.’ I said thank you for the compliment. That is exactly what we were and are trying to do. We want Britain to be a place where people don’t mind being taxed. A good place to be taxed. Where you can put your ideas to work, your money to work. Build business. Create jobs, create wealth. That is unequivocally a good thing.
A tax haven merely means a place where taxes are low – where enterprise is rewarded and freedom is celebrated. We should encourage our overseas territories to take that course – perhaps even follow their example.
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