BRITISH OVERSEAS TERRITORIES: The dilemma for intervening in tax havens

Philip Whiteman

Within academic literature much has been written on central-local relations and resource dependency relationships between principal and agency. To place this into context, few sub-central or local governments are truly autonomous of the central government.  Many are merely regarded as arms-length local administrations of the central state.  So what does the current tax haven scandal regarding the fourteen BOTs (British Overseas Territories) tell us?

 The Labour Party leader of HM Opposition, Jeremy Corbyn, today stated that the government should consider imposing “direct rule” on its overseas territories and dependencies if they do not comply with UK tax law. This reaction will clearly be chime with the domestic UK public and possibly with international tax authorities but nothing is ever simple.

We can count that tax haven BOTs as fairly wealthy by comparative standards to the non-tax havens.  Their strong financial footing reduces the resource dependency relationship with the UK Government. The Caribbean BTOs such as Bermuda, Turks and Caicos, Cayman Islands or Anguilla contrast strongly with Falklands, Ascension or St Helena, the latter group which are highly dependent upon UK political and financial support for their survival.  As with any resource dependency relationship, where the FCO is able to exert financial control then the greater their power. Some may call it colonial.

 Despite the UK Government’s ability exert a power dependency relationship, their ability to intervene has decreased in recent years.  With greater wealth comes greater self-determination and a greater resistance to perceived colonial interference. That is one reason why the UK Government introduced the British Overseas Territories Act permitting BOT residents to apply for full British citizenship.  Many of the BOTs have also become increasingly autonomous with their own local democratic governance arrangements.  Both measures are in part to stop independent movements gaining a stranglehold on the BOTs.

 Whilst the UK Government has become more relaxed in recent years to local self-determination, any perceived interference in the affairs of the wealthy tax-havens will have local consequences.  Aside from the South Atlantic BOTS, many have well entrenched opposition movements seeking freedom and total independence from UK control. 

 To take up Corbyn’s suggestion that the UK Government should take total control of BOT affairs would have dire local consequences. At worst, resentment could exceed the bounds of normal democratic resistance.  This leaves the Conservative led UK Government in a difficult position. On the hand it is obliged to ensure that the BOTs comply with UK tax policy, on the other it faces the prospects of severe local difficulties from territories that could easily go it alone.

 whiteman-philip

Dr Philip Whiteman is Teaching Quality Assurance Lead at the School of Government and Society and Director of Education at the Institute of Local Government Studies at the University of Birmingham.  He has research interests in the impact of central government and regulators on the role, service delivery and performance of local government and other local bodies.  

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