The global scene is changing, and promises made in 2016 are wearing more than a little thin. Vote Leave campaigners promised a utopia of sunlit uplands and free trade; instead, a greyer, poorer, and less productive country is facing international tariffs and a permanent air of geopolitical crisis. Somewhere en route to the sunlit uplands we got lost. It’s the equivalent of setting forth on a road trip to the Highlands, but getting trapped in a particularly unprepossessing industrial estate on the outskirts of Birmingham. The petrol is running out, the children are getting fractious, and the radio has just reported blizzards on the M6.
How, with our current capabilities, is Britain to build its prosperity and make the most of Brexit? An answer is staring us in the face — Britain’s network of Crown Dependencies and Overseas Territories [CDOTs]. Comprising 17 jurisdictions under the ultimate sovereignty of the British Crown, the CDOTs include nature reserves, military bases, and some of the world’s most important financial centres. Being separate from the United Kingdom, they can pass their own laws, engage in regulatory experiments and innovate at speeds necessarily beyond those of a larger, slower, more careful UK. If “nimbleness” was a reason for Brexit, then nimbleness is what these members of the British family offer — and we should seize the opportunities this gives us.
The UK — CDOT relationship already brings benefits to Britain. Taken together, the CDOTs are our 9th largest trading partner, bigger than Spain and Italy, and bigger than any each and every Asian country other than China. Through the CDOTs, British businesses — and thus the British tax man — gain revenue from customers all over the world, including many that would otherwise have no connection to the UK. Financial managers sitting in Britain can attract international capital to Guernsey funds, and invest it in projects all over the world; through the British Virgin Islands, London-based lawyers and insurers often find themselves acting on behalf of Chinese businessmen, dealing with other Chinese businessmen, in respect of assets sitting in China. If we didn’t have the CDOTs, Britain would not be deriving revenue from these transactions.
The CDOT network is a great underrated strength of the UK, yet few in Britain know much about how the CDOTs bolster our economy. Insofar as they have a public reputation, it is unremittingly negative. That this is so is the result of three deeper cultural issues — our postcolonial delusions of centrality, an inability to accurately conceptualise our global position relative to that of the United States, and a system-wide British difficulty in conceiving and acting upon the British national interest. For Britain to flourish, each of these must be revisited.
Britain is now a US client state — a lieutenant of US hegemony
Anglo-centrism, power, and hypocrisy
In the eyes of its critics, the CDOT network forms a part of Britain’s malevolent “shadow empire”, a mechanism for extracting capital from across the globe and enriching the City of London. The CDOTs are “treasure islands”, run by men who would “steal the world”. Elsewhere, we hear voices arguing that some 40 per cent of global money laundering — whatever we should understand by such a gigantic number — goes through London and its CDOT network. Britain, so the argument goes, should “clamp down” on these centres, and engage perhaps in “unilateral financial disarmament.” Should this happen, then Britain would be a better place and the world would be far less affected by the negative effects of global capitalism, tax competition, and jurisdictional arbitrage.
Many of these critics display a rather endearing view of British power and centrality; they seem to believe that unilateral measures by the UK will necessarily be felt across the globe, and do so without impacting British prosperity. Largely absent in the UK-centric account of offshore finance is the role of the United States, and the mobility of capital in an era increasingly dominated by East Asian economic growth.
The United States is the greatest tax haven in the world. By refusing to participate in the global Common Reporting Standards, it prevents foreign governments from accessing the US financial records of their own citizens, encouraging tax fraud elsewhere. Where other countries are implementing registers of corporate “ultimate beneficial owners”, the USA is going backward; as of this year, US companies do not have to inform the government who owns them. Unlike in the EU, UK, or CDOTs, therefore, ownership can be anonymous. At the same time, the US undermines attempts at international regulation. On his first day in office, President Trump withdrew from an OECD agreement setting a 15 per cent global minimum tax for large companies; nearly 150 other countries had signed it.
British critics of the CDOT network write as if London is at the beating heart of international capital flows; but the simple fact is that most global money heads to the USA. If anything, the fact capital is placed in the CDOTs before heading to the USA increases its transparency, as the CDOTs are all CRS participants.
Critics of Britain should look first to the USA. Their failure to do so is especially acute because over a quarter of British GDP is composed of sales made by US firms, and 6 per cent of our workforce is employed by US-owned multinationals. Both of these figures count only the largest firms; as such, they are likely a large underestimate. As such, a large part of our tax base comes from taxes paid by US firms. Discussion of the UK as an offshore hub, or even of the way it attracts Eurasian oligarchs, misses the point. Far from being at the core of a global financial empire, we are a vassal state.
Critics of the CDOTs miss the true nature of British finance; they also risk pushing business elsewhere. While the USA acts as both a tax haven and the largest recipient of international capital flows, the financial centres of Asia — Dubai, Hong Kong, and Singapore — are growing quickly and are flush with cash. Each competes with the UK. Dubai in particular is booming. Clean or otherwise, money is flooding into the UAE, which notably refused to join Western sanctions on Russia and Russian businessmen.
Contrast this with Britain, where we are busy pushing away wealth. Changing tax rules have led to an exodus of millionaires; the UK is now set to lose the greatest proportion of resident millionaires in the world. When these millionaires leave, they also take their capital, expertise, and businesses, leaving the UK poorer. This reduces our tax base, and deepens our issues in providing adequate funding to startups.
In an era of mobile capital, mobile capitalists, and a fraying international order, the British should be looking to bolster its access to talent and capital, not hinder it. The CDOTs are a potential partner in this.
Decolonising Britain?
Accepting this is, in part, this is a psychological question. Power no longer lies where we thought it did, and it is evolving rapidly. Far from being the centre of a world empire, or even the centre of a financial neo-empire, Britain is now a US client state — a lieutenant of US hegemony, and a constituent part of the US-led global economic order. Situated at the western edge of Eurasia, we are thousands of miles from the rising economies of the East; in offering our goods and services to those economies, geography and distance puts us at a disadvantage with local competitors. On right and left, it is time for cold-eyed realism regarding who we are and what we can do.
To reckon with this order, the British left must do something more challenging than merely criticise the CDOTs — they must decolonise themselves. It is high time they understand that Britain is not the centre of the universe, and the rights and wrongs of its post imperial institutions are irrelevant to the task ahead. To fixate on the colonial past is to risk blindness to the real problems of the present. The right, for its part, must consider the extent to which its choices strengthen or undermine British legal and economic sovereignty.
Right or left, all parts of the political spectrum must deal with urgent questions — how the UK can thrive in conditions of economic and technological uncertainty, the extent to which we are willing to accept economic subordination to the USA, and the steps we are willing to take to ensure the continued prosperity of our people in the age of AI.
The national interest
Two mega trends will dominate the coming years — the re-emergence of a multipolar global order, and the staggering advances made in technology. The advance of AI and other digital technologies is transforming the global economic and political order. Higher and higher returns are likely to accrue to global, digital businesses. If you think Google, Microsoft, and OpenAI are already economically dominant, just wait for the next wave of AI agent capabilities. Throughout the world, large portions of the workforce will have their jobs automated away. The tax bases of sovereign states will be rapidly eroded, and more and more value will be taken by global tech firms and startups
Changing times require a more clearly articulated sense of the national interest. In an increasingly multipolar era, the UK should embrace the strengths it still possesses. We have a thriving tech industry, leading universities, and the opportunity to creatively experiment; the CDOTs expand this.
In financial regulation, digital assets, data markets, and perhaps soon in AI, the CDOTs include some of the world’s most innovative regulatory bodies. Gibraltar and Bermuda are major centres for insurance innovation; the Cayman Islands and the British Virgin Islands are among the world’s leading centres for digital assets; and Jersey and the Isle of Man are experimenting with data trusts and data foundations — legal vehicles for the ethical commercialisation of data. Policymakers should ask what new experiments can we conduct with these islands, and how the UK can partner with them to make these jurisdictions and the wider UK a global tech hub.
