As history pivots again, the Paradise Papers could seal the fate of UK tax havens
Does the digital economy hold the future for Britain after Brexit, asks Damien McElroy
Tax havens, legacy outposts of the British empire, are back in the news. They are in the spotlight because loose versions of British trust law have provided a lucrative niche for a string of places that are neither independent states nor governed by Whitehall.
As financial secrecy has come up against the digital age and lost out, what goes on offshore resonates as a blast from the past in London. The whole row exposes a wider choice facing the country.
It is no coincidence the heyday of these havens coincided with British membership of the EU. Entry cut off colonial access to the biggest Commonwealth trade partner, reducing demands for commodities such as sugar and bananas. Offshore finance provided a lifeline at a time of need.
As history pivots again, the Paradise Papers could seal the fate of these havens. The old approach of half-forgotten mismanagement is certainly not fit for purpose. One of the most popular television programmes in Britain in recent years is Death in Paradise, a drama about an ineffectual British police officer assisting his local colleagues on just such a far-off island. It is inspired by real-life events that ruined the careers of several high-flying Scotland Yard officers.
Just visiting the Foreign and Commonwealth Office to meet the overseas territories department exposes the marginal nature of the country’s management of the islands. The offices are hidden at the very top of the building underneath the roof arches.
Certainly after Brexit, the possessions - the sun still does not set on the British empire at certain times of the year - could realign with the City of London as a vast financial powerhouse. EU taxes and disclosure regulations could be stripped away to bring the City in line with places such as Bermuda, British Virgin Islands and Jersey.
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Controversies would no doubt ensue. Braving these out would be a hit for the governments of the day either to accept or endure. A powerful contingent of the financial backers of British exit from the EU are money men and insurance magnates who look forward to just this prospect with great glee.
Among more astute policy makers there is a sense this would be a false option for the nation.
If Britain has a magic bullet, it is to develop its digital economy, opening up opportunities in areas not subjected to the trade rules of Brussels.
Here the experience of another famed British island is instructive. An event last week on the Isle of Wight examined future economic prospects amid the digital transformation.
On the historic harbour at Cowes, known around the world as the symbolic home of ocean yacht racing, local businessmen discussed its prospects as a digital frontier. Having secured support from Sir Richard Branson, the Digital Solent conference set its ambitions high. It is now fashioning a digital roadmap that aims to recover decades of lost ground for the south coast island.
Unlike its neighbours Jersey and Guernsey, the Isle of Wight has no autonomy from the British state. It is part of the EU, and its economy has suffered from marginalisation. It has not offered itself as a haven in any other sense than its harbours shelter sailors from rough seas.
There is a significant technological heritage. This was the place where Marconi conducted his first wireless experiments in 1897. There are still bright spots like a wind turbine business and an aerospace factory. There are forty good size independent digital businesses. But there are pockets of deprivation. Two-fifths of the population has no form of educational qualification.
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Can the digital economy empower residents to take their economic future in their own hands? The shift of emphasis from EU-focused commerce comes at time when Britain needs to up its digital game.
Broadly the British start from a position of strength. Brexit should free up the scope for a more friendly regulatory regime.
The traditional European model of employment and regulation is challenged in the digital economy, which renders laws on regular hours, job security and provisions like pensions out of date. Instead the digital economy demands work patterns that are more fluid. It also means traditional centres face new competition and the skills map can be rebooted from scratch.
Capital is also vital to the digital economy and it has flowed into British technology sector at four times the level seen in Germany and France.
As Matthew Hancock, the British digital minister, told an audience in Paris last week, the two neighbours can build their mutual digital interchanges whatever the impediments of Britain’s departure places on trade.
The real challenge for all the British islands is to set their sights on a digital future.
Updated: November 11, 2017 01:05 PM