In praise of Lord Wallace

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Lib Dem peer Lord Wallace has a letter in the Guardian today:

Your editorial welcoming action to force tax havens to loosen the bonds of secrecy (21 August) omitted one important point: many of the world's leading tax havens fall under the British crown. Jersey, Guernsey, Isle of Man, Gibraltar, Bermuda, Cayman Islands, British Virgin Islands and Turks and Caicos are all significant offshore financial centres. All benefit from the British system of law, from the expectation of offshore investors that British oversight guarantees higher standards than competitor centres — and all have benefited from Whitehall's relaxed oversight regime.

Strong evidence of systemic corruption in the Turks and Caicos has now forced the British government to impose direct rule there. There is some doubt as to whether the current model for autonomy in overseas territories is sustainable: too much money in communities with too few people is a recipe for bad government. The situation in the Crown dependencies is far better. But Jersey and Guernsey, for example, have only partially and reluctantly lifted secrecy on offshore accounts, and continue to offer incentives for corporations and wealthy individuals whose main business is onshore to relocate on their islands.

Any thorough campaign against the large-scale tax avoidance and evasion constituted by offshore secrecy must therefore raise the question of how the British government oversees its own dependencies, and what changes in the relationship between the UK and its dependencies may be needed.

William Wallace

Lib Dem, House of Lords

I am delighted a senior politician is standing up to be counted on this issue: he is Lib Dem deputy leader in the Lords.

The intervention is not isolate; as the Telegraph noted  a few days ago:

Lord Wallace, a leading Liberal Democrat peer, is pressing for the Channel Islands to surrender some of the autonomy they enjoy in their 800 year-old relationship with Britain.

The Liberal Democrat foreign affairs spokesman said that the understanding that Britain would always respect the dependencies’ right to self-government was no longer appropriate now that they were major financial centres.

“You cannot say that a promise given 800 years ago in different circumstances fits in any part today,” he said.

“The situation with the Channel Islands is different from even 35 years ago because of globalisation. Both used to be based on horticulture and tourism, compared to finance, as they are today.”

Asked during a visit to Guernsey about the prospect of a fully independent Channel Islands, Lord Wallace said: “I would be horrified. Small jurisdictions that attract a huge amount of money are very difficult to govern without falling prey to corruption.”

What William Wallace is saying is what needs to be said: that these places need to be brought under control.

Lord Turner has said today that the City has grown "beyond a reasonable size", accounting for too much of British output and taking away too many of the country’s brightest graduates whilst undertaking "socially useless activity". But the UK financial services sector employs about 4% of UK employees and is still over blown.

Consider then Guernsey, Jersey and the Isle of Man: they have 23%, 22% and 22% respectively work force in the financial services sector, and are respectively first second and third in the world in this respect, followed closely by Cayman and Bermuda based on new TJN data.

This is not “beyond a reasonable size”. This is financial services gone mad. This is when financial services controls the place, with all hope of regulation gone as a consequence.

That is why sovereignty for these places is impossible. It is why they should be brought under UK regulation.

And let’s also be honest, what this also says is that these place’s sole product is “socially useless activity”.

William Wallace is willing to say this. I applaud him for doing so.

Now let’s act.