Low Tax Jurisdictions Benefit the British Economy, says Think Tank

A new paper from the Adam Smith Institute argues that the UK should use its offshore network to embrace financial and technological innovation;

• Crown Dependencies and Overseas Territories (CDOTs) have unique ties to the UK and generally maintain much lower tax rates;

• Crown Dependencies, like Jersey, Guernsey and the Isle of Man, are self-governing, with the UK managing their defence and international affairs;

• British Overseas Territories, such as the Cayman Islands, Bermuda and Gibraltar, are former colonies. Though they are also self-governing, the UK holds greater legislative power compared to Crown Dependencies;

• While they are unfairly labelled as tax havens, these jurisdictions are net contributors to the UK economy, ranking us our 9th largest export market and channelling investment capital into both UK businesses and infrastructure;

• Exploiting our Brexit freedoms, politicians should work with CDOTs to boost growth and bring opportunity to the UK;

• This paper outlines a number of suggestions including strengthening the presence of British banks in the Overseas Territories, promoting CDOTs as regulatory and technological innovation hubs and offering the Shetlands Islands Crown Dependency status - turbocharging its space and green finance industries.

Although they are often maligned as tax havens, CDOTs are essential to the UK economy. CDOTs account for 4.4% of the UK’s services exports - more than Spain, Italy or any other Asian country except China. Their UK links sustain the City of London’s global dominance by channeling money into the country, strengthening the UK financial & professional services industries and providing fund managers with access to worldwide asset pools. In turn, this stimulates investment, drives productivity and more than offsets lost tax revenues. For instance, Jersey contributes nearly 1 million jobs and £6.5 billion in employment taxes, while the British Virgin Islands support 134,000 jobs and £2.7 billion in tax receipts alone.

While CDOTs contribute to the global economy by facilitating productive investment through low taxes, they also enhance the UK’s soft power by spreading English common law worldwide. Ultimately, CDOTs are an essential part of what makes the UK attractive to investors, giving them access to a wide variety of international markets while enhancing our global influence. Politicians should be cherishing them, not regulating them.

The paper outlines several recommendations to harness the opportunities provided by CDOTs:

• Encourage British banks to expand into the Overseas Territories, providing CDOT residents with greater financial access and enabling international businesses to more easily set up in these jurisdictions.

• Embrace post-Brexit regulatory flexibility to expand Gibraltar’s licensing model, allowing firms based in other CDOTs to operate more freely in UK markets.

• Introduce conditional licensing to align CDOT and UK economic interests and encourage foreign firms to use CDOT incorporations as a path towards listing on the London Stock Exchange.

• Work with CDOTs to carve out industry specific regulations so that they function as testing grounds for innovations that can later be rolled out in the UK, and as long-term partners to the needs of UK industries

• Work with the CDOTs to proactively develop favourable regulation in AI, digital assets, and other emerging technologies

• Offer preferential treatment for CDOT-originated investments to boost UK professional service exports. 

• Support CDOTs in joining trade agreements such as the CPTPP, meaning that more capital will come to low tax, well regulated CDOTs, and subsequently to the UK.

• Give Shetland Islands the option of becoming a Crown Dependency, fostering growth in space and green finance.

Maxwell Marlow, Director of Research at the Adam Smith Institute, said:

“Britain is in a uniquely privileged position, thanks to its excellent financial services industries, which leverage our world-class innovation, skills and expertise. In order to stay ahead in a competitive global market, the Government should make full use of its Overseas Territories and Crown Dependencies.

If the Chancellor wants to draw more investment to our shores, she should embrace our Crown Dependencies and Overseas Territories role as regulatory sandboxes, allowing us to learn which rules work best for the City. Likewise, she should seek to integrate these territories into our trade deals, shoring up our global financial services offering.”

Notes to editors:  

For further comments or to arrange an interview, contact press@adamsmith.org | 0758 477 8207.

James Kingston is the founder of DAO SPV. Originally from the Isle of Man, he has long been interested in the costs and benefits of the UK’s network of CDOTs.

The Adam Smith Institute is one of the world’s leading think tanks. It is ranked first in the world among independent think tanks and as the best domestic and international economic policy think tank in the UK by the University of Pennsylvania. Independent, non-profit and non-partisan, the Institute is at the forefront of making the case for free markets and a free society, through education, research, publishing, and media outreach.