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The Financial Secretary to the Treasury (Mr Mark Hoban)
I congratulate my hon. Friend the Member for Cities of London and Westminster (Mr Field) on securing the debate and talking very clearly about the challenges and benefits that arise from offshore financial centres. He is right to highlight the UK’s particular interest in this area. Crown dependencies and offshore territories that have a link with the UK form half the top 30 offshore financial centres, so we have an interest.
My hon. Friend is right to highlight the important link in retail financial services with the Crown dependencies. A number of hon. Members will have had correspondence from constituents or former constituents about the impact of the Icelandic banking crisis on them, because they had deposits in the Isle of Man with Kaupthing Singer & Friedlander (Isle of Man) or in Guernsey with Landsbanki Guernsey. We have an interest on that level because those places are used as centres for banking by expatriates and a number of people who want to place their money offshore.
It is also right to identify the significant links between these offshore financial centres and the City of London. My hon. Friend highlighted their importance as a mechanism for providing funding for the UK financial services sector: people place their money on deposit in offshore financial centres and then deals flow through to London. I was struck by the fact that in quarter 2 of 2009, as mentioned in the Foot review, $332 billion of funding was provided to the City of London from those centres. That shows their importance.
I am sorry that my hon. Friend the Member for The Wrekin (Mark Pritchard) is no longer in his place, as I am about to refer to the British Virgin Islands, which he mentioned in an intervention, saying that the BVI are on the OECD white list. We welcome the fact that offshore financial centres are keen to take steps to appear on that list and we would encourage more to do so.
My hon. Friend the Member for Romford (Andrew Rosindell) asked about representation in this place for Crown dependencies and overseas territories. Under the present Government, the imperial days of the Treasury are long gone. It is very much for the Foreign and Commonwealth Office and the Ministry of Justice to take responsibility in that regard, and I am sure that since the election my hon. Friend has not been slow in making his views known to Ministers in those Departments, either.
The financial crisis highlighted the need to protect our public finances. The Government have taken steps to deal with the fiscal deficit that we inherited, and we will follow that up with the comprehensive spending review in the autumn. However, that increased vigilance must run through everything that the Government do, and part of that involves pressing for high international standards that protect against the risks posed by jurisdictions that fail effectively to impose prudential regulation, tax transparency, anti-money laundering measures and standards on countering the financing of terrorism. At last year’s G20 summit in London, leaders called on all jurisdictions to adhere to international standards in those areas. They called on the appropriate international bodies to strengthen peer review to assess jurisdictions’ compliance with the standards and to consider possible counter-measures for those that fail to comply. It is important that the international standards are applied without discrimination, allowing all jurisdictions that meet them to compete freely in international markets.
Michael Foot was asked by the previous Government to conduct an independent review of British offshore financial centres, and he reported his conclusions last October. The aim of the review was to deal with concerns about the risks caused by the financial crisis to the Crown dependencies and overseas territories and, by association, to the UK. The report provided a health check of the economic sustainability and viability of the financial services sectors in the Crown dependencies and overseas territories. The message from the report was clear: offshore financial centres must meet international standards if they want to maintain active and trusted financial sectors. The challenge for offshore financial centres was to take greater responsibility for their economic future, demonstrating that they are capable of responding to financial stability risks, while strengthening their long-term commitment to meeting globally recognised standards—issues raised by my hon. Friend the Member for Cities of London and Westminster.
Michael Foot’s report set out a series of steps that jurisdictions must take to ensure that they are inside the scope of international regulation and that they secure their long-term sustainability. To demonstrate their performance against international standards, British offshore financial centres were invited periodically to publish the details of their progress, setting out the international standards that they have met, covering tax transparency, prudential regulation and preventing financial crime, and the standards that they have not met, with details of how they intend to meet them in the future and how soon they expect to do so. We are talking about the setting out of clear benchmarks about what the territories should do and how far they are going in achieving those standards. That sends a clear signal that both we and the wider global community are interested in what they are doing. The more transparency there is about how much progress the territories are making towards those goals, the greater the acceptance will be of their activities in the wider global community.
Mr Field
I am also keen to ensure that the point is made robustly about capital flows. We have had a credit crunch quite recently and we may be facing another one with all the sovereign default concerns in Europe. The free movement and liquidity provided by IFCs is key. That case needs to be made robustly at a time when others are dismissive of offshore financial centres.
Mr Hoban
Indeed. My hon. Friend makes an important point. Adherence to the standards makes the case that offshore financial centres should be part of the global network of financial centres and that they are valued. It is also important to ensure that when people talk about offshore financial centres, the debate is proportionate and evidence based. That is the best basis for debate in the UK, EU and G20. My hon. Friend made important points in that respect in his remarks.
The Foot review recommended that Crown dependencies and overseas territories should have to meet key international standards on tax information exchange, financial regulation, countering the financing of terrorism and anti-money laundering. The review strongly recommended that British Crown dependencies and overseas territories need to diversify their tax bases in a way that helps to secure their long-term economic sustainability. My hon. Friend made the argument that a number of territories had already done that and had withstood the financial crisis.
Andrew Rosindell
My hon. Friend the Minister talks about long-term stability. Does he agree that any attempt to undermine the ability of Crown dependencies and overseas territories to be self-sufficient and to look after their own affairs would in the end rebound on the British Government, with the possibility that we would have to finance some of those territories, so it is vital that policies from here, from Brussels or from anywhere else do not undermine the ability of our territories to be self-sufficient for the long term?
Mr Hoban
My hon. Friend makes an important point, but what he refers to must be done within the context of adhering to the highest possible international standards. We need to ensure that that international framework exists and that the territories comply with it; otherwise they are open to attack by other nations. Yes, it is important that the territories are economically sustainable and are not dependent on the UK, but at the same time they must meet those international standards, and a number of territories have made quite significant progress towards that goal.
With regard to the sustainability of overseas territories, they were encouraged to improve the management of their public finances to ensure that they were well equipped to withstand unexpected economic and financial shocks without external fiscal assistance. We need to recognise the progress that has been made to comply with the standards. I understand that 28 jurisdictions—almost exclusively tax havens and offshore financial centres—have moved into the category of jurisdictions that have substantially implemented international standards on tax transparency. That shows that overseas territories are taking the measures seriously, and we encourage them to continue to do so. Over the next three years, 100 jurisdictions will be peer reviewed, which will be an important part of the process to give confidence in how the standards are being implemented.
I recognise the importance of the role that offshore financial centres can play. They are an important contributor to the City of London. They provide services to UK citizens, whether at home or abroad. However, it is vital that they comply with the highest international standards on tax transparency and dealing with terrorism financing and money laundering. Adhering to those standards would be the best safeguard for their future prosperity.