Sark:No island is an island

Events on Sark can seem like the stuff of an Ealing comedy. Last week the 474 adult inhabitants of Europe's last bastion of feudalism, ruled by a seigneur since the 16th century, held a democratic election to choose a 30-member government. The campaign was as ostensibly low-key as you would expect on a two-square-mile island with no tarmac road, motorcars or street lighting. The outcome, though, has been anything but quaint. When their preferred candidates were rejected by the voters, the reclusive billionaire Barclay brothers - sole owners and inhabitants of neighbouring Brecqhou - pulled the plug on their investments on Sark, throwing 140 workers on to the dole. What next? A peasants' revolt?

It is too easy to treat all this as an island-that-time-forgot soap opera, but in truth the saga is more disturbing than silly, and Sark's inhabitants deserve respect for standing up to the Barclays. At the root of the row is a modern issue that must be taken seriously - the continuing anomalous relationship between the UK and its offshore tax havens, notably the Channel Islands (including Sark) and the Isle of Man. For decades at a time, these anomalies exist without causing more than a theoretical difficulty. Then something occurs that concentrates minds. The global financial crisis - rather than the Sark election - is such an event.

Buried away in the pre-budget report was the announcement of a review by Michael Foot (no, not that one) of bank regulation in crown dependencies from the Channel Islands to the Caymans. It was needed, the chancellor said, because taxpayers cannot be guarantors to investors who have specifically chosen to avoid UK tax by putting their money in such havens. On the face of it, finance expert Mr Foot has authority to address the big questions - transparency, tax policy (but not rates), crisis management and international frameworks. Ministers have followed up with tough language. Offshore centres "must play a responsible role", says the City minister Lord Myners. But Mr Foot is a creature of the system and the real test for the Treasury will come in responding to the review.

Constitutional relationships are excluded from the review. This may prove short-sighted. Such relationships are already being rethought by some offshore centres - Jersey recently published a review of the possibility of declaring full independence. International pressure to clamp down on tax havens has begun to build, not least because of the support of Barack Obama. In today's global economy, not even an island is "an island, entire of itself". In any collision between tax havens and the modern world, the world must prevail every time. British policy must move with the times.

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