September 3, 2009 3:00 am

Troubles in paradise

The Cayman Islands are the latest British-linked tax haven to face financial pressures that could leave London to pick up the final bill, writes Michael Peel .

UK-connected offshore centres from the Channel Island of Jersey to the Caribbean territory of Anguilla have been grappling with how to fill holes in their public finances.

The problems - often microcosms of the battles that big economies are facing with ballooning budget deficits during the economic downturn - highlight how troubles in paradise islands are an increasing problem for Westminster as well.

The argument over whether Cayman will have to introduce income and sales taxes for the first time has echoes of a debate in Jersey in 2007.

The Channel island contentiously put in place a 3 per cent sales tax last year, in what ministers said was an essential measure to make up a shortfall in government revenues of between £80m and £100m.

While Jersey's status as a Crown dependency means it is independent of the Westminster parliament, overseas territories such as Cayman are technically British possessions and thus a potential financial liability for the Treasury.

Britain is already picking up the tab for a political takeover last month of the Caribbean overseas territory of the Turks and Caicos Islands, where the constitution has been suspended for up to two years over allegations of widespread corruption.

The Foreign Office said it has also sent a Cayman-style warning about the health of the public finances of Anguilla, a tiny Caribbean offshore financial centre most famous as a holiday playground for celebrities.

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