Richard Murphy has a good definition of a tax haven, but I disagree with his idea that having a large financial services sector is an important characteristic, although I do agree with his view that the UK and Ireland are both tax havens.

It is true that a tax haven is likely to have a disproportionately large financial services sector. However having a large financial services sector, is not necessarilly a sign of a tax haven. I would argue that London is a financial centre for much the same reasons that Silcon Valley is a centre for the software industry: jobs, people, infrastructure and support services attract each other in a virtuous circle.

Certainly many people who have moved to London from other countries to work in the City: just as people from all over the world move to Silicon Valley (a list of founders of Valley start-ups would have a lot of Indian and Chinese names on it).

Certainly some people (such as some of the much discussed partners in private equity firms) do benefit from the tax haven aspects of Britain. However these are a compratively small number of people with a lot of capital and who are able to benefit from the grossly unfair domicile rules. Why are they necessarily more important to the success of the City than the far greater number of people who depend on their earned incomes?

Certainly the government presents this as an argument for maintaining the domicile rules. I so not actually believe this. The financial sector could not simply relocate from London to some tax haven if the domicile rule was abolished. If they could, then they would have, for there are plenty of better tax havens.

I can say from my own experience that it is much easier to do this type of work from London than it is from Manchester, let alone further afield. Unless someone can show otherwise, it seems to me that only certain types of work (some types of insurance, trust administration, etc.) do move to tax havens.

Work such as investment banking, and investment management stays in the major centres: although minimal structures may be set up in tax havens (such as entities to issue eurobonds), very few jobs, and never the best paid jobs, actually move.

Of course, this strengthens the argument against the domicile rule, so in disagreeing with Richard here, I am all the more in agreement with him over that.