That’s likely because the election won’t determine who holds power in Road Town but 4,110 miles to the northeast in London when the United Kingdom’s Parliamentary Election is held. And though most of the territory’s government decisions are made locally, the UK election’s outcome may have lasting effects on the territory’s economy and its future relationship with the UK, according to some observers.

According to Kedrick Malone, director of the BVI London Office, the change in government could indirectly affect financial services and tourism here. Because it’s his job to lobby for the territory’s interests, Mr. Malone is watching the race between the Labour, Conservative and Liberal Democrat parties closely.

“The BVI always tries to maintain that the UK government understand our point of view,” he said. “We don’t have any particular interest in who wins the election. That’s a matter for the people of the UK. We just want to make sure either party is aware of our issues.”

But, because the parties may have different perspectives on offshore financial centres, air travel taxes and the UK-overseas territories relationship, the VI does have a stake in who wins, Mr. Malone added.

Overall, the director said that residents here should pay attention to the UK because policies set there influence what goes on in the territory.

“I think that the people in the BVI should always care about what happens in the UK because what happens here in the UK affects the BVI,” he said. “The UK-OT relationship is a significant relationship, and people should remember that.

Financial services

Whichever party wins will govern a UK still recovering from a recession and struggling with high budget deficits. Mr. Malone said that the “internal stress” caused by recent economic events may cause leaders to increase restrictions on offshore financial services companies.

“The UK government has made it clear that they have to increase revenue collection,” he said. “Any perception that there’s perceived leakage, they want to address that.”

Though none of the parties has made the OTs a major campaign issue, the subject has come up frequently in the UK in the past year as leaders pointed fingers at offshore financial centres during the global economic downturn.

Some UK politicians believe that the jurisdictions need stricter regulation. At last April’s Group of 20 summit, global leaders, including UK Prime Minister Gordon Brown, head of the Labour Party, spoke out against so-called “tax havens.”

Days later, the Organisation for Economic Cooperation and Development released “black,” “grey” and “white” lists of financial centres. The VI was placed on the “grey” list, but quickly signed the requisite 12 Tax Information Exchange Agreements to make the “white list” by August.

But for some UK leaders, this is not enough.

Vince Cable, a Liberal Democrat Member of Parliament, wrote in the Guardian newspaper last September that what he called “tax avoidance and evasion” is an “utterly offensive” practice that costs the UK government £22 billion each year. Mr. Cable also said the “tax avoidance industry has blossomed” under the Labour government.

“Every pound lost in revenue through avoidance and evasion has to be made up through higher taxes paid by others. …Tax dodging generally involves companies that are trading internationally, artificially depressing their profits in the poorer countries where they operate to minimise their tax liabilities,” the politician said.

Mr. Cable maintained that the 12 TIEA limit is too low and called for “effective information sharing between havens and all countries where their account holders are resident or are citizens.”

In a response to Mr. Cable’s letter, Chris Bryant, a Labour MP who is the minister responsible for the OTs, defended the VI and other OTs, which he said are making progress towards tax information sharing.

“These are countries committed to meeting internationally recognised finance standards and taking on increasing responsibility for oversight of international financial regulation, and well on the way to throwing off the ‘tax haven’ label,” he wrote.

Conservative Party

Meanwhile, members of the Conservative Party, which currently is leading in polls, have been fairly tight-lipped about the party’s stance on the OTs.

During an October speech, George Osborne, the shadow chancellor of the exchequer, promised that the party would “target tax evasion and offshore tax havens.” However, he didn’t elaborate.

Other Conservative party members have been more supportive of the offshore financial centres. Baroness Gloria Hooper, a Conservative member of the House of Lords, singled out the VI’s financial services sector in a debate last March as an example to follow.

“The financial services sector of the British Virgin Islands is founded on five pillars: robust regulation, intergovernmental collaboration, effective enforcement, transparency and high levels of expertise. I emphasise in addition that there are no secrecy laws. … Reputation is everything in financial services. The BVI has long recognised this, and I maintain that the same goes for most of the overseas territories,” she said.

Mr. Malone, too, said that he hopes to make UK lawmakers aware of the beneficial effect of offshore financial centres on the British economy. He said this conclusion was confirmed by last year’s Foot Report, which reviewed the jurisdictions.

“There’s a developing argument out there that if you continue to restrict offshore centres, capital will find other places to go, which may not benefit the UK economy as much,” Mr. Malone said.

He added that the London Office lobbies the OECD and the European Union, entities that regulate some aspects of offshore financial centres, through British government officials.

A new UK government may attempt to crack down on offshore companies or wealthy individuals seeking low taxes, said Kay Reddy, the managing director of the Blenheim Group, a VI trust company. But Ms. Reddy added that in the past regulators here have quickly adapted to new regulations.

As an example, she said that until 2004, the VI imposed a 10 percent corporate tax rate for local companies, and a 0 percent rate for locally registered offshore companies, a practice known as “ring-fencing.”  The OECD called for an end to the double standard. In response, the VI abolished the corporate tax for all companies and adopted a payroll tax instead, Ms. Reddy said.

“It turned out to be a very smart move that protected the offshore industries and dealt with the OECD issue,” she said.

Now, faced with budget deficits from the recent economic crisis, Ms. Reddy expects future UK governments to continue to try to increase tax revenue from businesses based in the OTs.

“I think the attempts will be ongoing. It’s a never-ending game, so the UK’s extremely important,” Ms. Reddy said.

The financial services sector isn’t the only pillar of the economy that may be affected by the UK elections. Since November a distance-based environmental tax known as the Airport Passenger Duty has increased the cost for UK travellers to the Caribbean.

Four travel “bands” now dictate how much in taxes passengers will pay, according to the distance to their final destination’s capital city.

This means a person travelling by air from London to Antigua, the most popular connecting airport for UK travellers bound for the VI, would pay about $80 in tax. And the APD rates for the Caribbean are scheduled to increase to $125 in November.

The issue could directly impact the number of UK tourists who visit here, hurting hoteliers’ business, according to Romney Penn, president of hospitality for the BVI Chamber of Commerce and Hotel Association. The owner of the Treasure Isle Hotel said that the group is working with regional organisations to lobby the UK to change the tax.

“It’s been applied unfairly and it’s going to severely impact tourism to the Caribbean as a whole,” he said.

The UK parties are split on the issue. Julian Brazier, a Conservative MP, said he supports a per plane tax rather than a per passenger tax, according to a November 2009 article in the Telegraph newspaper. Mr. Brazier said that if his party wins the election, the capital-cities rule, which negatively affects the Caribbean, would be abolished.

Paul Clark, the Labour transport minister, said his party had no plans to revisit the air tax, but said a Labour government would keep all manners of taxation under review.

UK-OT relationship

While UK political parties may approach the OTs differently, the UK-OT relationship has more to do with practical concerns than party politics, according to Dr. Peter Clegg, a professor of international relations at the University of the West Indies.

Dr. Clegg wrote in a recent academic paper that the VI and other OTs were left largely alone by the UK in the late 1970s and early 1980s when Margaret Thatcher, a Conservative, was in power.

When Argentina invaded the Falkland Islands in 1983, and the Turks and Caicos Islands saw a rise in drug trafficking in the early 1980s, the UK responded with support and temporarily instituted direct rule of TCI in 1986 following a corruption scandal. But the 1995 eruption of the Soufrière Hills Volcano in Montserrat, requiring £59 million in UK assistance, highlighted the fact that the OTs are potential liabilities to Britain, the paper stated.

The 1997 election of the Labour Party, which sought to broadly reform the UK government, led to the UK seeking increased control over the OTs, according to the professor.

“The government made clear from the outset that Britain’s relationship with the territories would come under the microscope,” the paper stated.

The Labour government’s review of the OTs, the most comprehensive in 40 years, according to Dr. Clegg, led to the publication of the 1999 White Paper: Partnership for Progress and Prosperity. That paper sought a new direction for the UK-OT relationship and suggested that the OTs improve regulation of financial services, end corporal punishment, change laws outlawing homosexual conduct, and ban the death penalty.

Additionally, the paper suggested granting British citizenship to OT citizens who wanted it. Most of these recommendations became law in the VI in the following decade.

Though party politics in the UK may have prompted the review, Elton Georges doesn’t think so. Mr. Georges was deputy governor during the time of the party switch and is currently complaints commissioner.

“As far as there being a party difference with approach to the territories, I don’t recall any such feeling at any time,” he said.  

The former deputy governor added that he doesn’t expect the upcoming election to generate a lot of interest here.

“Frankly, the answer is that the [UK] elections really don’t matter to the people in the territory. It really matters very little which government is in power,” he said. “Ministers for the overseas territories come and go and typically the ministers with responsibility for the territories stay in office.”

Mr. Georges said that he’s heard some political observers say that the Labour party, in power during much of the 1960s, was more sympathetic than the Conservative party to the idea of granting independence to former colonies, such as Grenada. But the former deputy governor doesn’t buy that argument.

“It doesn’t have a lot to do with the party ideology; it has to do with the times,” he said. “Both parties will have to confront the same issues when it comes to the territories.”

As an example, he said that the 1981 Nationality Act affected VIslanders and other OT residents because it redefined the requirements for British citizenship. But the Act was passed in preparation for the 1997 handover of Hong Kong to the People’s Republic of China, and not aimed at the territories.

“We were just a side effect, taken along for the ride,” he said.

New White Paper

Still, Mr. Georges said another party change in the UK could bring a new focus on the OTs, especially because the territories have a much higher profile now, due to their financial services sectors.

“Perhaps a new government may want to launch a new partnership, just to put their stamp on things,” he said.

Dr. Clegg said he expects any new government to produce a new white paper to discuss changes to the UK-OT relationship, but he believes there’s a limit to the amount of future power that can be devolved to the territories.

“In terms of what can be offered by the UK, the government is quite limited,” he said.

That’s because as long as the territories remain affiliated with the UK and don’t achieve full independence, they are still potential liabilities if something goes wrong, he said.

The VI could theoretically become a “Freely Associated State” to the UK with all powers fully devolved. But such an arrangement is not seen as attractive in London, especially after the recent alleged corruption scandals in the Turks and Caicos Islands, where the UK has temporarily instituted direct rule, Dr. Clegg said.

If the same situation occurred under a free-association arrangement, the UK would still bear legal liability for the problem but have no tools to solve it, he added.

According to the professor, any future white paper is likely to propose mostly minor changes, “tweaking” administrative aspects of the OT-UK relationship. Such changes may include revising or scrapping the Overseas Territories Consultative Council, an organisation that represents all the OTs, he added. Due to the diversity of the group, which includes the Falkland Islands in the Atlantic Ocean as well as several Caribbean territories, a new structure may be promoted instead, according to Dr. Clegg.

Still, the professor doesn’t expect any major changes for the territories, regardless of who wins at the UK polls in the coming months.

“It’s difficult to know how much more can be done,” he said.