BY KANNAN SRINIVASAN
A sudden change in the currency with which old debts to the colonies had to be paid helped Britain consolidate its status as a financial centre.
The UK is a tax haven closely connected to other tax havens it has set up. Its trade deficit is therefore offset by the money pouring in from its own tax havens. Almost 90% of net capital inflows to the UK come from just Guernsey, Jersey and the Isle of Man. So far, there has been no decline in such funds with the news of Brexit. Britain enjoys a significant measure of protection from the consequences of leaving the EU by virtue of this rush of cash.
How did London achieve this status of being a major financial centre? Knowing this history might be useful, especially for Indians, as the country played a role in it, thanks to the steps taken by Prime Minister Clement Attlee’s Labour government in 1947, employing the resources of newly independent India.
As war broke out in 1939, the trade surpluses run up by India, Egypt, Brazil and others trading primarily in sterling, were withheld by Britain. Total debt to all such creditors (excluding the US, which obtained British businesses and naval and aircraft bases in return for cash) amounted to £3.48 billion. In addition, two and an half million Indian soldiers fighting in Italy, North Africa, the Middle East and the Far East were paid salaries; when any died, their widows were to be paid pensions by the government of India, which remained uncompensated even as the war ended. All this made India (which included the future state of Pakistan) the largest Allied creditor after the US. Britain owed her £1.335 billion ($5.23 billion, which is about $59 billion today). Britain owed the next largest creditor, Egypt, £450 million. At a conservative estimate, the debt to India amounted to about a fifth of the UK gross national product, or seventeen times the annual government of India revenue at highly depressed prices.