A cynic might say that, in a world where capital and labour can easily traverse borders, the small nations have been crafty. They have carved out a niche in tax avoidance. There is an obvious economic logic in what they have done. If a particular taxpayer shifts to a tax haven and pays, say, 80 per cent less tax in total, the remaining 20 per cent is worthwhile extra revenue to a tax haven with a population less than one-half of one per cent of a typical large European state. Tax havens keep their populations lightly taxed by attracting the wealthy, since a high-net-worth incomer pays a tax bill well above that of their own average citizen. 

The existence of tax havens, and even of low-tax medium-sized nations, confronts the big nations with a dilemma. Politicians — particularly on the Left — want to enjoy the praise of being kind and cuddly when they increase expenditure on health, education and pensions. However, the extra expenditure on the various social goodies is financed not by them as individuals, but by taxpayers as a body, including high-income taxpayers. The mobility of the high-income taxpayers constrains politicians' ability to capture the esteem they had hoped for from wearing social consciences on their sleeves. Brown, Darling and the like loathe Monaco and the Isle of Man, because such places prevent the British public from recognising their greatness as human beings. 

The larger issue is, "Why does the government need to spend almost 50 per cent of national income at all?" Defenders of a large state sector may argue that the heavy tax burdens of the large European nations have been responsible for the provision of health and education services, and an extensive welfare state, which have promoted social justice. But — if we compare the UK, Germany, France and so on with the Channel Islands, the Isle of Man, Switzerland and Ireland — this argument is clearly nonsense. 

The tax havens and small nations have much lower ratios of government spending on health, education and welfare to national income than the large nations, but are their populations unhealthy, badly educated and to a significant extent socially deprived? No. In general, they have better health and education and a lower incidence of poverty. The truth is that Brown and Darling's redistributive socialism, and the large public sector and punitive top tax rates associated with it, deliver neither economic efficiency nor social justice. They are damaging and obsolete in the 21st century, when people have ample freedom to move themselves, their possessions and their ideas across frontiers.