There's something to be said for tax havens, but it's an unpopular case to make in the middle of the Liechtenstein storm. The danger is that the tax competition that they bring, and which should be welcome, will be annihilated along with the secrecy which they struggle to justify.

I must confess a flicker of sympathy for Liechtenstein, although many won't share it. Eighty years ago it was one of the poorest places in Europe. Now it is one of the richest on Earth, having offered the attractive combination of freedom from tax and financial privacy at just the point, after the First World War, when it was wanted.

We do not need to contest the Channel Islands' claim to be among the first tax havens; they date their independence in tax affairs from the Norman Conquest. But Switzerland has best claim to be the first significant one to compete for capital on its tax arrangements. In the early years of the 20th century, it had become one of the favourite places to store capital for those fleeing threats and turmoil in Russia and Germany, but its attraction at that point was its neutrality and security. Only after the war, when European governments were raising taxes steeply, did its deliberately low-tax framework begin to compete with their policies.

There is much to be said for tax competition; more than the European Union usually manages. It remains extraordinarily hard to define a tax haven, without including in its scope countries with comparatively low tax regimes, such as, at times, Britain and Ireland. Before the Government's new proposals to levy charges on people living in Britain but domiciled abroad, Britain could be described as a tax haven for them. The Chancellor may now choose to try to reclaim more revenue from those people, but he surely would not want the option of attracting them to London through a light tax regime to be ruled out under international agreement.

The Organisation for Economic Co-operation and Development struggled with these questions when it began to try to define tax havens, the best part of a decade ago. The United States objected in 2001 to a version that put much weight on the lack of other significant economic activity in the alleged haven. The US argued, with justice, that this would penalise tiny island countries that did indeed have little else to offer but were not necessarily helping illegal activity.

The OECD arrived, finally, at a definition that depends on the secrecy that these places tend to offer. That seems right. The main objection against them should be that this secrecy helps citizens of other countries to evade their governments' taxes, helps money launderers and helps criminals to protect gains. Switzerland has made some concessions to its secrecy provisions to help the pursuit of crime.

But at this point, until the German cases progress, the clearest criminal activity in Liechtenstein is on the part of the employee who sold the secrets and, arguably, on the part of the German and British governments in buying them. Tax havens have few defenders — but neither should criminal behaviour in pursuit of criminals.

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