CARIBBEAN tax havens, including the Cayman Islands, are being threatened with UK legislation if they fail to open their books to the UK taxman in line with a proposed EU directive on savings taxes.

The threat of legislation came from Gordon Brown, the Chancellor, as a European Council meeting on the directive broke up in discord yesterday. In an effort to save the directive, the Chancellor retreated from his insistence that Switzerland comply. However, Luxembourg, Belgium and Austria renewed their attack on the Swiss.

The Chancellor gave the Council his “unequivocal assurance” that automatic exchange of information would be introduced in Britain’s Caribbean territories. “If necessary, we will legislate directly,” he said.

Swiss banking secrecy is a major obstacle to the directive, which seeks to combat tax evasion by EU residents through automatic exchange of information between tax authorities. Britain had previously rejected the Swiss offer of a withholding tax of 35 per cent as an alternative to automatic disclosure. However, as the Chancellor softened his tone, three EU states, Austria, Belgium and Luxembourg, broke ranks and threatened to scupper the agreement.

Jean-Claude Juncker, Luxembourg’s Prime Minister, said that it would not comply unless Switzerland abandoned its bank secrecy, because tax evaders would move to Switzerland. Mr Juncker described the Swiss offer as “strictly impossible”.

In an effort to broker a compromise, Denmark suggested that Austria, Belgium and Luxembourg could be excused from automatic information exchange until the Swiss complied.

A Treasury spokesman suggested that the British shift in position was to protect City banking interests.

The three dissident member states are reluctant to end their own bank secrecy regime and agreed to the directive on condition they would benefit from a transition period, during which they would impose a withholding tax on deposits. In addition, Switzerland would be required to impose “equivalent measures”. However, Switzerland was unmoved. The Swiss Bankers’ Association said: “Enough is enough. We have made a very generous offer.”