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The UK bears the ultimate risk of potential liabilities from its overseas territories such as Anguilla, Montserrat and the Falkland Islands; and, while progress has been made in managing and mitigating these risks since the last report by the National Audit Office in 1997, there is room for improvement, the NAO has reported today.

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The report to Parliament has found that progress has been made in improving the standards of safety and security of transport links, and in the regulation of offshore financial services in the territories. It is important, however, that the UK should reinforce its close working with Territories to manage risks in government finances, disaster and crisis management, and in law enforcement and security.

Although the responsibilities for the territories are UK Government-wide, the degree of involvement by UK departments is variable. Though the Foreign and Commonwealth Office leads policy for the Territories, active participation from a wide range of UK agencies is needed to ensure that all responsibilities are covered and risks are well managed.

Despite differences in size, economic and social development, and systems of governance, the overseas territories have many things in common: they are mainly relatively isolated, island communities often located in areas prone to natural disasters, and most depend on one or two key industries. Prosperity varies significantly between the overseas territories. Bermuda and the Cayman Islands have among the highest GDPs per head in the world, whereas St Helena. Pitcairn and Montserrat are reliant on UK budgetary aid. These Territories receiving budgetary aid absorb half of annual UK Government investment in the territories; some £28 million. They face the biggest challenges and need continued support for infrastructure and development, combined with the right incentives to make the most of their own resources, if they are to develop out of aid dependency.

Although the nature of the challenges facing the territories can vary, there are similarities and opportunities for greater sharing of information and good practice. As such the UK should promote and facilitate greater links between the territories. Territories should also follow the lead being set by Bermuda and the Cayman Islands in identifying, monitoring and evaluating risks.

"The UK government has a responsibility to ensure the security and good governance of the overseas territories, and I'm encouraged by areas of progress made in the last ten years.

"Though they share many challenges the Overseas Territories are a very diverse group. There is more that can be done to help all Territories consistently reach the best standards already to be found amongst them."

Sir John Bourn, head of the National Audit Office

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