The island says it helped lead to �250bn being invested in the UK

John Christensen, Jersey's former Economic Advisor, told BBC Radio Five Live the island drained much-needed tax revenue from the UK.

It is estimated the UK loses at least �25bn a year due to "tax avoidance".

Policy and Resources President Frank Walker said it was legitimate business which helped investment in the UK.

We attract investment from all over the world, and much of that is reinvested in and through the City of London Senator Frank Walker

About �156bn is on deposit in 55 banks in the island. But Jersey insists any company depositing money has a presence on the island and can be completely managed from there.

John Christensen became the island's Economic Advisor in 1987. He resigned in protest in 1998 over what he said was the island's financial services industry dominating the island's economy.

He said financial centres such as Jersey allowed large corporations and wealthy individuals to bypass their responsibility to society.

Mr Christiansen, who founded the Tax Justice Network after leaving his post, said of companies being registered on Jersey: "The whole thing is a sham, designed to create the impression that control rests in the island.

"In the case of big companies, it is inconceivable that real control, where real decisions are made, lies in a tiny office here."

Legitimate business

Phil Austin, chief executive of Jersey Finance, the body that represents the finance industry, said: "We insist companies have to have directors here and a physical presence here to manage them here.

"I think that tax competition is good, tax planning is legitimate. As long as people operate within the law, I don't see a problem with it.

"You saw in the Harold Wilson-era in the 1960s, when tax was very high, people used to just go off and live in America.

"It's always a very fine balance. If any government overdoes it on taxes, people move away."

Senator Frank Walker, President of Policy and Resources, said: "We will continue to conduct the totally legitimate business that we've conducted for many years."

He added that he believed money invested in Jersey did contribute to the UK economy.

He said: "We attract investment from all over the world, and much of that investment is reinvested in and through the City of London, at least some �250bn we estimate."