A crackdown on tax havens would “destroy” their economy and livelihoods, the MP for Beaconsfield has said.

Dominic Grieve’s comments follow the leak of 11.5 million files that provide detailed information about more than 214,000 offshore companies from the Panama-based law firm Mossack Fonseca.

The MP, who also chairs the Intelligence and Security Committee, said British overseas territories like the British Virgin Islands were “entitled” to make their own decisions on how they run their financial services.

On the BBC Radio 4 Today programme broadcast yesterday morning, he said: “If you are going to destroy the economy of the BVI because that would prevent them from providing banking services at all, then we are going to destroy the livelihood of their inhabitants.

“For those reasons I think the government has a responsibility towards encouraging overseas territories to find legitimate ways of economic development and the financial sector is undoubtedly a legitimate method, just as it has been for Switzerland and any others.”

When asked if Britain could change the way overseas territories do their business and possibly shut down the way they operate as tax havens, Mr Grieve said it would be “a bit of a nuclear option.”

He said: “The autonomy of our overseas territories is something we have to respect. As long as they are carrying out their governments properly, there would be no proper grounds to intervene.

“The best way of ensuring I suppose that people do not wish to go to the BVI [British Virgin Islands] is to provide the right environment domestically in terms of tax which guarantees that people wish to keep all their tax affairs in the United Kingdom or indeed any other European state.

“If you have a tax environment that people find onerous, they will shift elsewhere, they will either shift their tax affairs elsewhere or they will shift themselves elsewhere.”

Mr Grieve said the government could choose to enact legislation if people are “uncomfortable” with overseas territories being tax havens, but said the consequences of doing this would need to be carefully considered.

He said: “Firstly if we were to follow the suggestion that we should effectively remove the autonomy of overseas territories to run their lawful financial services, I don’t think we are acting properly towards them. They are entitled to make their own decisions on this.

“Secondly the way human society works, what will in fact happen is people will go to other havens that may have far less good regulation, so what we would in fact be encouraging is the very money laundering and criminality that we supress.”