The trouble with getting into a rat race, the American comedian Jackie Gleason once said, is that even if you win you’re still a rat.

Influential people in the UK are cheerleading for a “Singapore on the Thames” economic model after Brexit: a strategy to win the great global race to attract financial capital by lowering taxes, loosening regulations and turning a blind eye to the world’s dirty money. Britain is already, on some measures, the biggest player in the global tax haven game. A spider’s web of satellite havens, from the Cayman Islands and the British Virgin Islands to Jersey, captures wealth from around the world, polishes it and feeds it to the City of London. The world’s best known independent rankings of tax havens by importance – the Tax Justice Network’s financial secrecy index and its sister publication, the corporate tax haven index – both show that the UK, considered together with its satellites, is the biggest player in the offshore world.

We need a revolutionary overhaul – first we must overthrow an ideology, one that is sometimes called 'competitiveness'

A new report from Transparency International, provides the latest evidence of the devastation Britain’s offshore spider’s web causes globally. It tots up £325bn of funds “diverted by rigged procurement, bribery, embezzlement and the unlawful acquisition of state assets”, from more than 100 countries – mostly in Africa, the former Soviet Union, Latin America and Asia. The financial criminals include a kingpin of a multibillion-pound scam to loot Malaysia, and a jailed former Moldovan prime minister. “Peppered throughout most major cases of bribery, embezzlement and rigged procurement,” says Transparency International, “you will find a UK nexus.”

But here’s the problem. I don’t disagree with the report’s recommendations: open up crime-infested corporate registries in the UK and its offshore territories (some limited progress is evident here, after sustained campaigning); get businesses to apply “ethical principles”, improve oversight and enforcement, and create credible deterrents for bosses of all those crime-dealing City firms.

Fine. But this report reminds us just how little progress we’ve made, and how widely and deeply the rot has spread. The world’s crooks find accomplices in our purveyors of private jets and yachts, our estate agents, the “big four” accounting firms, globe-striding banks, schools, universities, football clubs, thinktanks and newspapers – and, of course, across our political establishment.

We need a complete, revolutionary overhaul. Yet if we want to take on this giant network of vested interests, we must first overthrow an ideology: something that sometimes gets called “competitiveness”.

On the one hand, most British voters hate it when poor countries get looted, and hate being tainted by dirty money. On the other hand, though, we like the dirty money that flows in. Crackdowns may help others abroad, people fret, but they may make us less competitive, ultimately hurting us. And, they also worry, if we stop doing these bad things, someone else will. This ideology is a recipe for inaction. But there is now a way to change this record. A new tune is being played by two unlikely saviours: the International Monetary Fund and the Bank for International Settlements, the central bankers’ bank. Since 2012, they have spearheaded a growing body of academic research known as Too Much Finance? – a foundation of what I call the “finance curse”.

Study after study now finds a nonlinear relationship between the size of a country’s financial sector and its long-term economic growth. Every nation needs banking and finance, but only up to the point where it provides all the useful services the country needs: taking deposits, lending, handling business payments and so on. But once finance expands beyond this ideal size and the aforementioned roles – the City of London passed this point long ago – it turns nasty. It reduces economic growth, boosts inequality, distorts the economy and curbs entrepreneurialism and productivity (the UK’s is about 10% below France’s or Germany’s, according to the Organisation for Economic Co-operation and Development). A study by Sheffield University last year estimated that the UK had lost a cumulative £4.5tn in income between 1995 and 2015 due to the City’s bloated size.

The reasons for this “curse” are many but include a drain of talented people into highly paid City jobs from other parts of the economy and from government. People who might have devised cures for Alzheimer’s or led a dynamic, forward-looking political party into power instead get rich as wealth managers to Kazakh oligarchs.

As finance grows, its collective attention turns away from useful activities that help support the creation of wealth towards often more profitable activities extracting it – from other parts of the economy, from the environment and from foreigners. Oversized finance also delivers crippling financial crises. Foreign dirty money flowing into British real estate helps the one-percenters prosper but hurts the UK overall: not just for the reasons above, but by inflating property prices, pushing millions down or off the property ladder, or deeper into mortgage debt. In short, too much finance makes us poorer.

The implications of understanding the finance curse are hopeful – and immense. Growing the City of London by making it more competitive is exactly the wrong goal for us to be pursuing. To prosper, we must shrink it, down to its economy-supporting core.

How? One way is to deliberately deter harmful financial inflows through “smart capital controls”. I don’t mean blocking financial flows at the border: I mean by doing the right thing. Tax billionaires and multinationals effectively, crack down properly on all those who take crooked money from overseas, and implement radical, widespread transparency. In short, the opposite of a tax-haven strategy. Not only will this curb corruption in poorer countries, but the finance curse analysis shows it will make the UK better off overall.

Shrink the City, for prosperity’s sake. We have literally nothing – and no time – to lose.

• Nicholas Shaxson is the author of The Finance Curse: How Global Finance is Making us All Poorer