Perhaps the only advantage Britain has in DH. Apart from tech-teams and leaders.
This is, I think, a left-over from HOI2, where this was modeled to support the general theory that even if the home islands were conquered in 1940, (as unlikely as it was), the British Empire would not surrender. At least this was Churchill's imperative...
"We shall never surrender and even if, which I do not for the moment believe, this island or a large part of it were subjugated and starving, then our empire beyond the seas, armed and guarded by the British Fleet, will carry on the struggle until in God's good time the New World with all its power and might, sets forth to the liberation and rescue of the Old."
This is better modeled by surrender/peace events with % of VP taken (like China in CCIP, for instance), to be honest.
Okay so I've occupied the British Isles, released England, Scottland and Ireland; Canada and S. Africa have been annexed and Australia is totally occupied. Yet we're still at war with the UK. How? What are they even supposed to be, with their 4 IC? I'd think once you take the British Isles the UK should more or less cease to exist, why should its 'victory points' in Egypt prevent it from being annexed? I am pretty sure that if the Kaiser had overrun England and totally replaced the government that the UK would cease to exist, even if Canada was still around. It just doesn't seem logical that Dijibouti's unoccupied status should prevent anyone from annexing the UK.
I guess maybe this is to prevent the annexation of the UK from being super-easy, but the real reason was that no one could actually stage the invasion; not because they owned some worthless provinces in the Himalayas.
It's actually perfectly logical from a thereotical perspective. Disregarding the home islands, Britain possessed very strong forces overseas (the British Indian Army being the largest volunteer Army in world history - and don't even mention the Navy) and a serious resource/industrial base in certain colonies, although it did lack manufacturing (all of the serious shipyards being in Britain.)
Bear in mind there is no "United Kingdom" in HOI2 or DH. This is a really silly thing for me to get petty about, but it was only after 1946 was Britain really was referred to as the United Kingdom in foreign affairs (although that was evidently it's long-form conventional beforehand). Before that it was more commonly Great Britain, the British Empire, etc etc. You are not just fighting the United Kingdom and her dominion puppets; in fact you are fighting the whole of the British Empire, including sizeable colonies such as Kenya and Malaya and indeed Egypt, not to mention India. It really annoys me that HOI2 modders and developers continue to name the country "United Kingdom" because it plainly is not (and the tag is ENG, lol.)