Christopher Priest wrote A Dream of Wessex (1977) in which southern England, somewhere below London, is separated by an earthquake from the rest of the country and becomes an independent country and tourist attraction while Britain proper becomes a Soviet satellite state. This is a consensual reality created by a bunch of scientists hooked up to a dream machine. Priest doesn't give much history of the place, he's more concerned with describing alternate states of consciousness and the interactions between the dreamers.
I guess you could make this more plausible by having the independent country be the Isle of Wight (in the English Channel off Hampshire), which is 148 square miles and today has a population of 140,000. Say it becomes a financial center/tax haven with computer parks and chip manufacturing facilities. Could work, like Singapore. Let's say you have a totally dysfunctional Labor ruled Britain in the 1960s, people want to go somewhere else. The Isle of Wight is perceived as a safety valve. Let the people who're tired of I'm All Right, Jack, go there. Let the Duchess of Grand Fenwick rule the place.