VAT Sharing Arrangement Amendment
It has been revealed that the Revenue Sharing Arrangement within the Customs and Excise Agreement with the United Kingdom will undergo further revision resulting in the island's annual revenues falling by about a fifth.
Isle of Man Chief Minister Tony Brown told Tynwald, the Manx parliament, that the Isle of Man had been plunged into an "unprecedented" financial crisis after the UK announced it would reduce £140m off the Island's annual budget of £572m.
It was revealed that from April 2010, there will be a reduction of at least £50m for the year and a further £50million per year from April 2011.
This is in addition to the already projected loss of income, due to the performance of the UK economy and the decision made by the UK Government in 2008 to lower the rate of VAT to 15%, both of which will result in lower receipts to the Island.
As a consequence of these factors it is anticipated that the Isle of Man will receive some £30million to £40million less than previously estimated and for the financial year 2010-2011 the Island faces a total reduction of approximately £90million in relation to revenue income from the Revenue Sharing Arrangement, from that previously estimated, increasing to £140million in subsequent years.
The Isle of Man, which is not in recession and which relies on VAT as an important source of income, had previously suffered a decline in its revenues following the UK's decision to lower VAT to 15% in order to stimulate the UK economy.
It is however a welcome sign that the Isle of Man Government is looking at methods to reduce spending with an open mind in dealing with the balancing of the financial shortfall. The Island also has healthy levels of financial reserves which may be called upon in the short term to protect the most important services provided.
And while the changes are undoubtedly a serious issue for the Isle of Man's economy and political leaders in the short term, there are aspects to the loosening of its financial ties with the UK that could benefit the Isle of Man over the longer term.
23rd October 2009
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