25 years’ dependence on VAT

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The issue of the VAT sharing agreement with the UK has to be the major issue at the coming general election for the House of Keys.

The present Manx government must provide the public with sufficient information that will enable them to question the candidates in the election as to what their view is on this vitally important subject.

Allan Bell has already fired a warning shot by saying that the next five years are going to be exceptionally tough for the island. It is bad enough with the original loss of £114 million (as quoted in the Examiner) per annum forever but if there is another large sum on top of this is lost it will have a catastrophic effect on the Manx economy.

We have to now consider if this revenue-sharing arrangement is worth retaining.

The problem is that under this arrangement we do not have any real negotiating power. Under the terms of the Isle of Man Act of 1979 (an Act of the UK Parliament) the amount that the island receives shall be determined by HM Commissioners of Customs and Excise.

The British Government is now committed to a policy announced in House of Commons last year by David Gauke, the UK Exchequer Secretary, that the island should not receive more from the arrangement than it would receive if it collected it locally.

From the UK point of view you cannot fault that argument.

Mr Gauke’s statement last year must have been the clearest sign that the UK really want to see the back of this arrangement and for the island to be brought into line with the other Crown Dependencies of Jersey and Guernsey who are responsible for the generation and collection of 100 per cent of their income.

The problem that we face is that over the last 25 years the island has built up a total reliance on VAT as a source of income. Hitherto it has produced about 65 per cent of government revenue.

Contrast this with Guernsey, where income and company taxes provide about 95 per cent of their revenue.

With the loss of £114 million already there needs to be a rebalancing of the Manx economy away from indirect taxation controlled by UK to an economy where the Manx Government truly control all of the revenue raising functions.

In reality the loss of income that we have already sustained, plus any additional loss, has to result in a substantial cut in the number of people employed by government and in a reduction of services and possibly a rethink on the whole direct tax structure.

It is likely that once the international rating agencies become aware of what is, in effect, an acute cash-flow problem, our current ratings will be under threat.

Two years ago, when the UK took the first bite of the cherry, it followed Tony Brown and other ministers shouting from the rooftops about how buoyant the Manx economy was and that the recession was not hitting us.

That was a naive and bad move. It merely meant that it gave the UK Government a chance to see how they could get a slice of our prosperity!

The Isle of Man Government had no public mandate to cave in in the way that they did, behind closed doors without a public debate.

They should have called the UK’s bluff and given them two years’ notice of abrogating the agreement.

We would then have been nearly £220 million better off, as under the agreement the UK would not have been able to reduce the amount we receive during the two-year abrogation period.

During this period we could then have organised ourselves to collect and control our own indirect taxation.

The outgoing Manx government must not be allowed to agree to anything with the UK prior to the outcome of our General Election. It does not have a mandate to do so.

It should be for a new administration, in consultation with the public, to determine where we go from here as it affects the whole population and not just a group of people sitting in the Tynwald Chamber!

Colin Slinn

Union Mills

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