Prof Davidson offers some sound comments on VAT

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PROFESSOR Hugh Davidson offers some very sound comments in his open letter to the Chief Minister on the possible further reduction of the island’s VAT receipts (Examiner, July 5, 2011).

There is an enormous amount at stake for the Isle of Man. We lost over 20 per cent of our income in the VAT revenue sharing changes announced in 2009. This has the potential to put our entire economic model in turmoil. Any further undermining of our economy needs to be challenged. Professor Davidson sends out the rallying call: ‘It is time to fight back.’

It is certainly time for some very clear thinking and a strategic approach to negotiations with the UK. I would support the professor’s call for:

i) a delay in negotiations until the new Manx government is in place,

ii) a meeting of our Chief Minister with the UK Prime Minister to discuss the actions of the UK Government and the deteriorating relationship,

iii) the establishment of ground rules for any future discussions.

It is not time to talk about how the VAT agreement has been a ‘very, very good deal’ for the Isle of Man in the past. It is time to marshal every argument at our disposal to prevent further damage.

I would like to offer three additional arguments.

1. The Isle of Man budget in February recorded that our VAT receipts last year amounted to £255 million. The government accounts published in May indicated that the amount of VAT ‘collected in the Isle of Man’ last year was nearly £623 million (up from £416 million the previous year). There is considerable lack of clarity about what would constitute a fair sharing of the VAT pool. This is even before we add the further uncertainty over how much the island’s residents and government purchased off-island last year, and hence contributed towards VAT for the UK. Further research is needed before any change can be agreed.

2. The 1973 Report of the Royal Commission on the Constitution (known as the Kilbrandon Report), establishes that the Crown has ‘ultimate responsibility for the good government’ of the Isle of Man. Given the destabilising scale of the changes announced in 2009, how can any further changes be considered by the UK without constituting evidence of a complete dereliction of its responsibility?

3. We are told the UK’s position is that ‘the Isle of Man should receive no more VAT revenue than it would collect if it were an independent state’. The Crown Estates have completed Round 3 of leasing to make areas of seabed available for offshore wind farms. The energy giant Centrica (the parent company of British Gas) has been given permission to develop an enormous area between the Isle of Man and Anglesey.

By my estimate, 30 to 40 per cent of that area is nearer to the Isle of Man than to the UK.

If the Isle of Man is to be treated ‘as if it were an independent state’ for VAT purposes, would it not seem appropriate that area of the seabed nearer to the Isle of Man than the UK should be treated as the island’s exclusive economic zone, as it surely would be if we were an independent state for maritime purposes?

Picking and choosing when to treat us as if we were an independent state should not be an option open to the UK government.


House of Keys candidate for Middle.

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