The UK has become a bully in relation to the Isle of Man. It is time to fight back

OPEN LETTER: Professor Hugh Davidson has written to the chief minister

OPEN LETTER: Professor Hugh Davidson has written to the chief minister

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MARKETING expert Professor Hugh Davidson struck a chord this week following the publication of an open letter to the Chief Minister in the Isle of Man Examiner.

The letter, which suggests the UK has become a bully and it is time for the Isle of Man to fight back, has provoked much discussion, including a string of letters to Isle of Man Newspapers in response to his rallying call.

The letter is reproduced in full below .

Please record your response through the online commenting system and read what people are saying about it in the letters section of next week’s Isle of Man Examiner - in shops from Monday afternoon.


Dear Chief Minister,

You stated in the June 21 Isle of Man Examiner that, on the latest UK VAT Raid, the UK ‘have put forward a figure they believe is the level we should get’, and, ‘we want any conclusions to take place the sooner the better’.

What’s the hurry? The UK has spent 25 years discussing and defending its £2billion annual rebate from the EU.

It sounds as if you have already decided to concede, and that the only question is ‘how much’. If so, many would find such a cave-in intolerable, following the UK’s shabby freezing of £550 million of Kaupthing IOM’s assets, the attempted unilateral cancellation of the Reciprocal Health Agreement, and the first swingeing VAT raid in 2009.

The UK has become a big country bully in relation to the Isle of Man. It is time to fight back, and to demonstrate not only the island’s resilience and resourcefulness, but also its courage and imagination, as demonstrated with the Reciprocal Health Agreement.

Bullies, whether countries or individuals, always try it on again if there is little resistance, and the UK government is proving this point.

The first VAT raid, which may have cost the island £140 million a year, was imposed by the UK using duress, ultimatums and the threat to abrogate the Customs and Excise Agreement.

There is no reason why ambitious UK Treasury directors should continue to advance their careers at the island’s expense.

The UK Treasury team seems to have unilaterally decided on a figure it wants, and despite losing most arguments with our talented civil servants, just insists: ‘This is what we want’. It’s more Mafia than Viking. Is their ultimate agenda to force the island to raise taxes?

Let’s put the last VAT raid in perspective. £140 million is 25 per cent of net government spending, equal to our Education and Home Affairs budget and over £3,000 per Manx household.

The equivalent figure for the UK, would be over £100 billion! While £140 million is massive to the Isle of Man, it is peanuts to the UK – hardly a footnote in its balance sheet. In such an exercise, the gain to the UK would only be £4 per household.

This is already the island’s most severe economic setback in two centuries.

It remains doubtful how we can best survive it.

The cuts needed are massive, will cause real pain, and be very difficult to apply politically. Even without further VAT setbacks, as Nick Verardi, President of the Chamber of Commerce, said in The Examiner last week, ‘We are not yet balancing our books, and do not look like doing so any time soon.’

We may need 10 years to recover from the first VAT blow without now facing another.

It is therefore shocking and unethical that the UK should be pressing for more of our money. With its insensitive approach, the UK risks stunting a successful and self-reliant small community, which exhibits many of the elements of Mr Cameron’s much-vaunted ‘Big Society’.

After much thought here are some concise suggestions for action which I hope you will consider:

1. It is questionable whether this Isle of Man government has the moral authority to bind the island to onerous long-term agreements when it has only three months left to run, and there may be a new chief minister by October 2011. For this sound democratic reason, the island should tell the UK that it is withdrawing from all negotiations on VAT until January 2012, when a new and more representative Manx government could consider the position.

2. You could insist on a personal meeting with David Cameron, since you are a head of government, to discuss two topics:

First the arrogant and disrespectful manner in which UK Treasury officials are conducting the VAT raid, for which it might be worth raising a formal complaint.

It is also important to establish whether these officials have a genuine brief from Mr Cameron to threaten abrogation, and whether he has been made aware of the wider political and economic implications. You should demand to see a copy of their brief, and the level of approval it has received.

Second the deteriorating relationship between the UK and the Isle of Man, now at its worst level than for many decades, and the need to establish a Commission of Enquiry to examine how this can be improved. This could be led by an independent chair, such as a senior Danish or Norwegian judge, and be jointly funded by both governments. This commission could also consider the VAT issue.

It would be even better to invite Mr Cameron and Mr Osborne to visit, and see ‘The Big Society’ working.

3. Establish new and fairer ground rules for any future VAT discussions.

First the UK should cease using threats as a negotiating tool. Abrogation would probably be bad for the Isle of Man, and certainly bad for the UK.

It could cripple our industry, and undermine our economy. A weak Isle of Man economy would not be in the UK’s interest, since it would drastically reduce the massive net financing – over £100 billion a year – from the Isle of Man to UK banks, and the UK would lose all VAT on exports to the island – a loss/loss situation.

Second, the ground rule that ‘the IOM should receive no more VAT revenue than we would collect if we were independent’ (with which I think you disagree) seems flawed and narrow.

It should be broadened to a concept of balance of payments and obligations between the two countries.

Our massive net financing of the City of London is one aspect. We also pay the UK over £10 million for educating our graduates, most of whom then become an asset to the UK work force. Manx people buy goods from UK and on the internet. There are other less tangible aspects in balances of obligations; over the last century we have provided more armed forces per capita from Alamein to Kosovo to Afghanistan than almost any region of the British Isles. That is why Mr Cameron should be involved in any discussions.

4. Since the Isle of Man public has never been consulted on the VAT issue, and you therefore have no franchise for change, it would seem fair to put to a Referendum any proposal for major transfer of funds to the UK, as was done in Iceland.

These funds do not belong to the Isle of Man government. They belong to every individual in the island who will have to suffer the consequences of their loss.

If the UK Government proposed transferring £100 billion to another country, don’t you think there would be a referendum?

In the three decades since you became an MHK, both the economy and quality of life in the island have been transformed, until now, and you have made a significant contribution to this. However, as I am sure you are aware, there is now a serious risk that this fine achievement will unwind.

I am so incensed at the UK’s latest VAT raid that, in order to increase transparency and help make the voice of Manx people heard more clearly, I have commissioned, at personal expense, a leading UK research company to conduct authoritative political polling in the island. Details will be announced late on July 11, and results published from mid August 2011.

Hugh Davidson

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