His warning came amid fears the cash-strapped UK is putting pressure on the Manx Government to revise the Island's VAT sharing arrangements.

It is feared that between £50 million and £100 million of government revenue per year could be in jeopardy under any move to tighten the revenue sharing arrangements under the Customs agreement between the two countries.

Tynwald members have been invited to a special briefing on economic issues of 'considerable importance to the Island' tomorrow (Wednesday) morning.

The Manx Government's current net revenue spending is £572 million.

With the UK public finances deteriorating rapidly, Gordon Brown's administration is anxious to find new sources of tax revenue.

It is understood that one area coming under pressure from the UK is the Customs agreement with the Island, which currently provides more than half — over £300 million — of the Manx Government's income.

Under the terms of the deal, the UK could give two years' notice to terminate the agreement.

The sharing arrangements in which revenues are pooled and distributed to an agreed formula, were last revised only two years ago, when the formula was changed from one based on population to one based on relative economic growth.

Since then, the UK's economy has been hit by the global credit crunch, the banking crisis and recession – with continuing implications on its under-pressure public finances.

Chief Minister Tony Brown declined to comment about the issue. But asked about the impact of the continuing global crisis on the Isle of Man, he said: 'Like other countries, the Isle of Man will face continuing fall-out and knock-on effects from the global financial crisis, which has changed the political and fiscal climate around the world.

'The Island has made great progress internationally, and has developed a resilient economy, but we can't be immune from financial climate change any more than we can be immune from physical climate change.

'The Island community has a good track record of working together to manage the consequences of change, and that gives me confidence for the future.'

WHAT DO YOU THINK?
Send your comments to newsviews@newsiom.co.im

YOUR COMMENTS

This is great news. I have been advocating the abrogation of this agreement for many years. How can a government rely on a foreign power (which is what the UK is) for providing a high proportion of its income, when it has got no means of monitoring whether the arrangement is good, bad or indifferent for the IOM. The cutting of this umbilical cord is long overdue. The is one of the last remnants of colonial rule!
CS

Get real CS. The Isle of Man is British. We're part of the British Isles, we're a Crown Dependency, our currency is the British Pound, the Queen's head is on our currency and stamps, we have British passports. You're living in dream world if you think we are, in any sirgnificant way, independent of Britain, or that we could survive without that link.
JOHN BULL

Yea we'll fill the gap with fishing, farming and tourism. Get real !
SC

Its John Bull who is living in a dream world. The prosperity that this Island has enjoyed for the last 20 years is down to one thing and that is the finance sector. In the new world that we are now living in do you think that the UK, EU and Obama are going to put up with the leakage of revenue to low tax areas? None of them will be satisfied until the IOM is part of Lancashire! The Channel Islands do not have this common purse link and would never want it. If we are not careful the whole of our economy is going to go down the tubes big time!
CS

What sort of island does CS live on? Get a grip on reality CS? The Isle of Man cannot survive on its own. That is a fact. The UK is not a foreign power, fact. The Channel Islands are a totally different ball game and cannot ever be compared to the Isle of Man in any shape or form. The Isle of Man only depends on the financial sector. If the Isle of Man became independent of UK, what does CS think would happen? And how long does CS think the island would last on its own? Not long, I am afraid. The first thing that would disappear would be the very financial sector that CS thinks is what makes the Isle of Man. What else is left to offer? Tourists don't come in their droves anymore it is too expensive to get here. Farming, not a great deal of that around, and cannot offer the type of employment that would rise after the financial sector had pulled out.
REALISTIC

It would be interesting to see what happens if this link is taken away. 300 million pounds out of the Island purse is one heck of a lot of cash when you look at the current finance of the Island. Government departments are being kept back on their budgets basically because of lack of cash. So what would happen if the 300 million wasn't there to support the Island economy? How would the IOM Gov fill this gap? Would they have to increase taxation? If so then it's the common man on the street that would be hit. If they had their own Customs rates applied how much would they actually get as we would all be coming through the UK to get home from our foreign travel, so would already have any customs checks already in place. So would this in fact be a kind of double taxation on the man on the street, who already has to put up with heavy duty on fuel costs and other items imported to the Island. Would the taxation be on all items imported to the Island then? If so then you think that the cost of living on the Island would be improved? Sorry but I don't think so. This would put pressure on the Interest rate, as this takes into account the cost of living, and if it does go up then the cost to employers increase as they would have problems with pay increases. Would this then make the Island a great place to come for a financial business when there is the Channel Islands already there with a stable environment for finance? If I ran a finance company and already had an office in the Channel Islands then that's where I would go to expand. Why come to a place where you have increased costs? This has a bigger impact than I think CS has really thought about. It really could put a huge amount of pressure on the Island economy and together with the global financial situation appearing to be slow to recover, the Island could be in trouble. So that's the Customs cash possibly going and also the Heath Service agreement that they have already removed, what next? Any guesses?
D

Both "JOHN BULL" and "REALISTIC" are completely missing the point. Abrogation of the common purse agreement does not mean that there would be a black hole of £300m or whatever comes in from that agreement because the IOM would collect all of its own VAT and duties. All UK businesses that trade on the IOM would pay VAT in Douglas rather than to Southend. One fault that has always existed with this agreement is that the Manx Government have got no idea who is getting the better deal, the IOM or the UK. We have no means of monitoring it. In 1982 I was told by a very senior retired member of the UK Board of Customs and Excise who had retired to the IOM that the only reason that the UK Government went along with the agreement was because they believed they benefitted from it. Perhaps they now believe that is not the case. The Isle of Man has no control of what rates of duty or VAT are charged, as was illustrated last year when the UK reduced VAT to 15%. The IOM cannot use the tool of VAT to raise revenue because under the agreement it is fixed by the UK without consultation. If there is a shortfall between what is paid to the IOM under the present agreement and what would be collected in the IOM if we abrogated the agreement, this would mean that the UK had been subsidising the IOM. Why should the UK do this? Turning now to the constitutional position mentioned by "REALISTIC" he is totally wrong as a matter of constitutional law. The three British Crown Dependencies. Jersey, Guernsey and the IOM have an identical constitutional relationship with the UK. Where they do differ from the IOM is not in their constitutional relationship but in their attitude. They raise 100% of their income and are proud of it, whereas the IOM raises less than 50% being reliant for the balance to be handed out by the UK pursuant to an outdated agreement. They do not have a national anthem and do not call themselves a nation, but when the chips are down they will have a more nationalistic sense of dealing with a crisis than the IOM. The IOM needs to grow up and stand on its own two feet rather than winging and moaning every time the UK threaten some kind of action which they think may be unpalatable.
CS

In view of the implications mentioned in the article,perhaps Tynwald should seek to assess accurately(note) how much VAT the Island actually does receive in net contribution back from the UK,and should investigate the implications of abrogation of the common purse agreement,and explore measures that might be needed to redress any imbalance so caused.. I would suggest that quite a reasonable proportion of VAT paid by Manx individuals, is actually paid direct to UK companies,or whilst visiting the the UK itself.
BRIAN

When will Brown, Bell and Co get some guts and stop letting the UK Gov slowly destroy the Island. They have been bullied by Darling and his henchmen into taking all responsibility for the KSF scandal, lost the healthcare agreement, now the lost VAT revenue. The plan being to beat the IOM into submission and have to go cap in hand to the UK and probably wind up being part of the Uk in all but name. The sooner they realise that the UK, EU, and Obama are on a mission the better.
ANGRY MANX EXPAT.

The polititions know what's coming, that is why we are seeing the drip drip of PR coming out at present. Deals have been done, those in power are preparing the way so when it all goes pear shaped they can say "don't blame us its that nasty Westminster mob who have taken our livelihood away". If you were running the UK Government, managing a country of 60million, facing a general election, wouldn't you consider the no doubt popular option of hitting the tax havens (who can't even vote for you) hard.
SC

According to your article from the 18th of May, the Isle of Man is a net contributor to the Common Purse Arrangement, so I don't understand why we risk losing revenue. If we are receiving less than we are contributing, isn't it the UK that risks losing revenue by cancelling this agreement rather than the Isle of Man?
MARC

What comes out of this is there needs to be an informed public debate on the whole issue. It is too important an issue to leave solely to politicians to determine. Nobody can make a proper judgment without facts. The IOM Government need as a start to establish how much VAT all of the Island businesses pay, including those UK businesses that trade here. The same applies to duties. Once this information is known we should then be in a position to make some sort of informed and intelligent view on the whole issue.
CS

I have read all the arguements on this page on how to sort these problems which are now rearing their heads, IE VAT, Customs Agreements, Health Care Agreements. It seems Tynwald has given up the ghost on the Health Care part,which years ago was an accepted part of our partnership with the UK,the VAT and Customs Agreement well that has finally come to the surface at last. In the 50s and 60s there was great debates on the Customs Agreement,the man in the street wanted it abrogated because at that time there were over three quarters of a million people coming here during the summer,the thought was that if we were duty free,what a volume of trade it would generate,and increase the numbers of visitors coming here,the words " Come abroad to the Isle of Man " were used. The papers were full of it at the time,but our political masters thought that the money we got from this agreement was good enough,and there was no need to cut the umbilical cord,well the visitors were coming in droves anyway,and they come back every year,and will continue to do so won't they, so everything is alright then,there was no dream that they would haemorrhage like they did to Spain etc.
Now it looks like the cord is being cut for us by the UK,this now will show up the true metal of the Manx Government,can they handle this event if it comes off,their current attitude to the Health Agreement of just giving up is a sign of how good these amateur politicians are,they are not bad on parish pump things,well some things,but when it comes to the big boys game.
EORH

CS is quite right , its long overdue. Why should the UK support the Isle of Man when you say you are a member of the british Isles. Remember you are a member when you want to be and disassociate yourself from the UK when it suits you! You have had it to good for too long and now its time for you to stand up for yourself / you can't have your cake and eat it! I'd like to see how the Government Officials get out of jail on this one. Having lived on the Island For 30 years and from what I could see with my time on the Island it was Run by a few for a few! Happily I'm no longer on the Rock, what with petrol prices 20p a gallon dearer that the UK, / Gas and Electric Dearer than the UK / bread and milk dearer than the UK, / ewhy would anyone really want to live there and be ripped off left right and centre. Good on you CS. You have my support.
TW

I have read all of these comments with interest, and while not necessarily an advocate of either, CS does put forward a strong point. It is not that the Isle of Man would loose income; it is what income it could generate if it were to create its own 'VAT' and what percentage it would need to charge to create the income it currently does within the present agreement. I would say though that the Channel Islands are not in any different scenario the IOM, in fact they are in a worse position, as neither of them have the funding in place to currently support themselves. Jersey has introduced a goods and services tax, and still does not know how truly it will fill its' black hole', and Guernsey is in an even greater predicament. Each week in the paper there are new ideas about how to resolve it, and non are anything but robbing Peter to pay Paul. As a Manxman living in Jersey, it is a lot more expense here than it is in the Isle of Man, both from indirect and direct taxation. The recent questions being asked over Zero ten, which is what has caused the Channel Islands the problems they have, I think will have the biggest impact on all of the crown dependencies in the future, and how this is dealt with. If it is not possible to continue with this, then a Company tax will have to be implemented, which will booster coffers, and maybe create a far more benefit for the Isle of Man to remove the agreement with the UK regarding VAT and then be 100% responsible for the raising of its income.
MANXMAN IN JERSEY

As a consultant to the gambling industry we have always had a problem attracting companies to the IOM due to VAT. They prefer to go to Alderney where there is no VAT so if IOM had its own sales or VAT rates then the island could create a lot more jobs through Internet gambling. From reading the news it would seem that no one really knows how big the hole is. Chief Minister says between £50m to £100m quite a big margin. Such figures probably equate to £2,000 a year per person.
PSM