Crunch time on VAT deal looms

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THE island could find out next week about the size of the latest VAT bombshell.

Treasury Minister Anne Craine MHK will give an update to Tynwald on the Customs and Excise revenue sharing arrangement.

Chief Minister Tony Brown MHK revealed in an exclusive interview with the Examiner in May that the UK was pressing for more changes to the VAT deal which he said could mean ‘significant’ reduction in government revenue.

The government lost 25 per cent of its income following the UK’s last forced revision of the revenue sharing arrangement in October 2009 – and our public finances are still reeling from that bombshell.

In previous years revenue from the Customs agreement had provided more than half – over £300 million – of the government’s income. The last VAT bombshell resulted in a loss of £114 million in the current financial year. The loss had originally been expected to be higher still but it was reduced by £25 million thanks to the increase in the VAT rate to 20 per cent.

This cut in revenue has led to a big squeeze on spending although ministers have pledged to protect frontline services.

Mr Brown has said the UK has made its intentions clear that the island should receive no more VAT than it would collect if we were independent – a stance opposed by the Manx government, which says it doesn’t take into account money expended in the UK by island residents, including the government.

Ministers have so far declined to give a figure on how much revenue we could be set to lose.

But Mr Brown said the negotiations with the UK needed to be concluded as soon as possible as the situation was creating ‘uncertainty’.

It now looks that those negotiations are close to being finalised.

And it is understood that a figure for the expected loss in revenue could be included in Mrs Craine’s Tynwald update next week.

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