Manx feel short changed over VAT

There is a sense of shock and betrayal on the Isle of Man

The government in the Isle of Man is facing a £140m hole in its budget - a quarter of its annual spending.

It is all because the UK government has decided to change its Revenue Sharing Agreement (RSA) with the Isle of Man.

That is the system by which the Manx government collects VAT, pays it to the British treasury, and then the UK gives it back again.

The system has worked for many years - but it is about to change.

'Extremely serious'

Basically the UK treasury has decided it has been a little too generous in the amount it has been giving back.

From April the British government will reduce its payments to the Isle of Man by £50m, the same will happen the following year.

Add to that another £40m lost through falling VAT revenue - it means the island will have £140m less income.

The Chief Minister, Tony Brown, has called this development "extremely serious ... unprecedented in our recent history."

He has warned that services will suffer.

Too generous

Some people believe the government has been giving back three times as much as it should.

Richard Murphy, Director of Tax Research UK, says 6% of the UK's GDP is paid as VAT to the treasury.

Using an identical system he says the Isle of Man is being paid a sum three times greater: for every 15p raised in VAT the Isle of Man is being paid 45p by the UK government.

By his calculations the Isle of Man should be getting £115m not £330m.

It is an argument that is rejected on the island.

Betrayal

There is a sense of shock and betrayal on the Isle of Man. The Manx government feels the UK treasury is reneging on their agreement.

And it is the island's people who will be left feeling the pinch.