Treasury minister, Anne Craine, announced the deal to the Isle of Man parliament, Tynwald, yesterday (Tuesday 12 July) after ten months of negotiations. The deal will see the Isle of Man lose annual revenue of £30m in the current 2011/12 financial year, £50m in 2012/13 and £75m, thereafter. This takes into account a number of transitional payments to the Island.
Craine said that the UK Treasury was prepared to terminate the customs agreement unless it achieved what it regarded as a more fair and equitable revenue sharing agreement. She added that losing the agreement would have led to the imposition of customs barriers between the Isle of Man and the UK, which would have been bad for local businesses and residents.
The new revenue sharing formula looks at individual economic sectors and whether or not they are VAT exempt, rather than being based on total national income as previously agreed.
This is not the first time the UK has clawed back income from the island. In 2009, it changed its Revenue Sharing Agreement with the island, leaving the Manx economy with £140m hole in its budget.
