Those who argue with my analysis of the Isle of Man's VAT subsidy from the UK keep saying that I'm wrong because the revised Common Purse Agreement that gives rise to this £200 million plus subsidy a year was revised in 2007, and so the sum will be going down soon.
So I looked at the detailed budget for the Isle of Man for 2009/10 published this week for evidence that this might happen. It's here. Look at page 38.
In 2007/08 the Isle of Man had VAT receipts of £338 million - 56% of government income
In 2008/09 the figure is expected to be £338 million - 56% of government income.
In 2009/10 it is expected to be £292 million - 51% of government income from all sources.
So it has fallen - but not for the reason predicted. The VAT rate in the Isle of Man is, of course, set by the UK. So the fall from 17.5% to 15% cut this major source of revenue for the Manx Treasury. In fact, multiply £338 million by 15/17.5 and the answer is £290 million. In other words everything is carrying on as before.
The Common Purse Agreement is without doubt giving rise to subsidies to the Isle of Man exceeding £200 million a year.
Amazing, isn't it? I can think of 200 million better uses for that right now. None are in the Isle of Man.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Creg – have you done any analysis on Richard’s Common Purse Agreement numbers ? I have and I cannot fault them (unfortunately !) so I would like to hear what a Manxie has to say about it.
Couldn’t find it on page 38, but on page 15 these
VAT receipts and total incomes are stated:
2007-8 £338m actual (Income £598m actual) =56%
2008-9 £313m probable (Income £587m probable) =53%
2009-10 £293m estimate (Income £572m estimate) =51%
Your basic argument still pertains
Yep, I’m at a loss to explain why this carries on as well. How is the UK benefitting from this arrangement? If there is a swing here.. is there a roundabout somewhere else?
Richard,
I think you are missing a vital point here – the nature of the Isle of Man’s economy – by far the majority of consumption is imported from the UK.
Gross Domestic Product only accounts for local Consumption, Investment and Government activity and Exports removes all imports from its calculation. I = C + I + G + (X-M)
Let me give you a simple example. An Island consisting entirely of retirees who are simply running down their savings. No Investments, No Government spending, the economy consists of just the consumption of these people buying imports.
GDP = C + I + G +(X-M)
In this simplified example the GDP is ZERO – no economic activity occurs on the Island, it is all imported in – the consumption is netted out by identical imports. BUT the retirees have still spent lots of money buying the goods – and hence have to pay VAT.
This is collected and sent to the big common purse which then remits it back.
At todays VAT rate, the retirees get back 15% of their consumption (ignoring exempt items etc!) – but that is an infinite percentage of the GDP which is ZERO – there is no net economic activity on the Island.
You are totally incorrect in saying that VAT as a percentage of GDP cannot be more than VAT rate – that totally ignores imports.
Given this your calculations are extremely disengenuous. No Cars, few domestic goods, etc etc are produced on the Island, but the Manx people pay out VAT to import them. That is I think PJM’s point, and it is most definitely mine.
The IOM does not track imports or exports – it calculates National Income using the income approach. Hence trying to use GDP to understand VAT reciepts is entirely pointless.
Regards
Chinahand
I guess my prior attempt to post this didn’t work..
Please have a look at this story, http://www.iomtoday.co.im/isle-of-man-business/UK-doesn39t-subsidise-the-Isle.5275582.jp and let us know if anything has changed in your opinion about the Isle of Man, the United Kingdom and VAT.