Three weeks ago I suggested that the Isle of Man would be restating its income data when new information was published.
And now that data has been published.
And the Isle of Man has, as I predicted, restated the basis on which its income is calculated. As it says:
The Treasury has released the Isle of Man National Income Accounts for 2008/09.
National income provides a measure of the income generated through economic activity over the course of the year.
The accounts rely principally on data derived from personal and company income tax records and this explains the gap between when the results are produced and the year in which they relate.
This latest report on the accounts takes on a different look this year, a result of some significant changes to how the figures are calculated.
And the consequence:
The 2008/09 accounts reveal that the Island’s economy (as measured by gross domestic product, GDP) grew by 11.6% in current values or by 4.7% in real terms in the year. Other key results are:
‚Ä¢ IOM GDP is over £3.1bn
• there was real growth of 57% in the ICT sector, driven by the development of the e-gaming sub-sector
• the banking sector expanded by over a fifth, despite the onset of the global financial crisis
• there was a 30% increase in the size of the transport and communication sector
• there was growth above the national average in insurance, CSP and professional services
• there was some contraction in engineering and general manufacturing
• it was a difficult year for retailing and for tourism and related industries.
Candidly, much of that data is implausible.
And let’s look at the impact of the change:
That’s a GDP jump of 50% in a year.
And why have they done this? Well, let me remind you of a little problem the Isle of Man has: it’s called its VAT black hole. In October 2009 the massive VAT subsidy the UK gave to the Isle of Man each year, amounting to some £180 million to £200 million a year was reduced by £140 million a year by changing the basis of calculation. According to many, including many politicians in the Isle of Man this happened as a result of my having drawn attention to the issue on my blog — and I’ll unashamedly accept credit for that. I was just about the only person to ever write on this issue so it seems highly likely that this story is true.
But it is important to then note how the split of VAT receipts between the UK and the Isle of Man is calculated: I’ve put the sample calculation on line, here.
The calculation starts by comparing national incomes. So what has the Isle of Man done? It’s restated its national income, not just a bit, but by inflating it enormously. And since the UK’s national income has taken a bit of a hit of late the result will be a massive shift of resources to the IoM.
Broadly speaking the uplift in national income under the Isle of Man’s new method is about 27% inn the year when they have published both versions (2007/08, here). The impact on the sample calculation is massive. Just slotting the 2008/09 data into the sample calculation increases the amount payable to the Isle of Man by £62.8 million.
That is £62.8 million that it is not owed.
That is £62.8 million of lost services in the UK.
That is £62.8 million claimed by changing the books.
And there is only one answer the UK can make in response — and that is to demand another revision to the calculation basis.
As I showed in November 2009, the UK was still subsidising the Isle of Man by at least £40 million a year after the last revision. With the current trickery added in that will increase to £100 million.
When the UK can’t afford universal child benefits the last thing it can afford is to subsidise the wealthier population of the Isle of Man who with this latest change in their system to seek, as ever, to abuse the rules, show how undeserving they are.
This subsidy has to be withdrawn once and for all, now.
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:
Buy me a coffee!
Well this simply looks as though the method of calculation has been changed to fall in line with the UK. The bit you didn’t quote says “The changes have come about as a consequence of Treasury, with the assistance of the UK Office for National Statistics (the body which produces the UK’s national income figures), having modernised its methods in the compilation of the accounts, to bring practice into line with European standards.” Perhaps this means under the old method the Island was being short changed. Any chance of some retrospective compensation?
@woolley
Candidly – I don’t believe the spin
I suspect the UK involvement was really rather small – and a very useful cover
In suspect they’ll even be quite surprised to find they’e blamed
Why do they get anything at all ?
Surely they can levy their own vat however it suits them ?
They don’t seem to be starving so why cut them a cheque at all ?
@catsick
Well in 1911 it was a welfare benefit for the poor
But I gather those are out of fashion now
Well the impact of the £140million cut is starting to take its toll. We have had to cut some swimming lessons to children. If a child falls in Douglas Harbour and drowns that won’t be very nice will it.
@AlbieR
We don’t have free swimming lessons either
And it’s the RNLI who saves lives in Douglas Harbour – I know – I’m a life governor
And it’s voluntary aided, entirely
In the Alice in Wonderland world of smoke and mirrors that is the Isle of Man government no one can rely on a word (or figure) it publishes and resources put into complaints about the island’s financial services industry are largely spent on burial rather than investigation.
Meanwhile the island’s multi-million PR sweetness-and-light campaign continues to mislead even quite intelligent people.
The government is immoral and eventually the truth will out.
‘Perhaps it hasn’t one,’ Alice ventured to remark.
“‘Tut, tut, child!’ said the Duchess. ‘Everything’s got a moral, if only you can find it.'”
Lewis Carroll – Alice in Wonderland – Ch. 9
Is this actually true Richard? I read a very thorough rebuttal to this on Manx Forums. The author accuses you of not comparing apples with apples and states that you have deliberately compared the unrevised, unmodernized figures upto 2007/08 with the modernized figure for 2008/09 even though they were prepared under a totally different methodology. I would be very interested to hear your answer to this as you now stand accused of juggling the figures yourself.
@Don-1
All I did was compare the originally published figures for each year
What on earth can be wrong with that?
To say that’s fiddling would be absurd
All I did was use the Isle of Man government’s own data as published by them as authoritative at the time they put it into circulation
That is the best evidence there is, surely?
Anything else would be a fiddle
I did not fiddle – one bit
The article suggests otherwise. Amongst other things it states, “There has been a three step process – there were the original GDP estimates published shortly after the year end; then later a more accurate revised estimate; and now a new modernized methodology.
They’ve published a table showing the original and revised estimates going back to 2001/02. While with the new methodology they’ve not gone back and restated all the years, but they have for 2007/08 – the new methodology shows the IOM economy in 2007/08 was 25.7% bigger than originally recorded.
So Mr Murphy’s figure should have looked like this:
(A graph that looks somewhat different to your own)
He’s deliberately compared the unrevised, unmodernized figures upto 2007/08 with the modernized figure for 2008/09 even though they were prepared under a totally different methodology.
Also prior to the VAT changes it was even more in the IOM’s interests to overstate the GDP figures than it is now.
So the net effect is that the IoM are now using the correct way of calculation (advised by the UK and in accordance with EU standards) and the UK now owe them money.
No, Mr Murphy, you did not exactly “fiddle” but I think you are dissembling. More specifically, you are making the wrong comparison. Whether the revised methodology increases the Isle of Man’s income by £62.8 million or £628 million is beside the point. The issue is whether the new methodology is the correct one — in other words, whether the Isle of Man’s GDP is now calculated in the same way as the UK’s for the purposes of revenue sharing. Do you happen to know whether this is the case?
@Don-1
The article can suggest what it likes
I think a consistent comparison of first published data the most objective comparison possible – and cannot see how any objective observer could disagree
So very candidly, I suggest the commentator is happily spinning incorrect comparisons when I have sought the only consistency that can be found
@JohnBuckles
Nonsense
The IoM published the old data in good faith
And assuming the new data is correct (and it is open to the UK to challenge that) then it suggests the IoM renegotiated the common purse agreement in bad faith – knowing a revision in its favour was possible
Which, to bring me back to the point I am making means that the UK is now at liberty to renegotiate again
And I sincerely hope it does
Which I think an entirely reasonable comment to make
Just trying to summarise the current position! Have the IoM press been onto you yet for comments?
Isle of Man Treasury release concerning these accounts has it thus:
Over the last twelve months the Isle of Man Treasury has worked with the United Kingdom Office for National Statistics (ONS), the authority responsible for the production of the UK national income accounts, to update its national income methodology using ESA standards and to improve data coverage. The accounts reported here are the outcome of this work.
So, Richard, you would appear to be suggesting that the UK Office for National Statistics colluded with the Island in producing implausible data.
@Richard Murphy
now this may sound odd,
but if they new the figures could be made to look better to renegotiate.
then why did they not use them figures in the first place.
And if the new figures are in line with the UKs way of deciding the GDP, and They have under valued there GDP then the UK could well owe the IOM back payment on new figures that are in line with there own
@Richard Murphy
Richard, having read the rebuttal on Manx Forums you would have to do a little better than that to convince me. You offer no evidence for your premise that the author is, “spinning incorrect comparisons”. The author of the article however makes a very clear case to prove that you have been (at the very least) extremely disingenuous in your manipulation of the facts and figures.
Richard – this is akin to companies changing from GAAP to IFRS a few years ago. Material profits of the companies did not suddenly jump/slide, profit is only an estimation in much the same way GDP is – governments use models to predict and should update their models when they become outdated, such as in this case.
As such any analysis is flawed, and it should really have been pointed out the change in methodology for estimating this GDP.
A little disappointed at the quality of this post.
Surely as a Chartered accountant you will be aware the importance of restating comparatives when the policy/basis for the (new) calculation has changed?
It would appear that there were different methods for calculating GDP between the jurisdictions, and that a common method has been agreed with the ONS in the UK.
In this case, it would be quite proper for the comparatives to be restated, otherwise your bar chart is just meaningless don’t you think?
Unless of course you are just looking to grab headlines.
@Don-1
I have dealt with this issue, above
I do not think the release implies what you say
Show me that the UK recommended this system, please
I suspect you’ll find you can’t
Talking to the NSO is not an NSO endorsement
@spot
I have answered this point
@Don-1
I have no idea what rebuttal you refer to
I have given you an honest, categoric and unambiguous reply and sought to use the best (original data) available as that is objective
You can suggest otherwise
But it challenges your credibility, not mine
I am utterly honourable, open and straightforward
I just wish the Isle of Man could ever say the same
@Tom
But you kiss the point then – the International Accounting Standards Board say International Financial Reporting Standards are not suitable as a basis for taxation
And nor are the Isle of Man’s figures
Somewhat scuppers your case, don’t you think?
@john
But you miss the point – the restatements you refer to are not on the revised methodology
All I did was stick to one reliable data series – the first announcements made by the IoM each year
That’s all
Utterly objective and impartial, beyond question
I wish I could feel the same of my commentators
@Richard Murphy
Come, come Richard. You know very well to which rebuttal I refer. To refresh your conveniently poor memory it is still the same one that we were discussing earlier – that which is to be found on Manx Forums from which I have quoted extensively as you very well know. I hope that clears it up for you.
You ask me to show you that the UK recommended the amended system referred to in the Treasury release and predicted that I would not be able to. I invite you to peruse and inwardly digest the following excerpt, also from the Treasury release:
“• `Modernised’ — this column takes the `Update’ data but processes it under the latest methodology as per ESA and as practised by the ONS. In making consistent with ESA/ONS methods, these data also include several new items never before covered in the Isle of Man calculation.
For the year 2008/09 the data are produced under the new methodology.”
Is that clear enough?
@Richard – If its beyond question – why all the questions and comments?
Don’t IAS8 principles apply? 🙂
I wouldn’t agree with impartial, I would say partial on the basis of lack of disclosure of the change of calculation basis.
If you were being totally objective you would have provided a link to the relevant source documentation as well http://www.gov.im/lib/docs/treasury/economic/2010report.pdf
I am sure that if the UK aren’t happy with the figures then they can question the methodology themselves.
The UK isn’t a third world economy they have a very capable government and civil service.
Until there is more detail known (if there ever is) then commentary on the figures is pure speculation.
@Richard Murphy
Hardly, my post was pointing out that it’s similar comparing the figures from one year under GAAP to another year under IFRS, not that these standards have anything to do with taxation. It’s meaningless, in much the same as these figures are as the government’s methodology of calculating GDP has changed.
Plenty of professional if not conflicting analysis of the Isle of Man government’s financial reporting.
Much of it above the intellect of those with only a working knowledge of the disciplines of a “profit and loss” account — but then this is to be expected on a blog dedicated to expert opinion.
In the PSG experience any information issued by the Isle of Man government should be taken with a pinch of salt. Image before truth is its default position — a difficult mechanism to audit.
[…] seems I ruffled a few feathers yesterday with my comments on the Isle of Man’s new GDP calculations. I was accused of being disingenuous because I used he […]
@Tom
Nonsense
The world did not end when IFRS was introduced
People did, and rightly did, compare from pre and post IFRS eras
Just as people compare RPI from the 1940s with now when very little that makes up the ‘basket’ is the same and methods differ
You are, quite simply, wrong
@Premier Shareholders Group
Conflicting analysis? In the case of Richard’s attention grabbing headline I would go further and say misleading. Image before truth and a pinch of salt, you say? I would subbest that’s a good description of what’s taken place here!
I note that Richard is yet to answer the suggestion that he produced his bar chart by changing the calculation basis…
@john
Oh come on
I linked to a page at which that link was clear
Good heavens – get a life before you comment here
And yes of course the UK government can comment – but unlike the Isle of Man we have a functioning fourth estate of which this blog might now be considered a part
The Isle of Man lacks that – which is a reason why it is hard to credit it as a fully functioning democracy
@Don-1
No I have no idea to which rebuttal you refer
You have not given me a URL and I do not spend all day on Isle of Man web sites
So perhaps you’d like to elucidate
Re methodology – I am an accountant – and I am wrell aware I can add up in very many ways
I am suggesting the Isle of Man is too
Using one accounting standard one can get many answers
Likewise here
And given that the ONS is accounting for a real economy and the IOM for an entirely artificial one – based on transactions that do not really take place on the island – similar methodology may itself be a flaw
None of which changes the fact – this rotten deal has to come to an end – which is the point of substance you seem to want to ignore
Richard, to quote your previous article “Let’s talk about what is known in this new document and what is speculation. The 2006/07 income is known. The subsequent uplifts and adjustments are not yet confirmed — and it’s very hard to believe that a) the IoM really did have 8% growth in 2007 and b) has continued to grow through the recession. That is certainly not true of the UK, almost any other economy I know of, and Jersey, so why of the IoM claims to have done so I do not know. I take the claim with a considerable pinch of salt as a result.
The data for expected VAT and duty is based on the UK budget for 2009/10. The figures are for adjustments to that data are, of course purely speculative. I have, therefore, ignored them.”
You have said on this blog that initial data is the most accurate, yet in the article quoted above you state “subsequent uplifts and adjustments are not yet confirmed” so I get the impression that you are using the data as you see fit to put the spin on the articles that you want! I would be more interested to see what the UK Treasury think of the calculations that a bias reporter, who is pitching the articles anti-IOM. What has made you so anti-IOM?
@Don-1
I have completely and comprehensively replied
You may of course lie
But the truth is I used the best and only reliable consistent data stream available
Without an apology being forthcoming further comment from you will be deleted
Richard, I am very confused by your conflicting replies to me. In your first, sent at 11.12, you appear to confirm that your accounting methods are no better/no worse than the Island’s own.
In your second reply, sent at 11.31, you suggest that I may lie. In order for me to answer this allegation I would ask that you inform me why you think I might be lying and what about. If you do so I will be happy to answer you.
You then demand an apology. I have scoured my posts and can see nothing that requires an apology. However, slights can be a peculiarly subjective notion so I can’t discount that I may have unintentionally insulted you. Please tell me what you feel I owe you an apology for and I will give it my fullest consideration. I
The Isle of Man is in DEEP trouble. Changes to international law and (finally) changes in the way that the UK government has treated the Island and its dirty little tax dodging and worse finance sector is now seeing the rats leaving the sinking ship with the locals being convinced that “It’ll all work out boys” by the idiot politicians who probably believe such to be the case.
It’s only going to be a matter of time before the Manx come cap in hand begging to be admitted as full members of the UK with the status of at best a Westminster constituency, though in fairness they should be no more than a council of Lancashire, the whole population being in the order of a big council estate (in more ways than one).
It’s a dirty place in every sense of the word. What it now faces is no worse than it deserves and actually a whole lot better.
For years they’ve been parasitic on the UK government and added insult to injury by poncing of OUR taxes. Let’s hope that the austerity measures that we now must all endure include severing all ties within the rotten place or bringing it into the decent world.
Richard,
I wrote the post critiquing your analysis on Manxforums and after further reflection I have added another which shows that your main claim — that the IOM will use the change in GDP methodology to claim an additional £68 million from the VAT pool — is also disingenuous in the extreme.
In order to create this £68 million figure you have had to compare apples with oranges.
Your graph compares unrevised GDP figures from the years prior to 2008/09 with the GDP figure calculated under a new methodology for last year.
You claim the huge 27% leap in GDP will be used to calculate a new VAT figure resulting in an additional £68 million going to the IOM. This is simply not true.
I am sure you are aware that the IOM Treasury calculated the figures for 2007/08 using both methodologies.
In order to get your 27% figure you have to compare the old methodology for 2007/08 with the new methodology for 2008/09.
But you must surely be aware that when you compare the growth between the two years with the same methodology in both years the result is a 4.7% increase in GDP in real terms.
It is this figure which will be used to calculate VAT — a figure calculated by comparing apples with apples, and not the figure you have engineered which compares apples with oranges.
Your entire claim is based on incorrectly applying two different methodologies to the GDP calculation and does not reflect how the VAT calculation will be undertaken which will only look at real growth in the economy and not an artefact created by mixing methodologies.
I would respectfully ask you acknowledge this and restate your numbers using the correct growth rates. Obviously doing this will totally nullify your point, but it will then be at least accurate.
Regards,
Chinahand
@Don-1
You have accused me of manipulating data
I have not
Not at all
For that an apology is due
@Richard Murphy
I suppose that by implication I have done so. But then so have a few people during this debate. Or, in your own words:
“Re methodology – I am an accountant – and I am wrell aware I can add up in very many ways
I am suggesting the Isle of Man is too
Using one accounting standard one can get many answers
Likewise here”
I would remind you that, as far as accusations of manipulating data are concerned, you set something of a precedent when you accused the Isle of Man of doing exactly that.
I can’t, in all good conscience, apologise so you must delete me or not as you see fit. That’s the advantage of it being *your* blog.
The Isle of Man don’t like the way they’re bing treated, even after the disgusting NHS parasitic relationship re-established?
Simple solution. Sever all ties. The lot.
I truly believe that the only ruffled feathers on display here are your own, Richard. That’s why you’ve buried this discussion here instead of answering Chinahand’s post. It speaks volumes and does you little credit.
@Chinahand
I note what you say.
And it’s a shame you are so keen to dismiss my data you are blind to what I said about my calculations.
I did when plotting a graph use the only consistent data stream I had — the originally published data for each year. I maintain that was the best — indeed only acceptable — course of action.
But to make sure I did not overstate my case on the uplifted claim I used the restated data for 2007/08 when comparing with the data for that same year calculated on the new basis to suggest a smaller uplift than originally published data would have implied.
You see I’m not the charlatan you imply — I deliberately found and used the smallest differential I could use when publishing the impact of the change — not the largest I could have found.
So I’m afraid your conclusions and aspersions are wrong. You just jumped in with both feet and assumed the worst of me. Which is so wrong, because you see I don’t hate the Isle of Man and I don’t overstate my case. I just state what I think the objective case to me — without over-egging it. It’s a shame I can’t say the same of you.
I guess it’s a case of another apology being due. But I won’t hold my breath.
@Don-1
You really are a paranoid conspiracy theorist, aren’t you?
Let’s try the alternative hypothesis that I was going into a meeting in Brussels with the EC (at their request) when Chinhand posted his comment to do with my day job – this blog being something I do in my ‘spare’ time
And let’s suppose when I came out I had to rush for the train
And then used what limited connectivity I had to deal with more important issues than an anonymous commentator who can’t get his facts right?
No wonder you guys are in a mess
And can’t argue your case
Looks as though there may be at least one person on the isle of Man who’s willing to tell it like it is.
http://www.manxforums.com/forums/index.php?/topic/41832-isle-of-man-returning-dodgy-gdp-figures/page__st__30 see the post by “Spook” at 08:11.
This comment has been deleted. It failed the moderation policy noted here. http://www.taxresearch.org.uk/Blog/comments/. The editor’s decision on this matter is final.
Mr Murphy,
I have not dismissed your data – it is not your data, it is data from the IOM Treasury. I have dismissed the way you have used it. I have consistently said you are comparing apples with oranges, when the data has clearly told you how to compare apples with apples.
You have used the data to claim that the IOM will use the improvements to the methodology for calculating GDP to unfairly and undeservedly claim an additional £68 million in VAT.
I think that is categorically untrue, and your bland statement “I note what you say” seems to show you do to. If my tone has upset you then you need not wait, I apologise, but I would also hope that you would also apologise for claiming the IOM will try to gain an undeserved £68 million.
Let us try to find some common ground.
Are you saying the GDP reforms are wrong? If that is so then it is an important issue, one which will distort the IOM’s relationship with the UK.
The IOM treasury says the Manx economy grew by 4.7% in real terms in the year we are arguing about nothing like the 50% you have claimed. This 4.7% growth is the figure which will be used to calculate how the VAT pool will be shared. That figure will categorically not result in the IOM receiving an undeserved £65 million.
The entire premise for this blog post is incorrect – and you “note what I say”!
If you want to discuss the actual mechanics of the VAT calculation and whether that is fair, and the improvements of the GDP methodology, well those are different subjects and should not be mixed up with a post which is based on such a gross error.
I know that previously GDP figures were poorly collected – the IOM cannot create the GDP identity I = C + I + G -NX, but has to calculate it by more indirect measures. The lack of understanding of imports from the UK — where Manx consumers pay VAT into the UK for the goods they import — is a major issue in understanding the overall VAT pool. The IOM and UK economies are very different with the Island important the vast majority of its goods from the UK. The UK’s trade deficit is in the order of 5%; the Island’s multiple times that — and we pay that VAT into the UK, but as the end consumers should have it returned.
I applaud the IOM’s work to improve its statistical coverage and hope that the ONS will be able to endorse the IOM’s work. If they do not then you will have a real story to tell! But if they do then I feel this issue is a total red herring. You’ve based it entirely on a false premise — your illusory £65 million.
Mr Murphy, you see your role as defending the UK Taxpayer — well do so fairly, not with claims about £65 million. If the IOM is fiddling its GDP, rather than getting its act together after being poor with its statistics previously, then show this to be the case. But I am sure you will agree that innuendo is no way to run a campaign, and when you make claims such as the £65 million you will be put on the back foot trying to defend the indefensible. Do you “note what I say”?
Let’s get our contacts, and journalists, to ask the ONS their opinion, that would be a positive result — if they endorse the reforms we can have some faith in them, if they do not the IOM will have to improve which will result in the VAT pot being more fairly shared.
A win-win, rather than a grubby fight over £65 million we both admit does not exist.
Regards,
Chinahand
@Chinahand
Respectfully – your entire premise is wrong
The VAT is not due – that is the reality
And of course you applaud the IoM government
You want to carry on free riding off the back of the UK taxpayer
And does your anonymity hide the fact you work for the IoM government? Maybe you even did the stats? Someone is spinning hard against me in your Treasury. Is it you?
I have done a full response here http://www.taxresearch.org.uk/Blog/2010/10/08/get-the-facts-right-in-the-isle-of-man/
Richard, I’m a little confused. Are you standing by your statement that the Isle of Man is using this data to actually claim an extra £62m?