IT would have been "economically damaging" for the Isle of Man to end the Revenue Sharing Arrangement with the UK - according to the Island's Chief Minister Tony Brown MHK and Treasury Minister Anne Craine MHK.
Both said the potential risks from walking away from the arrangement were "too great by far" because of the current Customs and Excise Agreement that's in place.
Here Mr Brown and Mrs Craine explain why the government agreed to sign the revised arrangement and whether abrogation from the United Kingdom – terminating the Customs and Excise Agreement - is an option.
In monetary terms what is the new Revenue Sharing Arrangement worth to the Isle of Man?
Anne Craine: "That's still something that needs to be finalised. Let me say though that we still receive substantial monies out of this agreement and it would be unwise for us to walk away from it.
"It is not financially viable for the Isle of Man to walk away from this agreement at this present time because of the Customs and Excise Agreement that we are in. The potential risks to the Isle of Man of walking away are too great by far. It would be economically damaging to us to do so.
"At this point in time it would be absolutely untenable – not only from a financial point of view for our businesses. There would be a lack of freedom of movement for our residents so it is more than just in terms of quantifying costs or putting a pound sign on it.
"The cost of this overall would be so great that I think it would be a risk not worth contemplating for the Island."
The Channel Islands do not have a Revenue Sharing Arrangement or a Customs and Excise Agreement with the UK. Why can't we follow this model?
Tony Brown: "If you look at Jersey and Guernsey they have their own indirect system of taxation but they don't have VAT and they cannot get certain business into Europe that we can. Plus on top of that the Isle of Man's economy is totally different. We are far more diversified than Jersey or Guernsey – I think Jersey is about 80 per cent finance sector – we are a lot lower than that.
"We've developed our economic structure because we've had the Customs and Excise Agreement which has helped us fit into niche markets. Take that away and we'd have to develop a different economy – so there a lot more implications than just money."
AC:"The position with Jersey and Guernsey is one that I am not that au-fait with but I do know that the position that they are in is one that would take us between five and 10 years to develop.
"What we would have here, if we were to indicate that we were going to go for abrogation, is that it would be on two years notice with the UK. We could not achieve the same kind of arrangement as exists elsewhere over a two year period. It would take us much longer to consult, plan and prepare for that financially.
"Nothing is impossible but it is a question of whether it is wise or not. Frankly it is not wise."
Did the Manx Government consider abrogation? Perhaps this could have been more cost effective?
TB: "It is important to be clear – this is not just about money. Yes the money part is very important to us because it is income but it's not just about that. People's way of accessing the UK would change and goods going backwards and forwards, even you sending a parcel to a family member in the UK, would change. We don't think at this stage that that is appropriate.
"If you are going to do this you have to plan it and you can't do that in a very short period of time. The Isle of Man would have to look long term to deliberately move towards getting to a stage where it can step away from the VAT agreement. We haven't ruled it out, what we have said is you can’t do it straight away."
Looking to the future does the government have a long term plan for these agreements?
AC: "The arrangement can be severed by either party at any time. They (the UK) can of course come along at any time.
"What we believe now, and what they believe, is that we have a much more solid base on which to be able to go forward. They felt the previous negotiations were unfinished business. They were not content that they received a fair share out of the arrangements that were concluded last time.
"We believe that we now have a position where we will be able to move forward in the short to long term. What we can say is what we have got at the moment gives us the confidence to be able to plan more clearly and produce greater stability for our economy as we go forward."
TB: "If we are going to safeguard the Isle of Man, which we have to do, we have to be positive. We have to create opportunities.
"Don't forget we are the population of a small town but with the infrastructure of a large country. We have to make that all come together from a very limited source and pool of money.
"Yes we are conscious of some of the issues but we haven't done the detailed work on being absolutely exact on what the differences might be (between keeping the agreement and abrogation). We are not ignoring the fact. We are always looking at how we can move forward in the future to safeguard the Isle of Man's position. That takes into account our taxation system."
How is the relationship between the Isle of Man and the UK now?
AC: "I think it’s very difficult for us to realise as a proud, small, independent nation, just how insignificant we are. This is a major issue for us here in the Isle of Man. The point that came to us from the UK Government is that it is not a particularly major issue as far as they are concerned. They can take or leave the arrangement. They don’t see it as being of fantastic benefit to them. They are prepared to run with this arrangement but if it was going to become protracted and if we were going to continue to argue for a better deal, which they did not see as being fair, they made it clear they were ready to walk away from the agreement.
TB: "Sometimes in any partnership there will be strains but I believe the relationship is solid and certainly from our perspective we endeavour to work with the UK while protecting the Isle of Man's situation. That is our responsibility – we are here to protect the people of the Isle of Man and our Island."
How will the public be affected by this new arrangement?
AC: "The detail of how we are going to deal with this matter is yet to be ironed out. We will be looking at how we can generate our economy while at the same time trying to protect the man on the street. We are very aware of how all of this may impact on the individual - we are very close to our members of the public and we don't wish to see them hurt.
"We will be looking at all options available to us but we have to be very careful that the way we go forward is very measured that enables us not only to make reductions but to protect the economy and allow us to develop."
