THE plan to raise VAT from 17.5 per cent to 20 per cent could raise ?25m in the first full year for the Island.

The VAT increase was announced in UK Chancellor George Osborne's first Budget today and will come into force from January 4.

While Isle of Man Treasury officials will be studying the fine print of the UK Budget, Treasury Minister Anne Craine said 'we could be quietly optimistic' about the position the Island is in.

At first glance it does not seem to contain any plans that will have a major effect in the Island.

While the Isle of Man may receive a financial boost due to the increase in VAT, Mrs Craine is aware that the higher rate of VAT might mean people are not able to spend so freely.

She said the Island also needed to protect the lower paid and vulnerable in our community.

Mr Osborne promised items classed as "essential", including food, children's clothing, newspapers and magazines, would remain free from VAT.

But the Budget may be bad news for certain professions in the Island. Public sector workers in the UK face a two-year pay freeze.

However this could also apply to teachers and police officers in the Isle of Man whose jobs are linked to the changes regarding these jobs in the UK.

Treasury Minister Anne Craine