Difficult decisions and tough times lie ahead for the Isle of Man.

This was the grave message delivered by Chief Minister Tony Brown to Tynwald this morning, as he outlined the impact of the United Kingdom's decision to re-draw the VAT revenue sharing agreement.

Mr Brown warned that "some very difficult decisions" will need to be made in order to come through a situation which he described as unprecedented in the Island's recent history.

In his statement, the Chief Minister revealed that revision of the sharing arrangement will result in an annual loss of revenue to the Isle of Man Government of at least ?50 million from April next year, rising to ?100 million from April 2011.

Added to revenue reductions already projected, due to the UK economic performance and lower VAT rate, this means the Island faces an estimated total loss of ?90 million in the 2010/11 financial year and ?140 million in subsequent years.

With overall net revenue spending estimated at ?572.1 million in the current financial year, the Chief Minister said a potential loss of ?90 million next year had ‘serious implications’.

The VAT take accounts for about half the Manx government's annual income.

Nothing would be excluded in considering how to deal with the situation, the Chief Minister said.

Government would examine how it could raise revenue, reduce spending and use reserves in the short-term to overcome the "substantial shortfall" in income.

In the coming months, he continued, Government would look at all budgets to see how spending could be contained within total income, while prioritising the security of the Island's key community services for the future.

Less critical services would be examined, with the possibility of public sector redundancies.

The Chief Minister confirmed that the Customs and Excise Agreement (under which the revenue sharing arrangement is made) was being retained.

He concluded, "Government is confident that the present re-adjustments within the Sharing Arrangement, whilst causing serious initial budgetary and public service pressures, especially due to the short notice of the changes, will be managed in an orderly fashion and will ultimately leave us stronger and fitter for the future."

The full text of the Chief Minister’s statement to Tynwald can be seen on the Isle of Man Government website at www.gov.im/cso