UK Chancellor Alistair Darling

THE Isle of Man’s economy was today reported to be in crisis as the UK government showed it was prepared to take tough action against so-called tax havens.

Chancellor Alistair Darling has cut £50 million off the island’s annual budget – cash which Westminster hands over under a 36-year-old agreement. It is understood that further cuts are to be made totalling £90 million leaving the Crown dependency with an unprecedented and potentially crippling fiscal black hole.

The £140 million claw-back by the UK government represents a 24 per cent hole in the Isle of Man’s annual budget of £572 million. The money is given to the Isle of Man under an agreement signed in the 1970s under which the UK agreed to share revenue from VAT receipts.

Jersey does not have a similar agreement with the UK. As a result, concerns have been raised in the past that the money paid to the Isle of Man created an unlevel playing field for those competing in the offshore financial services market.