The Isle of Man said that it had been plunged into an “unprecedented” financial crisis after its budget was slashed by 24 per cent by the Chancellor.

Alistair Darling confirmed that it had slashed £140 million off the tax haven’s £572 million annual budget by reducing a 400-year-old customs revenue-sharing agreement.

The move could threaten tax haven’s economic viability.

Mr Darling announced a review of the crown dependencies and overseas territories in his pre-Budget report last year — three weeks after he made his comments to a Treasury select committee about the Isle of Man being a “tax haven sitting in the Irish Sea”.

Isle of Man’s leaders were informed a month ago of the Chancellor’s intention to sharply reduce the subsidy. A £50 million “transition” cut in the first year has been negotiated but that is still nearly 10 per cent of the Isle of Man's annual revenue.

The island’s chief minister, Tony Brown, told Tynwald, the Manx parliament, yesterday that the deal put on the table by the UK was non-negotiable.

“For the financial year 2010-2011 the island faces a total reduction of some £90 million in relation to our revenue income from the revenue sharing arrangement, from that previously estimated, with that figure increasing to £140 million in subsequent years.”

Mr Brown added: “This situation is clearly extremely serious for the island and unprecedented. However, I am confident that we will come through this present situation, albeit that at times it will be extremely difficult for us all; some very difficult decisions will have to be made.”

The G20 is expected to target tax havens when finance ministers meet at St Andrews, Scotland, next month.

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