2016 Isle of Man Budget Commentary

On 16 February the Isle of Man’s Treasury Minister, Eddie Teare MHK, presented the fifth and final Budget of the current Government to Tynwald, the Island’s parliament, describing it as “A fair and responsible Budget that helps some of the least well off in our Island while providing a solid platform for the future.”

Although not making cheerful reading, his plan seems workable.

It all came wrapped in a new presentation intended to be more transparent, with a revised Budget ‘Pink Book’ featuring commentary by each Department, Office and Board.

A more open wrapper holds annual caps for overall increases in staff pay at 1, with a sting in the tail that any pay increases above that cap will be offset by staff reductions.

It was announced that new legislation is to be put forward to tackle avoidance by introducing a penalty in instances of contravention of the anti-avoidance provisions in Schedule One of the Income Tax Act 1980. But such circumstances are, by the Minister’s own admission, rare.

2015/16 has been a disappointment with the projected £2 million surplus ending up a £9.6 million deficit, resulting from lower income and corporation tax receipts and an over-run at Noble’s Hospital.

In 2016-17 government’s gross income is projected to rise 1.7% to £955.5 million with income from Customs and Excise duties at £336.5 million, the largest single source of revenue. Relying on the assumption the Island’s Manx economy will continue its growth; income tax is projected to raise £212 million, increasing annually by 3%. Importantly the Personal Income Tax Allowance will only increase by £1,000 to £10,500, instead of the original proposal to extend this to £14,000.

On the expense side, Teare noted that 2016/17 gross spending on public service pensions is forecasted at £107 million, or 10% of total revenue spending. The Island’s basic state pension will increase 2.9% marching in step with the UK.

A £93 million capital programme is planned which includes construction/engineering projects worth £71 million, a £23 million increase over last year. A new Government bond for large capital projects is also under consideration.

£10 million is also to be injected into an Enterprise Development Fund with a tax holiday for commercial property developments creating new jobs. A tax-free relocation expense package is planned to help local businesses source skilled workers.

The forecasted average spend across all services is approximately £2.6 million a day, resulting in an almost invisible surplus of £0.3 million with spending working out at £11,750 per head annually, stratified as follows:

  • £3,791 for Social Security payments
  • £2,387 for Health Services including £204 for treating Manx patients in the UK.
  • £1,175 for Education
  • £945 for former Government employee pensions
  • £385 for the Police, Fire, Prison etc
  • £214 for the Department of Environment, Food and Agriculture
  • £162 for Public Transport and Heritage Railways
  • £70 for Waste Management
  • £68 for Sports and Arts
  • £52 for Ports
  • £26 for Drainage and Sewerage

Observing that the Island’s reserves are under increasing pressure, Teare nonetheless suggested that reserves are still strong, buoyed by a growing economy and deficit reduction and ”rebalancing” initiatives.

The major strategic fiscal threat in the medium term is dealing with the projected depletion in 2021/22 of the Public Service Pension Reserve reserves by spending controls. (Gross spending on public service pensions is forecasted at £107 million - 10% of total revenue spending.)

Teare highlighted in this budget a change in strategic focus, moving on from a first stage of simply ”“managing the immediate and short-term” . The Medium Term Financial Strategy (“MTFS”) is a six year ‘long view’ to 2021-22 when the Manx Treasury intends to stop drawing on reserves, the palliative for the loss of VAT revenue and the looming public sector pensions deficit.

The tools to be employed are hardly ground-breaking:

  • Facilitating economic growth
  • Identifying savings/spending cuts
  • Generally lowering expectations of what the government is able to provide.

Merciless cost control seems to be at the top of the battle plan, although at the same time, Teare was calling for a slowing of the recent overall increases in fees and charges for Government services.

Two things to keep in mind:

  • First, this is an election year budget.
  • Secondly, this year could mark the UK’s withdrawal from the EU.

You can read the official budget here