Confidential The 2015-16 Budget

Presentation to the JCCBy Eddie Teare MHK, Treasury Minister

18 February 2015

Introduction

My budget is based on four important principles:

It honours the promise of this Government to balance the books

It continues to focus on fairness

2

Introduction

It maintains funding for vital services for the Island’s community, and particularly those who are vulnerable

It starts us on the path of building systems, finances and services for the next generation and not for the next general election

3

Presentation Sections

Update on public finances

Rebalancing

Tax and National Insurance

Services

4

Local economy

Growth of 3.5%-4% expected this year

Productivity (GDP per hour worked) improved by 3.5% 2011 to 2013 compared to 1.5% in UK

Unemployment remains low - 2% in December 2014 – and has fallen by 25% in last year

Inflation down – RPI 2.2%, CPI 0.2% in December 2014

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Local economy

Banking sector concerned about regulatory changes, but deposits holding steady at £40bn (£43bn in 2013)

E-Business is fastest growing part of economy – now 20% of national income

Low interest rates continue UK economy recovering, but developments

in the Eurozone are unpredictable

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Rebalancing

£11m drawn from reserves in 2014-15 – on target

Rebalance the budget by 2015-16 – achieved with £2m surplus

Use £92m of reserves – expect around £89.6m

Government gross spending in real terms will fall by 1% in 2015-16

Size of workforce reduced, with 640 posts lost since 2010 (8% of total)

7

Spending reductions on target

500520540560580600620640660

Net Spending (£m) Budget 2009 and 2015, excluding Loan Charges

Budget 2009

Budget 2015

8

Savings achieved to rebalance

0

20

40

60

80

100

120

140

2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

Savings (£m)achieved to 2009 Budget

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Gross spending now falling

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

820

840

860

880

900

920

940

960

2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

Gross spending (£m) as value of GDP

Gross spending (blue line) will rise to £944m in 2015-16

As a proportion of national income (GDP), gross spending (red line) has fallen from over 25% to 20% over the last five years

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Staff numbers are falling

6800

7000

7200

7400

7600

7800

8000

8200

2010 2011 2012 2013 2014

Actual Headcount 30 September

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Current year forecast

2014-15

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£m Budget Forecast VarianceIncome 533 530 (3)Expenditure 544 542 (2)Transfer from reserves 11 11 0 Surplus/(deficit) 0 (1) (1)

Future year forecasts

Budget Budget Budget2015-16 2016-17 2017-18

Income 547 563 579

Expenditure 545 563 579

From reserves 0 0 0Surplus 2 0 0

£m

Estimated total drawdown from Reserve Fund 2012-13 to 2015-16 (cumulative) since Rebalancing started):

Budget 2012 £92mBudget 2013 £89mBudget 2014 £89mBudget 2015 £89.6m

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Departmental budgets (£m)

Department Budget14/15

Budget 15/16

Increase/Decrease %

DED 5.5 5.0 (0.5) (9.1)

DEC 90.2 90.5 0.3 0.3

DEFA 13.5 13.6 0.2 1.2

DHSC 184.4 181.0 (3.4) (1.8)

DHA 28.4 27.7 (0.6) (2.2)

DOI 47.1 45.9 (1.1) (2.4)

Treasury 106.0 109.6 3.6 3.4

Cabinet Office 26.2 25.3 (1.0) (3.7)

Other 37.2 42.4 5.1 13.7

Legislature 5.1 4.2 (0.9) (17.8)

Total 543.6 545.2 1.6 0.3

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Other measures

£2m into Health Inspection Fund £3m additional funds for Town and Village

Centre Regeneration Fund£2m transferred into ICT Fund£2.5m transferred into Insurance FundCapital Projects Risk Contingency Fund

extended to include Storm Damage FundFlat rate sewerage charge replaced by

sewerage rate

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Benefits

Basic state pensions to rise by 2.5%Special increase in Carer’s allowance from

£61.35 to £112.10 per weekMany means tested benefits frozen for

2015-16Further means testing of child benefit with

reduced qualifying income thresholdsEnd to universal free TV licences for over

75’sFull review of welfare benefits system in

201516

Capital expenditure

Infrastructure assets of £1.2bn need maintenance investment

84% delivery in current year (£60m)£78m programme excluding local

authorities next year £12.7m for regional sewerage strategyAlmost £60m of construction and

engineering schemes (up over £3m), excluding £13.9m on housing through the local authority programme

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Reserves

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1000

1100

1200

1300

1400

1500

1600

1700

1800

1900

2009 2010 2011 2012 2013 2014 2015 2016

£'00

0Reserves and Cash 2009 to 2016

Capital Account

Internal/Operating

Invested

Market value of invested funds

Dec-13 Dec-14 movement£m £m £m

Hospitals Estate Development 46.0 45.5 (0.5)Media Development 39.0 32.0 (7.0)NI Fund 734.0 770.4 36.4 Manx Currency (Notes) 34.0 33.7 (0.3)Public Sector Pensions 254.0 243.1 (10.9)Reserve Fund 357.0 345.9 (11.1)

1,464.0 1,470.6 6.6

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Internal reserves and capital fund

Estimates including

withdrawals

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0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

450.0

2009 2010 2011 2012 2013 2014 2015 2016

Impact on Cash, Internal and Capital Funds

Internal Funds

Operating Account

Capital Account

Taxation

10% and 20% rates unchanged for 2015-16

Personal allowances remain at £9,500

Higher rate threshold remains £10,500

Personal allowance credit is reduced to £400 and for elderly and disabled only

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Taxation

Homestay concession increase to £1,800

Tax cap increase to £125,000 p.a.

National Insurance Holiday Scheme replaced with new scheme targeted to assist specific groups

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Looking forward - tax proposals for 2016-17

Removal of 10% income tax band

Increase in personal allowance to over £14,000 per year

Removal of age allowance

Single rate of 20% after personal allowance

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Looking forward - tax proposals for 2016-17

Removal of personal allowance credit

Introduce NI contributions for employees over state pension age

Simplification of tax system

Full consultation in 2015

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Other taxes

“0/10” company tax regime to continue

Increase in corporate income tax on income from Manx land and property from 10% to 20%.

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Other taxes

VAT revenue sharing – negotiations with UK under way - hope to be agreed before next budget.

Provisional VAT share in 2015-16 up 3%

Oil duty income may reduce due to falling oil prices, but effect overall revenue neutral

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Financial management 2015-2020

Statement in February TynwaldObjectives –End reliance on internal reserves to fund

general revenue expenditureMost internal reserves to be replaced with

single contingency reserveInvestment income on Reserve Fund to be

retained, not spent on revenue expenditure

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Summary

Budget to be rebalanced in 2015-16

Protecting spending on health

£2m into Health Inspection Fund

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Summary

Creation of central contingency budget

Targeted support for the vulnerable: carers, long-term unemployed, elderly and disabled

Review of taxation and welfare benefits system continues in 2015

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Conclusion

In closing, I repeat the four principles of my budget:

It honours the promise of this Government to balance the books.

It continues to focus on fairness.

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Conclusion

It maintains funding for vital services for the Island’s community, and particularly those who are vulnerable.

It starts us on the path of building systems, finances and services for the next generation and not just for the next general election.

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Budget 2015-16

Questions to the Treasury Minister?

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