1. POSITIVE ACTION GROUP The 2017-18 Budget Presentation
by Alf Cannan MHK, Treasury Minister
February 2017

2. Budget Objectives Financially Responsible Government
An Island of Enterprise and Opportunity
An Inclusive and
Caring Society
Delivering sustainable finances for Government
Developing businesses and the economy
Supports Programme for Government
Support working families

3. Enterprise Development Fund
Year plan for sustainable finances 5
Headlines
Supporting families
Increase to child benefit 2%
Supporting working people by increasing personal allowance to
£12,500
Business and Jobs
£50m
Financial Assistance
Government Capital Programme of £388m
Supporting our NHS
Additional funding
£11m
Enterprise Development Fund
£4m

4. Economic Update Continuing GDP growth of 5% in real terms
Unemployment remains low (1.3% in figures published January 2017) and has fallen by one third since December 2015
Inflation CPI 1.6%, RPI: 6.9% in latest figures this month
Average earnings up 2.2 %
GDP data published September 2016; GNP in real terms is actually 1.4%, reduced from 5.1% in
NOTE – GDP Measures earnings on the Isle of Man regardless of ownership. GNP measures earnings of Isle of Man Residents and therefore is impacted by movements in profits attributed to overseas owners and profits attributed from abroad to isle of man residents.
RPI (Jevons) measure published for IOM from September Uses same basket of goods and services as RPI but removes averaging problem that overstates inflation. In contract, the RPI measure is 6.9% Inflation rising on depreciation of sterling and rising oil price.

5. Working to support the economy
Maintain integrity of 0% corporate taxation supporting business and jobs Support growth, opportunity and enterprise through the Enterprise Development Fund £6M grants and support for the industry £388m capital programme investment boost for construction industry
Working to support the economy

6. Five Year Financial Plan
Operating deficit shows the excess of expenditure over income for all of government’s operating activities except for national insurance and capital
Structural deficit, shows the same but includes NI and Capital
Overall takes into account projected investment returns. It shows that whilst we need to draw on reserves in overall terms our reserves are growing from the amount they will grow by (altogether) is the difference between the top line and the 0 line.
This is a summary of the overall position. The NI Account provides for approximately half of the investment returns. The NI account is projected to grow by £80m over the period, the other reserves are projected to decrease by £83m, the net movement being -£3m.
The PSPR reduces by £200m over the period.

7. Income by Type (£m) Type Budget 16/17 17/18 Increase/ (Decrease)%
Customs & Excise
336.5
358.7
22.2
6.6
Income and Other Taxes
212.0
211.3
(0.7)
(0.4)
NI Contributions
222.0
241.5
19.5
8.8
Other Treasury Income
11.6
12.0
0.4
3.8
Departmental Fees & Charges
120.0
119.9
(0.1)
Employee pension contributions
17.9
20.7
2.8
15.4
Gross Income
920.0
964.1
44.1
4.8
Income Tax revenues have reduced due to the cost of circa £8M to fund the increase in the Personal Allowance. Calc – forecast outturn less £8m, the apply growth at 3%

8. £11m supplementary vote funding for DHSC
Revenue Forecast
£12m revenue surplus projected
£11m supplementary vote funding for DHSC
£10m additional VAT income following FERSA
£7.5m excess Income Tax/NI receipts
Projected £2.6m underspend on welfare benefits
£7m reduced drawdown required from pensions reserve

9. Departmental Gross Spends (£m)
Budget
16/17
17/18
Increase/
(Decrease)
Increase %
DED
29.8
0.0
0.1
DEC
93.2
93.6
0.4
DEFA
17.3
18.4
1.1
6.4
DHSC
242.3
254.6
12.3
5.1
DHA
30.2
30.4
0.2
0.5
DOI
95.8
94.9
(0.9)
Treasury
354.0
355.5
1.5
Cabinet Office
32.1
31.5
(0.6)
Other misc.
24.8
24.1
(0.7)
(2.9)
Legislature
4.3
0.7
Gross spend (excl loan charges)
923.8
937.1
13.3
1.4
DEFA increase reflects transfer of OFT and RTLC into the Department
DHSC Includes £11m growth bid
Treasury – £1m legal aid budget (previously funded from reserves), £1.3m revenue benefits increase, £2.4m Central procurement adjustment, £2m central contingency reduction.
Cabinet Office – GTS “locked in” savings (as part of ongoing savings programme assumed in prior year budgets)

10. Capital Expenditure
Government fixed assets of £2.8bn Needs maintenance and renewal investment
£88m programme excl. local authorities
£63m of construction and engineering schemes
includes £9m investment in Health and Social Care and £5m in Education schemes
£388m five year programme
Sustainable Capital Programme, increasing balance by end of the period
Maintaining over £70M annual spend
£5m annual contingency for risk
£5m Storm Damage Risk Contingency retained
Capital programme affordable and sustainable : £26m surplus on Capital account

11. Public Sector Pensions
£15m
reduced projected level of pension costs
No planned increase to 15% employer contributions
Funding gap between contributions income and pension cost to be met from Pensions Reserve
Pensions reserve scheduled to be depleted by
Revenue liability of £58m in offset by income growth and revenue cost reductions
Last years Pink Book projection shown below

12. Five Year Financial Plan
Commit to
Unallocated savings by
£25m
Unallocated savings of £6-7m p.a. (cumulative) from onwards
Cross Government Savings Team to identify transformational savings projects

13. No change to higher and lower rates of tax;
Mortgage and loan interest deduction reduced from £7,500 to £5,000
No change to higher and lower rates of tax;
Personal tax allowance increased from £10,500 to £12,500
Tax cap for new elections to increase from £125k to £150k from 18-19
Max deduction for nursing expenses increased from £9,300 to £12,500
Removal of Age Allowance
Personal Allowances increased by £2,000 from £10,500 to £12,500 (the single biggest rise in any Budget)
This has been partly funded by-
Age Allowance being removed
Lower rate band reduced from £8,500 to £6,500
No one is worse off
44,300 individuals will be better off
3,300 individuals fall out of the tax net
And     Maximum amount of Nursing expenses relief increased from £9,300 to £12,500.
          Maximum amount of mortgage and loan relief decreased from £7,500 to £5,000
Cap increased from 2018/19 from £125,000 to £150,000
New benefit in kind incentive for cycling to work
New benefit in kind exemption to encourage cycling to work

14. National Insurance Steady growth in National Insurance receipts
NI rates for employers, employees and self-employed frozen for
From April 2018, need for self-employed Class 2 NI contributions to cease
To be replaced in 2018 by increase in Class 4 contributions from 8% to 11%
National Insurance Receipts are approximately £5m ahead of target this year.

15. 3% £11m £19m Indirect revenue FERSA Additional
growth in VAT assumed for 5 Yr Financial Plan 3%
Growing by
In 18/19
£11m
Additional
In17/18 compared to 16/17
£19m
NO CHANGE
Other duties to remain the same
In March last year the Treasury Minister signed an agreement with the Financial Secretary to the government of the United Kingdom, revising the arrangement that governs the sharing of VAT and the other joint common duties under the 1979 Customs & Excise Agreement. That rebased our share for 2013/14 using actual consumption data obtained that year through a series of income and expenditure surveys. In following years FERSA provides that the Island’s provisional share is calculated by indexation of the base year at 4.5% per annum until the next survey year, in 2018/19
By way of an update I can report that the promised standalone document describing how FERSA works in practice will be completed and published in time for next FERSA household and business surveys which will take place during 2018/19.
Those surveys will be used to rebase the Island’s indirect tax share from the 2018/19 indexed figure of £355m to the actual reported consumption in that year. This figure will in turn determine the Island’s actual shares for 2014/15 to 2017/18 on a straight line revision basis back to 2013/14 as well as becoming the base for the Island’s indexed share for the following four years. Only at this point will our final share be determined.
Whilst I have great confidence in the Island’s economy and our ability to generate the required levels of growth, even in these uncertain times, being financially responsible means I must deliver a budget that recognises there is some uncertainty surrounding the final amount of that shared revenue.
Therefore, in the interests of prudency and good financial management the budget has been based on a shared revenue growth level of approximately 3% over the five year period. This will allow us to build further resilience in our reserves and help to address our operating deficit.
New soft drinks industry levy from

16. Benefits Basic state pensions to rise by 2.5% (£3 per week)
Nursing care contribution scheme to increase by £25 per week
Child benefit to be increased by 2%.
Higher Rate Mobility Allowance to be increased by 4.8%
Many other benefits to increase by 1%, reflecting lack of increase in recent years.
DLA is payable in one of two components, the care component, payable at either the highest, middle or lowest rate, and the mobility component, which is payable at either the higher or lower rate.
Most persons receiving higher rate mobility are assessed as being so severely disabled that they are unable or virtually unable to walk. Some other disabled persons can also qualify.
Motability is a UK based charity which allows some disabled people to exchange their higher rate mobility component of DLA (and some other qualifying benefits in the UK) for the lease of a vehicle.
IOM participants’ higher rate mobility DLA is paid by Social Security directly to Motability on their behalf.
Until 2011/12, the IOM and UK’s rate of DLA were equal.
In April 2012, the then Department of Social Care decided not to increase the rates of DLA or attendance allowance (all components) for people in the IOM.  
This meant that the benefit rate received by recipients on the Isle of Man remained at £51.40 per week, £2.65 less per week than the amount received by recipients in the United Kingdom. 
The cost of a car leased through the Motability Scheme is calculated based on the money Motability will receive from the allowance over the course of the agreement, including an expected level of increases in April each year in line with inflation.  This meant that there was now a shortfall between the amount of money being received in respect of recipients living on the Isle of Man, and the cost of the lease.
To ensure that the Motability Scheme remained fair and affordable for all customers, any recipient living on the Isle of Man placing a Motability lease application on or after 1 July 2012 were asked for an additional payment of £ for three year lease agreements, or £ for five year agreements. 
This supplementary amount had to be paid in full to Motability Operations by debit or credit card at the outset of the lease. 
Social Security introduced legislation to provide that some of those on the very lowest incomes (persons in receipt of Income Support or Jobseeker’s Allowance as well as DLA), could apply for a loan (subject to some other conditions) to help with the cost of covering the additional lease payments.
The situation was reviewed in April 2013 when the UK and Isle of Man Governments announced their changes to benefit rates.
It was decided that the £2.65 difference between the UK and IOM rates of the high rate mobility component would be maintained, and so increases were applied to the component in the IOM, based on the UK uplift, in order to maintain the weekly £2.65 difference and so as to freeze the cost of covering the additional lease payment at £ for three year lease agreements, or £ for five year agreements. 
In April 2017, Treasury will be increasing DLA high rate mobility component from £54.80 to £58 per week to equal the UK.
This will mean that IOM residents who qualify for DLA higher rate mobility will be able to secure a lease with Motability by just exchanging their high rate mobility component, without the need for any additional payment.
We are in discussions with Motability Operations to try to secure refunds for any IOM residents who have already made a payment towards a lease which continues after 12th April 2017, and pro-rata’d upfront payments for any leases taken out between 21 February 2017 (the date of the budget announcement) and 12 April 2017.

17. HOUSING RESERVE; NEW ACADEMIC BUSINESS PLANNING FUND ESTABLISHED
Other Budget Measures
£2M
DIGITAL STRATEGY FUND
£1M
NEW BREXIT FUND, LEGAL COSTS RESERVE, MEDICAL INDEMNITY, LAND & PROPERTY ACQUISITION
£1.5M
HOUSING RESERVE; NEW ACADEMIC BUSINESS PLANNING FUND ESTABLISHED
Health Inspection Fund rebranded into Healthcare Transformation Fund

18. Supporting business and jobs with 0% company tax
Summary
£388m capital spend over 5 years 5
Supporting working people and families. Increase personal allowances to £12,500 and child benefit by 2%
Supporting business and jobs with 0% company tax
Year plan for sustainable finances
•        My view and also now an action within the Programme for Government is that pension freedoms should be introduced on the Island;
•        Last year Treasury introduced freedoms for pension pots below £71,000, or £50,000 if a pension had already commenced or tax free lump sum taken;
•        Work has been ongoing on this issue and a working party was set up within the Department of Economic Development under the previous administration to review the whole issue of pension freedoms.
•        Now my Officers are working together with the Association of Pension Scheme Providers to ensure that the introduction of freedoms does not have a significantly negative effect on the industry.
•        Later this year I hope to be able to introduce a new pension product that will not only allow for freedoms where necessary.
Supporting our NHS with £11m increased funding
Boosting enterprise with Enterprise Development Fund and grant funding

19. Questions