1. Confidential The 2015-16 Budget Presentation to the JCC By Eddie Teare MHK, Treasury Minister 18 February 2015

2. 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

3. 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

4. Presentation Sections  Update on public finances  Rebalancing  Tax and National Insurance  Services 4

5. 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 5

6. 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 6

7. 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

8. Spending reductions on target 8

9. Savings achieved to rebalance 9

10. Gross spending now falling 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 10

11. Staff numbers are falling 11

12. Current year forecast 2014-15 12

13. Future year forecasts Budget 2015-162016-172017-18 Income547563579 Expenditur e 545563579 From reserves 000 Surplus200 £m Estimated total drawdown from Reserve Fund 2012-13 to 2015-16 (cumulative) since Rebalancing started): Budget 2012£92m Budget 2013£89m Budget 2014£89m Budget 2015£89.6m 13

14. Departmental budgets (£m) Department Budget 14/15 Budget 15/16 Increase/ Decrease % DED5.55.0(0.5)(9.1) DEC90.290.50.3 DEFA13.513.60.21.2 DHSC184.4181.0(3.4)(1.8) DHA28.427.7(0.6)(2.2) DOI47.145.9(1.1)(2.4) Treasury106.0109.63.63.4 Cabinet Office26.225.3(1.0)(3.7) Other37.242.45.113.7 Legislature5.14.2(0.9)(17.8) Total543.6545.21.60.3 14

15. 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 Fund  Capital Projects Risk Contingency Fund extended to include Storm Damage Fund  Flat rate sewerage charge replaced by sewerage rate 15

16. Benefits  Basic state pensions to rise by 2.5%  Special increase in Carer’s allowance from £61.35 to £112.10 per week  Many means tested benefits frozen for 2015-16  Further means testing of child benefit with reduced qualifying income thresholds  End to universal free TV licences for over 75’s  Full review of welfare benefits system in 2015 16

17. 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 strategy  Almost £60m of construction and engineering schemes (up over £3m), excluding £13.9m on housing through the local authority programme 17

18. Reserves 18

19. Market value of invested funds 19

20. Internal reserves and capital fund Estimates including withdrawals 20

21. 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 21

22. 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 22

23. 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 23

24. 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 24

25. 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%. 25

26. 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 26

27. Financial management 2015-2020 Statement in February Tynwald Objectives –  End reliance on internal reserves to fund general revenue expenditure  Most internal reserves to be replaced with single contingency reserve  Investment income on Reserve Fund to be retained, not spent on revenue expenditure 27

28. Summary  Budget to be rebalanced in 2015-16  Protecting spending on health  £2m into Health Inspection Fund 28

29. 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 29

30. 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. 30

31. 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. 31

32. Budget 2015-16 Questions to the Treasury Minister? 32