Confidential The Budget Presentation to the JCC By 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

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

Rebalancing  £11m drawn from reserves in – on target  Rebalance the budget by – achieved with £2m surplus  Use £92m of reserves – expect around £89.6m  Government gross spending in real terms will fall by 1% in  Size of workforce reduced, with 640 posts lost since 2010 (8% of total) 7

Spending reductions on target 8

Savings achieved to rebalance 9

Gross spending now falling Gross spending (blue line) will rise to £944m in As a proportion of national income (GDP), gross spending (red line) has fallen from over 25% to 20% over the last five years 10

Staff numbers are falling 11

Current year forecast

Future year forecasts Budget Income Expenditur e From reserves 000 Surplus200 £m Estimated total drawdown from Reserve Fund to (cumulative) since Rebalancing started): Budget 2012£92m Budget 2013£89m Budget 2014£89m Budget 2015£89.6m 13

Departmental budgets (£m) Department Budget 14/15 Budget 15/16 Increase/ Decrease % DED5.55.0(0.5)(9.1) DEC DEFA DHSC (3.4)(1.8) DHA (0.6)(2.2) DOI (1.1)(2.4) Treasury Cabinet Office (1.0)(3.7) Other Legislature5.14.2(0.9)(17.8) Total

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

Benefits  Basic state pensions to rise by 2.5%  Special increase in Carer’s allowance from £61.35 to £ per week  Many means tested benefits frozen for  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

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

Reserves 18

Market value of invested funds 19

Internal reserves and capital fund Estimates including withdrawals 20

Taxation  10% and 20% rates unchanged for  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

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

Looking forward - tax proposals for  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

Looking forward - tax proposals for  Removal of personal allowance credit  Introduce NI contributions for employees over state pension age  Simplification of tax system  Full consultation in

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

Other taxes  VAT revenue sharing – negotiations with UK under way - hope to be agreed before next budget.  Provisional VAT share in up 3%  Oil duty income may reduce due to falling oil prices, but effect overall revenue neutral 26

Financial management 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

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

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

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

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

Budget Questions to the Treasury Minister? 32