Over 100 representatives from the Island’s businesses joined Lloyds Bank for its annual Manx Budget special working breakfast on Friday, which this year featured a presentation from Treasury Minister, Hon. Eddie Teare ACIB MHK on the 2014/15 Isle of Man Budget.
Island Director, Peter Reid opened the morning’s proceedings on behalf of Lloyds Bank and welcomed delegates to what he described as one of the highlights of the Lloyds Bank seminar calendar. “We are all impacted to some extent by recession”, he explained, “and I do believe that it’s part of all of our jobs to help the Isle of Man in its prosperity. Certainly from a Lloyds perspective we’ve had absolutely brilliant support from Government and I’d like to highlight that today, and say a big thank you.”
“We’ve had something like 27 NEETS come through the bank in the last year”, he continued, “and we’ve also had fantastic support from the DED in setting up an apprenticeship scheme, the first banking apprenticeship on the Island, for which we’re now up to 22 subscribers and counting. At the end of their apprenticeships, these colleagues will be awarded the equivalent of five GCSEs and will have the means and experience to build a stable future for themselves on the Island. It is in this vein that I challenge everybody to go back and look at what they can do to make a contribution to our public. It is an immediate investment in the individual, and will benefit us all in the future.”
Mr Teare then took over from Mr Reid and introduced his presentation as providing an update on public finances, progress on budgetary rebalancing, and changes to tax and National Insurance, before concluding with a summary of major impacts on services. Starting with the local economy, Mr Teare alerted the audience to 3-4% rate of growth in real terms this year, the 29th continuous year of economic growth for the Island, which is coupled with a relatively low rate of unemployment at 2.6% and a stable rate of inflation at 3.1% on the Retail Price Index, and 2% on the Consumer Price Index. In comparing this with Jersey and Guernsey, Mr Teare noted that this placed the Isle of Man’s as probably the largest economy of the Crown Dependencies.
Low levels of interest rates are, however, effecting banking deposits as customers search for alternative means to generate income, and this has resulted in a drop of 9% overall. Similarly, Mr Teare noted that low investment returns are currently having a negative impact upon income tax receipts to government. “We are, however, seeing green shoots of activity”, he observed: “the Deeds Registry has seen a 15% increase in activity over the year, which points to strong signs of growth in the local housing market.”
Turning to the government’s medium term strategy, Mr Teare began by reminding the audience that the Island has lost around ?200million per-year of VAT revenue since the change in arrangements with UK Treasury. He noted that the Island is, however, on course to rebalance the budget by 2015-16 and that the total use of reserves to achieve this remains at ?89 million. The Minister explained that the budgeted deficit for 2013-14 of ?31 million had reduced to ?26 million due to higher levels of income and lower spending. “Key to that saving has been holding our employee costs down,” Mr Teare added. “We have reduced the headcount by over 550 posts and 600 actual jobs since 2010, so we are certainly well ahead of target.”
“So how do we intend to spend this money?” Mr Teare continued. He explained that the Department of Economic Development is this year expected to generate more internal revenue than previously, particularly through the Aircraft Registry, which is expected to see a ?200,000 increase in income in real terms this year. The Department of Health and Social Care will see a ?3.9 million (2%) increase in its budget from ?190.8 million to ?194.7 million. The Department of Infrastructure will experience the greatest budget reduction from ?108 million to ?106.7 million (?5 miilion, or 10.9%). Overall, departmental savings amount to ?4.3 million for 2014/15.
Declining reserves represent an ongoing concern, however Mr Teare observed that this year’s estimate is ?140million above 2013, and is stronger than it has been since 2008. The Capital Fund has increased by ?5 million to ?52 million. The National Insurance Fund is up ?49million to ?734 million, and the operating balance is up ?5 million to ?35 million. Overall, this represents a ?6million reduction to ?1,676 million. Mr Teare then furnished the audience with an insight into the government’s internal reserves and day to day internal living expenses. “At the end of this month”, Mr Teare noted, “we will be operating to around ?150 million for the year, which is again expected to half to around ?70 million by next year. The key is in how we rebuild these reserves. That’s the next challenge.”
To conclude his presentation, Mr Teare touched briefly upon the topic of taxation before moving onto fiscal strategy for 2015-20. The 10% and 20% income tax rates will remain unchanged, as will Personal Allowance Credit, which will stay at ?500 per person. Personal income tax allowance thresholds, however, will increase by 2% to ?9,500 per person and the Additional Age Allowance will reduce by ?1,050 per person; a move likely to affect more wealthy pensioners. These moves, he explained, are in part set to help accommodate Treasury’s fiscal strategy for 2015/20, which is designed to meet its objectives of achieving financial sustainability, providing for major capital schemes, removing its reliance on internal funds, a link with the Vision 2020 economic strategy for the future. “In short, Mr Teare said in closing, “What we want to do is ensure that we’re planning not for the next election, but for the next generation. We need to remove our reliance on internal reserve funds, so there’s lots more work to do, but we are ahead of target. The best way I can put it is, we’ve come to the end of the beginning, but we’re not at the end full stop.”
Lloyds Bank’s Head of Commercial, Trevor Kirk provided the closing words and offered his thanks both to Mr Teare and the audience for their insight and questions. He added: “I do think that community confidence is a massive factor in the local economy, and we are detecting some of that, certainly due to the good news that’s coming out of the UK. There are of course, going to be challenges, and our ministers are fully aware of that, but to maintain confidence and to do things methodically is important both to our residents and to inwards investors.”
He continued: “Facilitating events such as this is something that we hope adds some value to your relationships as members of the business community. We all appreciate the opportunity to engage with our customers, to listen to their concerns and to provide an open line to our public representatives. This is a sentiment that travels through the bank. We are very much open and we are very much open for business. We’ve just been setting our own budgets and I’m pleased to tell you that we have been quite optimistic and aggressive with our spending projections. As such, you are all very welcome to talk to us about your ambitions for the future.”
Photo (left to right) Trevor Kirk, Hon. Eddie Teare MHK and Peter Reid.
