Treasury Minister Alfred Cannan MHK gave this speech during Tynwald:

‘Mr President. Last year I set out a budget of optimism, focus, support and a budget that defined and laid out the challenges ahead of us.

‘That budget forecast that the government would face a structural deficit of £79m and that we would meet this deficit by using £50m of interest generated from our reserves and £29m from the funds themselves.

‘Today, I can report that due to the strength of our economy, the hard work and determination of our citizens, the prudent use of public finances, reform of our social security provisions, reforms to public sector pensions and strong cost controls, the structural deficit in this budget is estimated at £39m, £40m less than expected and I am therefore expecting to return £11.6m to our reserves.

‘Mr President, we have not been getting busy getting busy, we have simply been getting busy. Getting busy growing jobs and the economy, getting busy redefining our capital programme, getting busy seeking better value from our public spending commitments and getting busy refocusing our welfare support.

‘Mr President, I want to explain today how we have achieved much better financial results than expected but I must also sound a note of caution.

‘The deficit forecasts remain in place to 2021. We must continue to strive for responsible and prudent management of our public finances to retain the confidence of our people and business community and to meet the ongoing challenges of a fast changing political and economic landscape. It’s called the application of tough love.

‘Of course nothing defines these fast changing circumstances more than brexit and the increasing demands to meet global standards when it comes to tax and international financial services.

‘We are committed to meeting our challenges in these respects and building on our programme of engagement, understanding and leadership.

‘Our track record is second to none; we have signed our commitments to Base Erosion Profit Shifting, we have delivered our commitments on Beneficial Ownership, we have strengthened our financial crime and intelligence units and we are today engaging with the EU and OECD on matters of corporate tax and business substance.

‘We should be proud and delighted that the OECD recently rated us as fully compliant with tax their transparency criteria.

‘This budget supports our international commitments, it makes clear our financial support for brexit negotiations and let me make this further commitment; if additional funds are needed in this year to further evidence, deal with or meet arising international obligations then that money will be found and this island will continue to play a leading and responsible role in these matters.

‘We simply don’t have time to admire the Panorama or look for guardian angels – this is a government interested only in delivering reforms of substance based on evidence and fact; not supposition and innuendo.

‘Turning to the domestic economy it is evident that Inflation has risen, and is likely to remain, above 3% in the short term, driven by pressure from rising oil prices, a depressed Euro exchange rate and continued pressure on transport costs.

‘We recognise that this is not good news for workers and consumers and I will outline measures in this budget which will help low to medium earners address some of the negative inflationary aspects they may be feeling.

But, and there is a but Mr President, on the whole the news from our domestic economy is one of growth and positivity. ‘Banking, Insurance, Engineering, ICT and Construction showed strong economic growth.

‘The Insurance Sector in particular should be congratulated – the GDP generated from this sector now beats that from eGaming demonstrating a real resurgence of credible financial products and investments for the expatriate and international community.

‘Our digital businesses continue to be the main contributor to net growth in employment and we have been incredibly successful in developing an E-Gaming and ICT sector here on the island with world class businesses calling the island their home.

‘Employment in this area has grown by more than 250 jobs over the last year.

‘There is also far more to digital business than the booming eGaming sector.

‘We are beginning to see exciting opportunities in the digital media, and unlike much of the film industry that we previously enjoyed, the employment opportunities could be year-round and sustained on-island.

‘I will today signal our commitment to the potential in this sector and look forward to discussing with the Department for Enterprise how monies already earmarked in the media development fund may be better used in this regard in the future.

‘Looking at our visitor economy, tourism continues to grow at a modest pace, with increased spend from our visitors helping boost our economy.

‘There has been a 30% increase in these visitors over the last six years, and we are seeing a renaissance in developers looking at and committing to Hotel developments to further improve our offering

‘Whilst employment has fallen slightly in this sector this will be more than offset when the new promised facilities come on stream.

‘Critical to the visitor economy are the annual motorsport festivals.

‘We continue to see significant growth in numbers of people attending these and recognise their contribution to the local economy.

‘Mr President, whilst entrepreneurial spirit, enterprise and opportunity are behind our economic success, it is vital that the Government continues to invest and support business to create jobs and opportunities for our people.

‘That is why I am once again making available £4.2m for direct financial support to local companies to aid their growth and development through the Department for Enterprise.

‘In the past financial year I can tell you that the Department for Enterprise has supported 31 businesses with £5m of grant funding, helping to support jobs and economic growth. We will continue to provide direct support where applicable. We are committed to growing our economy.

‘The Enterprise Development Scheme is now a living and operating scheme with 10 deals completed by the scheme manager and the department.

‘This year the Department for Enterprise will work with Treasury to review the scheme, and more generally all of our schemes to ensure we are being as targeted and competitive as possible in supporting and attracting businesses that have growth potential.

‘We will continue to innovate and redefine our support as our economy grows and changes.

‘And of all the schemes undertaken in the last year the offer of relocation support to selected local businesses has been one of the most successful.

‘£1m has been offered since April to local employers to assist with staff relocation costs and around 100 people have moved to the island with these businesses; employees who are now contributing to our economy and society.

‘There is real evidence of strength in our diverse economy. Across manufacturing, food production, tourism, construction and others there is real evidence of a sustainable and positive future.

‘Job vacancies are up, our Population is up, there are seven hundred more people in work – that’s up. About the only thing that’s down is unemployment.

‘Such low levels of unemployment on the Island does bring with it certain risks, with employers having to increasingly look off island to fill vacancies, or potentially considering relocating jobs to other areas where people are available to fill them.

‘We will therefore continue to offer support with relocation, helping to grow businesses and the economy and we stand by to work with the Department for Enterprise as they focus now on growing our working population base.

‘Last year I talked about vacant sites and the need to garnish some progress with sites that have lain empty for years.

‘I am delighted at last to see progress with significant developments underway or proposed in and around Douglas. This has negated the need for direct support at this present time.

‘However Mr President, last week I met with the minister for infrastructure to discuss how we can better serve small businesses looking for industrial units on government owned land.

‘The minister informed me that multiple business applications are being received when limited space becomes available and there is effectively a waiting list of small businesses seeking this type of space to grow.

‘We can and must do better – I intend that Treasury and the Department work quickly and efficiently to find a solution to help these businesses find better premises and grow their offering.

‘Financial stability is vital for a strong and credible reputation. Over the coming year the Treasury will be undertaking work in a number of areas to ensure the island’s legislation in this area remains fit for purpose and is further strengthened where appropriate.

‘Civil Debt Recovery, Banking Reform and measures to transfer dormant assets to the Treasury are all matters scheduled for modernisation and legislation in the next twelve months.

‘In summary Mr President the island’s economy is stronger than it was a year ago. There are more people in work, less people unemployed, and a diversity of opportunities. We must go all out to build and support further growth in the years ahead.

Sustainable Budget

‘Mr President, I am determined that we work to a considered and sustainable budget plan to reduce our reliance on reserves.

‘But in making our plans it is vital that we have the flexibility to look to the needs of our island first and adjust our budget to suit.

‘As I alluded to earlier, our financial performance this year, for a number of factors which I will explain later, has been better than we had anticipated, largely due to the performance of the economy.

‘This level of performance has allowed me some flexibility and I am able this year to provide some additional support to deliver the key objectives and work programmes set out in the Programme for Government, over and above that originally anticipated.

‘The updated position, taking into account the Budget, shows this year that the profile of the projected operating and structural deficit position has changed, but nonetheless remains on course in line with the Five Year Financial Plan objectives which will allow a return to the reserves in the region of £16m at the end of the period in 2021.

‘In terms of this year, the latest forecast position indicates that the structural deficit for 2017/18 is projected to £39m as opposed to last year’s budgeted forecast of £79.5m.

‘In other words I expect that we will have used £40m less than we expected to and our economic performance stands as the primary pillar of this announcement.

‘But I should urge caution honourable members. Of course we must be proud of our economic achievements but this is not the beginning of the end but rather the end of the beginning.

‘We must remain focused on achieving a platform for sustainable public finances beyond the lifetime of this administration.

‘The forecast for the coming year is that we will have a deficit of £67.4m - we must continue to reduce that and we must be on our guard. It is absolutely in the greater interests of the island and of our society that we have confidence that our public finances are on solid foundations.

‘Of course addressing a fiscal imbalance can be tough and there are hurdles along the way that need to be addressed; but to those who want to spend, spend, spend I say value, value, value; value for money, value sustainable finances and value the benefits of stable taxation.

‘And sometimes value means that decisions might be unpopular but let me be clear: embarking on this financial course means that critical judgements need to be made; public funds must be treated with care and applied accordingly - we are not about the nice to have’s; spending must be judged on a need to have. Its tough love Mr President....and it should be rightfully applied to public finances.

‘Having said that Mr President, the better than expected results give us more flexibility and a chance to direct some additional spending, both in line with the programme for government and to better enhance our island.

‘Whilst in general departmental budgets remain tightly controlled – this year there is once again only 1% budgeted increase for pay our improved performance has allowed a re-profiling of the five year financial plan and as such I am proposing in this year’s budget an additional £13.8 million investment in our public services.

‘As part of that I am today awarding an increase of £5.5m for Health and Social Care to assist with the ongoing cost pressures present from delivering healthcare to our nation. Pressures which include increased demand for locum nurses and doctors, inflationary costs and patient led demand.

‘The Department of Health and Social Care has agreed a target cost improvement plan of £7m overall for 2018/19 including £5m within its Hospitals Division. The main focus of this plan will be to reduce the cost of additional labour hours incurred through the use of medical locums and bank staff.

‘Perhaps in overall terms £5.5m may not seem enough but under this government we have given the Department of Health and Social Care a combined £16.5m of additional revenue funding in the last two years together with £20.6m of supplementary votes.

‘It is vitally important that we achieve a balance between providing the funding that is required, but also to ensure that there is the motivation to utilise these funds in the most efficient way.

‘So, £37.1m of additional funds – 18.5% of their net £200m budget in two years. There is also a further £2.5m available to drive initiatives through the Health Transformation fund.

‘Do not tell me that this Government is not placing the highest priority on Health. We are committed to supporting our National Health Service and I am looking forward to announcing further details about the promised Review in the very near future.

‘It is vital that we pay attention to our infrastructure and much work continues to be needed to maintain our roads. I am today awarding an additional £3.1 million for the Department of Infrastructure, including an additional £1.1 million to be used to address road deterioration – and £2 million for a number of other areas.

‘These include budgets for electrical maintenance of our property portfolio, investment into the operation of the Horse Trams, and the centralisation of the department’s small plant and machinery, which will drive some further savings and efficiencies across the island.

‘Mr President, looking after our children and working families is of the utmost importance. We are today committing £1.5 million to the Department of Education, Sport and Culture to provide additional funding for pre-school credits to further assist working families.

‘This will enable funding for children to attend privately provided pre-schools, for 20 hours per week during the academic year, prior to them entering primary school and means our pre-school funding through credits rises from £1700, per child to £3,420 per child.

‘Intervention in early years produces benefits for children, their families, the communities in which they are located and society as a whole, both in the short-term and the longer-term through, for example, increased educational attainment and reductions in social issues. This is more good news for our working families.

‘To ensure that the additional finding is linked to quality, the DESC will be able to provide an inspector of pre-schools and an Early Years Advisory Teacher, focusing on developing inclusive practice such as support for more vulnerable children and families with a focus on developing early intervention strategies.

‘Mr President, turning now to pay budgets.

‘Although I have accepted some specific pay bids of £4.1m I can inform you that the budget cap of 1% will remain in place for 2018/19 but, recognising the pressure on public sector pay and should our strong financial performance continue, this will be increased to 2% from 2019/20 onwards.

‘In line with previous years this means that should pay awards be made at a level over and above the cap, Departments will need to find savings elsewhere within their allocation.

‘The costs of public sector pensions has been a key consideration in determining our five year financial strategy with a need to keep a firm focus on structuring our finances to cope when the Public Sector Pensions Reserve is depleted and the burden falls on the revenue account.

‘The latest expenditure forecasts included in this budget are based on updated actuarial work recently undertaken by our appointed actuaries.

‘The result of this work is that the costs are lower than previously forecast.

‘This means that the Public Sector Pension Reserve is now forecast to last longer than previously anticipated - to 2022/23.

‘In addition, the level of additional revenue expenditure that will be required when the fund runs out is now estimated to be around £45m, rather than £58m as previously estimated.

‘Treasury is working with the Cabinet Office and the Public Sector Pensions Authority on a report outlining options for dealing with the Legacy funding issues and this will be presented to Tynwald for debate in due course. I absolutely recognise today that this issue needs to be dealt with this year, and sooner rather than later.

‘We will apply ourselves to this matter with a considered urgency. This is absolutely not the time for complacency from Treasury or anybody else.

‘A further significant area of our expenditure is welfare payments.

‘For the current year expenditure on both National Insurance funded payments and revenue funded benefits is lower than anticipated.

‘Revenue funded benefits are projected to be around £7m lower than expected. This is primarily on account of our improving economy and consequently lower levels of unemployment and the related impacts this has on income support, jobseeker’s allowance and other related benefits.

‘Last year we initiated and launched the SAVE campaign and for the first time Government requested direct input from members of the public in relation to areas where savings could be identified.

‘The response was excellent with over 700 individuals registering to use the online ideas hub which led to a total of 1,311 ideas being submitted and was, in effect, one of the largest consultation exercises this Government has undertaken.

‘These suggestions have been reviewed across Government and our response to each and every one has been published on the gov.im website.

‘We are not standing still.We have now approved work on a number of projects to be initiated with significant potential savings. The business cases for each project are being developed and due to the stage of the policy formation I will not go into any detail regarding the areas being considered, but I can say that they cover many areas of government’s operations.

‘I anticipate that this work will be sufficiently advanced by April this year for me to produce a SAVE progress report for Tynwald in May that will provide full details of all the areas considered.

‘But government’s saving is not restricted to the SAVE initiative and departments already have a number of savings initiatives running to cope with the cost controls in place for pay and non-pay items.

‘In order to assist and incentivise departments in their search for innovative service delivery savings, it is proposed that the terms of reference for the Invest to Save Fund are updated to allow departments to retain 50% of the revenue savings recouped from savings projects, whilst still allowing 50% of the savings to be locked into budgets for future years.

‘It is vital that we continue to support digitalisation and this budget confirms the availability of £7.5m in the Digital Strategy Fund for related projects this year and beyond.

‘The fund has been used to underpin large change programmes in the Department of Health and Social Care, to modernise our Criminal Justice systems, and to update the technology used by Government in delivering HR and payroll services, with other individual projects initiated right across Government.

‘As well as creating efficiencies, digitalisation will also mean that interaction with Government should be faster and easier. The net benefits from our investments in this area to date are estimated to be in the region of £21m.

Moving now to Capital.

‘The continued investment in our infrastructure remains a strategic priority for Government. We have redefined and reset our capital spending programme and this budget contains £423m of capital spending on schools, healthcare and infrastructure in the next five years.

‘This Government is investing in our future and also providing wider jobs and economic benefit to the community. Amongst a number of schemes that have been granted approval for next year I am able to announce that £3.8m will be given towards active travel over the next 4 years, promoting walking and cycling on this Island as an alternative to motorised transport.

‘I am also providing the Department for the Environment Food and Agriculture with £1m over the next four years to improve the pathways, play areas and car parks in the island’s National Glens.

‘These measures will contribute towards ensuring our island continues to be a special place to live and work.

‘In other measures I would highlight the £3m required to refurbish the NSC Pool and surrounding facilities, £14.5m on day-care and older persons facilities in Douglas and £11.5m over the next five years of work to transform and improve Treasury IT systems; vital work for the safe and secure management of taxation, national insurance and welfare benefits payments.

‘The current year will see the completion of the Douglas Railway Station refurbishment, the replacement of the former Castletown Fire Station with a new facility in Ballasalla, the new Acute Adult Psychiatric In-Patient Facility and new residential accommodation for medical staff.

‘We will have underspent our Capital projections this year – that underspend has been due to a number of reasons but those that have had the most significant impact on the projected outturn include the slippage in the timetable for the redevelopment of Douglas Promenade and the replacement of Eastcliffe the adult disability learning centre – both of which are now on track for commencing delivery in 2018-19.

‘The balance of the Consolidated Loans Fund as at the 1st April 2017 stood at £34.4m.

‘Based on the assumptions that have been applied, that is that capital expenditure will be at or around £60 to £65m per annum, the Capital Programme is sustainable with a projected balance of £36M being in the fund in 2022/23.

‘This level of balance does allow for some additional expenditure over and above the forecasted expenditure levels, which provides flexibility for approval and progression of works across all areas of Government.

‘This is a sustainable 5 year plan for the delivery of a robust Capital Programme which delivers a number of new and existing capital schemes for the Island and its residents.'