’Mr President, I would now like to turn to the matter of Income Tax and National Insurance.

Income Tax

‘Honourable Members, last year in recognition of the need to start addressing imbalances in personal incomes, stagnant wage growth and increased costs we increased the Personal Allowance by £2,000. We expected income tax receipts to fall - we were wrong.

‘This year Income Tax receipts are expected to be at least £224million, which is £13 million above our original estimate and £10m more than last year’s receipts.

‘Since this time last year the number of taxpayers has increased by 294, the number of tax payers in employment has increased by 733 and the number of employers by 61.

£13m more in income tax receipts than forecast - I want to claim the credit Mr President, I know Bernie Moffatt is desperate for me to claim the credit so that he can eulogise about me on Facebook – but I can’t and I won’t.

‘The credit Mr President belongs to the hard work and determination of the Manx people and their families; a determination to continue to succeed despite the odds, despite the naysayers and doom mongers and its right and proper Mr President that we again take steps to help address their living challenges.

‘That is why I am increasing the Personal Allowance for a single person by £750, from £12,500 to £13,250, meaning a jointly assessed married couple or civil partners can earn £26,500 before they pay a penny in income tax. It also means that another 1,700 individuals will fall out of paying tax altogether and all taxpayers, all taxpayers will be better off due to this increase – there is no alteration to the 10% band.

‘Taxpayers will be up to £150 better off or up to £300 better off for a married couple.

‘Mr President, this Government has put as much as £700 back into the pockets of our hardworking families in the last two budgets combined. This is a positive and proactive measure from a Government determined to help and the £6.5m cost is met from our excellent economic growth returns.

‘Last year I introduced a new benefit in kind exemption for bicycles when the bicycle is used to cycle to work. Today I would like to extend that exemption to include electric bicycles ensuring that this benefit extends to a broader reach in our society. I would urge business to look carefully at promoting the benefits of this scheme to their employees.

‘Of course I recognise that these measures may increase the sightings of MAMIL’s on our Island roads – please give these creatures the space and time they need to adjust to your presence!! In fact more seriously, we recognise the importance of an active lifestyle both to improved health and improved productivity and whether in LYCRA or a suit – walking or cycling, we can all share the space.

‘Mr President, it is also important that businesses have the opportunity to reward employees without an onerous tax obligation and I will therefore increase the general exemption limit, which hasn’t been increased for many years, from £400 to £600 a year which allows businesses to reward staff in a small way without undue complication.

‘I would also like to extend the allowable payments which qualify for relief as nursing expenses to include physiotherapy costs. The maximum relief available for nursing expenses remains at £12,500 at the 10% rate.

‘Mr President. Last year I stated that the Tax Cap would start a gradual increase so that it is at £200k per annum at the end of this administration. To confirm, from April this year the tax cap will rise from £125k per annum to £150k per annum.

‘Turning now to private pensions; as Honourable Members are aware, I have been a huge supporter of pension freedoms since they were introduced in the UK in April 2015. I also put a successful motion before this house in July 2015 to introduce pension freedoms in the Island.

‘Public consultation on a new pension scheme was issued in July last year and today I have published Treasury’s response to that consultation.

‘The area of pensions is complex and there are many diverse views on pension freedoms.

‘However, my view has not changed and I have always said that I trust our pensioners to look after their own savings if that is what they wish to do.

‘Today I will introduce several new measures for Isle of Man pensions.

‘Firstly, I will raise the triviality and fund remnant limit to £100,000. This will mean that a current pension fund of up to £142,000 will be able to be paid out in full.

‘Secondly, I will introduce a new pension scheme which will allow full access after age 55 and which will accept transfers from current approved schemes for a 10% fee. This new scheme will allow full tax relief on contributions and will be taxed at the usual rate but will have a large tax-free lump sum of 40%.

‘Finally, I will reduce the annual contributions limit for all pension schemes to £50,000.

These new measures will allow Island residents the freedom to access their pension funds more flexibly should they choose to do so and help many transition themselves into retirement

I note of course the lobbying by the pension providers against these measures urging Members to vote against the budget. I am not surprised by this Mr President given the fees these companies and their Directors receive for handling and managing billions of pounds of pension funds but let me be clear: this is not their money and they most certainly are not in a position to judge that people cannot be trusted with their own money. That is the job of Tynwald; Tynwald supported this in 2015; it is in the programme for government and we should trust savers and pension holders to sensibly manage their own finances. Of course I will ensure that proper guidance is given to financial advisers to assist in making those decisions and that we take steps to guard against fraud.

‘These new freedoms will deliver new opportunities for both savers and business and I wish them well.

‘I want also to signal at this juncture Mr President that as a society we should recognise the benefits of encouraging a working lifetime of saving for your later years. I cannot help but recognise the success and benefits being brought from the workplace pensions initiative being applied across the water. It is the intention of the Treasury to consider and consult on this matter within the next twelve months with a view to instigating a similar scheme from 2020.

‘Mr President, I would now like to turn my attention to the taxation of companies.

‘I do not intend to make any changes this year. However, I have asked the Assessor to review the taxation of banks with a view to taxing all banking profits at the 10% rate from next year. The regulatory position for banks has changed significantly since the zero/ten regime was originally introduced and a review is therefore overdue. This measure is estimated to potentially raise between £3m - £6m.

‘Our Income Tax system, for companies, is simple and very generous, and the zero/ten regime remains competitive.

‘However, the Assessor has informed me, that some individuals are abusing that regime and adopting aggressive planning measures to reduce their personal tax liabilities.

‘Therefore, from today, I am introducing new legislation to stop certain practices which have enabled some individuals to receive tax free payments via the sale of goodwill or unquoted shares to their own companies, in preference to taxable ones such as dividends.

‘I would like to take this opportunity to warn those who exploit their relationship with their companies and do not want to pay their fair share of tax that the Assessor has my full support, and I trust will have yours too, in using her wide anti-avoidance power under Schedule 1 of the Income Tax Act 1980 to counter any instances of planning that she considers to be avoidance.

‘I have also asked her to ensure that, if any income tax has been reduced or avoided since April 2016, she charges the 60% penalty in full.

‘I hope all Members agree with me that it is important to keep our zero rate of tax for companies, and that any abuse of this system is simply unacceptable.

National Insurance

‘Turning now to National Insurance. In my budget speech last year I announced that Class 2 National Insurance ‘Contributions that are paid by the self-employed would be abolished from April 2018.

‘I would like to take this opportunity to remind everyone of the announcement that was made in November last year.

‘The UK Chancellor announced that the abolition was to be put back until April 2019 and in November I made a similar announcement that the abolition of Class 2 in the Island was also to be put back until April 2019.

‘This will mean that Class 2 self-employed contributions will continue to be due to be paid for the whole of the 2018/19 tax year and will be collected in the normal way.

‘The 2016/17 tax year saw steady growth in National Insurance contributions and as this trend has continued into the 2017/18 tax year I expect receipts to be £6m above estimate.

‘I again therefore propose to freeze the rates of National Insurance paid by employees, employers and the self-employed for the 2018/19 tax year so that the Island continues to remain a competitive place to do business.

‘The Lower Earnings Limit (LEL) is the point at which an employee starts to build up entitlement to National Insurance funded benefits, in this current tax year it is £113 per week.

‘The UK have announced that from 6th April it will increase to £116 per week and I propose that the Isle of Man should continue to keep the same level as the UK and therefore the LEL will be increased to £116 per week in the Island from 6th April 2018.

‘Finally the rate of the Class 3 Voluntary National Insurance contribution will increase from £14.25 to £14.65 in line with the increase announced in the UK.

‘The Manx National Insurance Fund is held by Treasury and as at March 2017 had a book value of £743 million, an increase of £20m from the previous year. The National Insurance Fund remains and will remain an important National Asset.

‘The interest from investments from this fund and increases to NI receipts has enabled Treasury to cover the shortfall in recent years between incomes from National Insurance contributions and benefit expenditure.

‘While this is good news we must not be complacent as in future years it is forecast that there will be increasing demands placed on it and that is why I will be bringing forward the new state pension proposals to this Place next month and we will press ahead with our plans to end contracting out.

‘Under proposals that I will bring to this Court next month, to put in place a sustainable future Manx State Pension, contracting-out will cease from 6th April 2019. Contracting-out enables employers who operate certain types of occupational pension schemes to pay a lower rate of National Insurance in return for providing a certain level of scheme benefits. As the employees also pay a lower rate of National Insurance they do not build up entitlement to the ‘Additional Component of the current State Retirement Pension.

‘This will mean that from April 2019 all employees who were paying the lower rate National Insurance contribution will see an increase in the amount of National Insurance they pay and so will their employers. The cost to IOM Government as an employer is a little over £6 million and this extra cost has been factored into the budgets of each Department.

‘The UK abolished contracting-out from 6th April 2016 and this proposal will bring our occupational schemes back into line with those that operate in the UK.

‘I recognise that this increase in National Insurance contributions comes at a time when we are also increasing the employee contributions to some of the public sector pensions schemes, but I hope that Members will agree that these changes in both the State Pension and the public sector schemes are necessary to ensure the long-term sustainability of the schemes going forward.

Indirect Taxation

VAT etc. Sharing Mechanism (FERSA)

‘In March 2016 the Island entered into a new indirect tax sharing arrangement with the United Kingdom, the Final Expenditure Revenue Sharing Arrangement or FERSA for short.

‘FERSA rebased our VAT share for 2013/14 onto actual consumption using data we gathered that year through a series of income and expenditure surveys.

‘Since then the Island’s share has been calculated on a provisional basis by indexation of the 2013/14 share at 4.5% per annum, although as I explained last year we have prudently allowed for only a 3% increase in the Budget and there is a reason for this.

‘Under FERSA we must rebase our VAT share every 5 years onto actual consumption and so during 2018/19 the next series of consumption surveys will take place starting with the household income and expenditure survey.

‘The consumption data from these surveys will replace the Island’s provisional indirect tax share for 2018/19 of £339.8m.

‘The FERSA surveys are therefore of critical importance to the Island in terms of establishing our fair share of VAT and other duties not just in 2018/19 but from 2014/15 and right the way through to the next survey year in 2023/24.

Thus I cannot stress strongly enough their importance and I hope the whole Court will support Government’s efforts to encourage both public and businesses participation and engagement in all the 2018/19 income and expenditure surveys.

Soft Drinks Industry Levy

‘Last year I proposed to introduce a Soft Drinks Industry Levy or SDIL with effect from April 2018 mirroring plans unveiled by the UK Government to bring in an equivalent tax from the same date.

‘I can announce today that SDIL will be deferred for one year to be introduced as a shared duty from April 2019.

Since SDIL was first proposed the soft drinks industry has been busy reformulating many of its products to reduce their sugar content.

‘This will result in much lower SDIL revenue than the £1million originally anticipated.

‘Nevertheless government will keep its promise to invest £100 thousand during 2018/19 plus all future SDIL receipts into public health programmes to reduce childhood obesity and encourage physical activity and balanced diets.

Hydrocarbon Oil Duty

‘I can announce that I will be freezing road fuel duty in 2018/19 making this the seventh year the rate has remained unchanged in the island.

Gambling Duty

‘With regard to gambling duties I can report that license holders have continued to run their operations from the Isle of Man securing well paid jobs in the Island and so providing direct and indirect tax revenue benefit for the Island.

‘The Double Duty Relief Treasury introduced in 2016/17 is just one example of Government responding positively to business needs and international events.

‘And, rather than Double Duty Relief costing revenue, I am pleased to announce that this year’s gambling duty receipts are on track to exceed those achieved prior to its introduction.

Air Passenger Duty

‘I can also announce that I am freezing the basic rate of Air Passenger Duty at £13 for 2018/19

Finally I confirm that it remains our intentions to remain in Customs Union with the United Kingdom post BREXIT

Social Security.

State pensions

‘Mr President, we are committed to delivering sustainable and fair pensions for future pensioners and we remain on track to deliver the new single-tier Manx state pension in April 2019.

‘I shall be bringing an Order to next month’s sitting of this Honourable Court which will bring the new Manx pension into law.

‘Further orders will then follow before the summer recess making other changes to local pension arrangements such as the phasing out over 20 years of the Manx Pension Supplement for new pensioners starting from April 2019 and the abolition of the Retirement Pension Premium scheme for pensioners who have not reached aged 75 by 5 April 2019.

‘As I advised Honourable Members last December, the £2 a week addition to state retirement pension for persons aged 80 or over will not be carried forward into the new Manx State Pension.

‘Legislation will be moved later today which will abolish this addition for people who have not reached 80 before 6th April 2019. Those who reach 80 before 6th April 2019 will continue to receive the £2 a week addition for the rest of their lives.

‘As I have stated previously, I believe that state pension age in the Isle of Man should remain the same as in the UK, for the foreseeable future.

‘I have taken note of the report of Mr John Cridland CBE published in May last year, which among other things considered the possibility of a flexible state pension age.

‘I agree with the UK Department for Work and Pensions’ view that the principle of having a State Pension Age that is the same for everybody has a fundamental place in our social security scheme, provides clarity and acts as a pivotal date for individuals planning for their retirement.

‘Therefore, I do not intend to introduce any flexibility around the state pension age here, but will look at ways to support people struggling to remain in work up to their state pension age through the income-related benefits system.

I have also decided that for the time-being we will continue to follow the UK’s so-called triple lock uprating of state pensions.

‘Therefore, I can confirm that, as will be the case in the UK, basic state retirement pensions in the IoM will increase by 3 per cent from the week commencing 9th April 2018. For those with a full basic pension this will mean an increase of £3.65 a week.

‘Furthermore, the additional state pension will also increase by 3 per cent from next April, broadly in line with inflation.

‘Overall, the cost of these increases is estimated to be just over £4.3 million per annum.

Manx Pension Supplement

‘In July 2016 this Honourable Court agreed to uprate the Manx Pension Supplement only when it is affordable to do so.

‘I believe we will need to re-examine the long-term viability of the Manx National Insurance Fund once all elements of the new Manx State Pension have been fully endorsed by this Honourable Court, hopefully before the summer recess. ‘Until then, I cannot be satisfied that the Fund can sustain any increase in the Pension Supplement in the long-term.

‘Therefore, I have decided that the current rates of the Manx Pension Supplement will not be increased from April.

‘As has happened in previous years, the Pension Supplement Scheme has been amended in order to avoid what would otherwise be an automatic increase.

‘Mr President, it is vital that we continue to protect our pensions and treasure and respect our National Insurance Fund.

Annual review of social security benefit rates

‘With the exception of the Manx Pension Supplement, most benefits in the Island will be uprated by between 3 and 3.3 per cent; broadly in line with inflation.

‘In particular the rates of Child Benefit, Disability Living Allowance and Attendance Allowance, and the applicable amounts for each of the income-related benefits, will generally be increased by 3.3 per cent.

‘As regards pensioners who receive Income Support they will continue to benefit from a minimum income guarantee which is between 8.2 per cent and 9.8 per cent – depending on circumstances - greater than their UK counterparts. ‘From this April, an Isle of Man Pensioner living on their own and receiving Income Support will be £13.30 a week better off than their UK counterpart and will be guaranteed an income of at least £176.30 a week after their housing costs have been met.

‘We are committed to ensuring our poorest pensioners can enjoy a good quality of life.

‘Conscious of a continuing gap between the amounts charged by nursing homes in the Island and the maximum amount of benefits payable to someone living in such a home, I am today announcing a further 10 per cent increase in the rate of the nursing care contribution. This is an increase of £13.70 per week and this follows a £25 per week increase last year. In two years that is an increase of £38.70 a week in extra contribution which is payable to everyone who is resident in a care home in the island and who pays for their nursing care, irrespective of their means.

‘Furthermore, the applicable amount of income support for a person living in a nursing home will also increase by £38.00 a week from April.

‘So together with certain other increases, the maximum amount of benefits available to a person living in a nursing home will be increased from £845 a week to £887 a week.

‘We are taking steps to help those who are most in need.

‘I am conscious of course that top ups and additional financial support in this area often lead to Nursing Care providers increasing fees. This has to be brought under control and we will be actively engaging with the relevant stakeholders in this regard.

‘I am extremely keen to see that families who work but who are on relatively low incomes are also protected.

‘Therefore, I am increasing the rates of employed person’s allowance generally by 3.3%.

‘Moreover, Treasury has recently become aware that the maxima allowable for child care costs within EPA do not adequately reflect typical child care charges in respect of multiple children and children under 2.

‘I am therefore delighted to announce that new, increased maxima are to be introduced from April. For example, in respect of a child under 2 the maxima are being increased by around 23 per cent. And whereas the absolute maximum allowable towards child care for two children is currently £240 a week, from April this will be increased by £100 to £340 a week or up to £400 if two children under the age of 2 are being cared for.

‘We are supporting our low income earners, helping our families, our economy and providing more support for our youngest children.

The cost to general revenue of increasing the rates of Child Benefit, Disability Benefits and income-related benefits as I have just described is just over £2.4 million a year. This will be met from projected economic growth.

‘A full list of the current and new rates of social security allowances is set out in the Memorandum which has been circulated to Honourable Members.

Welfare reform

‘A lot of work has been undertaken this year aimed at re-modelling our welfare system.

‘We have been looking at each benefit to see whether the current provisions are equitable and whether there is an opportunity to simplify in order to make them more transparent and easier to administer.

‘As I alluded to earlier we are on track to deliver a much-simplified state pensions system.

‘Last April we introduced the Bereavement Support Payment, which provides for a very straightforward and easy to satisfy contribution condition and standard rates of allowance payable for a fixed period.

‘Legislation will be moved later today which will (a) significantly simplify incapacity benefits, without causing hardship, and (b) abolish the universal funeral payment.

‘The latter payment - which is usually worth £210 - represents only a very small percentage of the typical cost of a funeral and is payable irrespective of a family’s resources. Provision will continue to be made to help those on the lowest incomes to meet funeral expenses. Effectively this universal payment will now become means tested and available to those who are most in need. This will reduce expenditure from the national Insurance Fund by around £200,000 a year and will also free some administrative time to concentrate on helping some customers back to work.

I am keen to encourage those who can work – or can work for more hours – to do so.

‘We have recently consulted on proposed changes to the minimum work requirements for employed person’s allowance and a lowering of the upper age limit for the youngest or older child for a lone parent to be eligible to claim income support.

‘We are currently examining the responses to the consultation and will determine what, if any, changes should be made within the next few months.

Unemployment and jobseeker’s allowance (JSA)

‘The island is continuing to enjoy an exceptionally buoyant labour.

‘Two years ago the total number registered as unemployed was 873.

‘One year ago it was 607.

‘At the end of last month there were only 361.

‘That’s a reduction of nearly 60 per cent since this administration came into effect.

‘Over the same period the number of long-term unemployed – that is, those who have been registered as unemployed for over 12 months – has fallen by 55 or 30 per cent, whilst the number of NEETs – that is, those aged between 18 and 24 who are not engaged in employment, education or training, has fallen by more than one-half.

‘The increase in the Isle of Man Minimum Wage rate from 1st June last year resulted in a welcome widening of the gap between the maximum Jobseeker’s Allowance payable to a single jobseeker and the amount of take home pay a worker would have at minimum wage levels.

‘For an individual aged 25 or over, based on a 40-hour week that gap is now approaching £55 a week. We will continue to redefine welfare support in this area; getting people into work through considered adjustments to Job Seekers ‘Allowance and when the Job Centre comes under our wing we will be in an even better position to assist and help people into work.

New approach to budgeting

‘There have been many observations and challenges relating to the adequacy of the current budgeting process, indeed I have previously made some observations prior to my appointment as Treasury Minister.

‘Whilst the system that is currently employed clearly works, in that it produces a budget each year, I do think that there are opportunities to improve the way we do things.

‘So for the 2019/20 budgeting process, Treasury intends to introduce a revised approach to reviewing and assessing the way in which funds are prioritised and distributed across the various functions of Government.

‘This approach that will be taken is based on a Priority Based Budgeting methodology and will involve the systematic inspection and review of activity, costs and cost drivers and the way in which priority funding decisions can be made.

‘Given the breadth of the services that are provided by Government, this will take some time to complete, however this work will commence shortly and will be used to inform the 2019/20 Budget. We are not resting on our laurels.

Summing up

‘Mr President, there are those in society who want the government and the island to fail.

‘They talk us down, they talk their island down, they talk business and opportunity down, they talk success down, they talk living standards down, they talk public finances down, they simply talk failure.

‘Well I have news for them:

‘Current year Income Tax receipts are UP £13m

‘Public Spending on key services and projects is UP £13.8m

‘Jobs and job opportunities are UP – 280 new jobs created

‘Number of taxpayers in employment UP by 733

‘Personal Allowances are UP by £750.00

‘The fiscal plan is on course and delivering

‘We are putting money back in people’s pockets

‘We are providing more support yet again for working families

‘We are giving more money to the NHS

‘We have already taken action on Water, Electricity and Sewerage pricing

‘We have redefined and laid out a stronger programme of capital spending creating better public services and jobs and investment into our society

‘We have refocused our welfare spending, delivering better value for hard pressed taxpayers and more support for those who genuinely need it

‘And let me say this to the Hon Member who purports this Government does not care about the elderly in our society; State Pensions up 3%, Personal Allowances up, Income Support up, nursing care allowances up twice in two years and also you can apply the same to our working families; Personal Allowances, Pre-school Credits, Employed Persons ‘Allowance, Child Benefit, Child Care Support... all up.

‘Across our diverse Island our people and this government are meeting and dealing with our challenges in a responsible, focused and sustainable manner. We are building the pillars of success and sustainability for many years to come.

‘This Mr President is a budget of substance for an island of substance.

‘I commend this budget to this Honourable Court.’