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The public gets what the public wants

24 Feb 2017

Written by Paul Hotchkiss

Historically, there has always been a certain amount of scepticism on budget day…-is the Government being transparent and honest with public finances?  This has been partly fuelled by the fact that it has been impossible to understand the pink book (to me at least)! These concerns may have been unfounded but nevertheless nagging doubts have always been there.  In the last election the public demanded change: they wanted a new breed of politician — politicians that are open, honest and transparent and politicians who deliver on their promises. They seem to have got what they want.  We now have a new administration. Every administration has to start with the vigour demanded by the electorate and although we are in ‘early days’, in my view this budget has delivered and demonstrates a sea-change in Government philosophy.  I am reminded of the words The Jam song Going Underground:  “the public gets what the public wants”.  This budget is forward looking, transparent and honest: Minister Cannan and his Treasury colleagues have set the scene, told it how it is and in my view have not only delivered what the public wants but have outwardly demonstrated a change in the way Government wants to do things. Some people have said to me that there is not much in the budget; however, this belies the fact that it is impossible to achieve every objective from a standing start, which is the challenge regretfully our political system faces every five years. We can but hope that Government is given the opportunity to build on what is, in my view, a great framework.

The other good news is the economy is growing beyond expectations (VAT receipts, income tax and NI are up).  This is of course very positive but not as encouraging as the change in philosophy. The following specific points struck me as interesting.

The deficit

Yes, the Island has a budgetary deficit and yes it is OK to admit it: everyone knew anyway.  Stating this publically and openly is a seminal point.  It is essential when trying to drive change that the public are fully aware of the country’s economic standing: this forms the backdrop to any fiscal changes to be made and aids understanding as to why they are necessary. We have to deal with it, cannot ignore or hide it: we must recognise it and tackle it head on. Now there appears to be a relatively clear plan to tackle the deficit. That plan is, of course, dependent on many things, as one might expect, but those factors are tangible, have been explained and are measurable.

The use of reserves

Yes, we will have to use reserves to support the budget.  We somehow have the notion that they shouldn’t be touched. In reality, economic fluctuations and specific projects do happen and they are there to be used. Of course the preference is to add to them year on year and we are lucky to have them: few countries do.  Clarity as to their use is welcome as is the clear commitment to ring-fence certain funds for specific purposes, e.g. the use of funds derived from the ‘sugar-tax’ to be used to tackle child obesity etc. What is also encouraging is to receive an explanation of the source of the ‘reserves’ which are to be utilised.  Confusion has reigned in the past because most taxpayers have assumed that to extract funds from reserves meant a diminution in the total reserves available. That makes sense, right? Not necessarily— the reserves themselves generate income and when it is said that government are drawing funds from reserves, this in fact means they are using that income (£50M per year) plus drawing a smaller sum (£30M) to support the revenue spend.  It is the latter that reduces the size of the pot: the former does not.  This is not great but at least we understand it and whilst this perhaps was always the case, it was never explained very well.

This is all good stuff: now at last there is a feeling that the wool is not being pulled over the public’s eyes.

Making savings

Of course reducing costs is paramount with cost monitoring continuously featuring on the Government’s radar’: they should not spend willy-nilly without accountability.  The new group (the SAVE initiative) is to be established and headed by Bill Shimmins MHK with the purpose of collating ideas (derived internally and from the public) and implementing initiatives as to how savings can be made.  This is welcomed.  All too often Government departments can be accused of not making savings because those savings may adversely affect the department’s future budget.  It is encouraging to hear that ideas will be taken forward irrespective of the departmental impact.  This is a further demonstration that Government is willing to listen and take the right, what might be sometimes seen as, unpalatable, actions. It would be useful if this group reported back regularly to the public with progress reports.

Fairness

All Governments aspire to be fair and sometimes they can be accused of being slightly fairer to certain sectors of the population than others.  This budget delivers on two clear fronts: (1) by increasing personal allowances, thus taking 3,300 out of the tax net and (2) by increasing the tax-cap progressively. 

The general global mood is all about fairness across populations and the island is no different: we have to support our economy at all levels. Taking people out of the tax net will increase spend and improve well-being.  Many argue that the tax-cap is unfair; some say a competitive cap is essential to attract business.  Both opinions have merits and a balance must be found. We still need to attract entrepreneurs to the Island and encourage them to stay— after all we are competing with other jurisdictions for a very small pool of people.

The increase in the tax-cap was to be expected: despite the protestations that the change in the cap damages the island’s ability to attract the wealthy, in my view the damage was actually done some years ago when the 5 year period was introduced.  Is the increase politically motivated?  …Probably!  Frankly, with the now acknowledged deficit we cannot really do anything else: the public would demand something — the real question is how much of an increase?  For those who wish to use it, the good news is there is still time to elect into the cap at £125,000 for 5 years (provided this is done before 5 April 2017): an election next year will move people into the £150,000 bracket for 5 years with a £25,000 increase thereafter.  This phased move should satisfy those who don’t like the cap and should still, with the absence of capital taxes and a general zero rate of corporate tax, keep those tax-cappers with a social conscience reasonably happy. Furthermore, it is probably right that in 4 years time when the cap will be £200,000 that most of our competitors will have followed suit: remember we have reserves most countries do not.  How this change looks externally from a new business perspective is a different matter and perhaps it is time to look at our overall business proposition in general.

You have a budget now spend it…not any more

Seeing steps put in place to avoid the March rush to spend the current year’s budget in case budgets are slashed in the following year is welcomed. There was a public outcry in relation to the re-tarmacking of Sloc Road to achieve the objective of maintaining budgetary levels.  The strategy adopted (with some carry forward) is likely to change behaviours for the better. Once again this demonstrates the Government has listened and taken on board that it is simply not acceptable to be profligate with public money.

Clear capital budget

This should provide confidence for business and encourage the construction sector.

Incentives

I have heard comments that there is not much in the budget for business and I would have liked to have seen more incentives for business.  But I also understand that such incentives take time to devise (and if rushed they aren’t fit for purpose: see the failed Manx Enterprise Incentive Scheme as an example) and there simply hasn’t been time for this given we have a new administration inheriting from the old.  A proper package of incentives is likely to need legislative change and regulations and I am sure it will come in the next 12 months. In my view, it is important that Treasury start to look at such incentives with vigour, after all the Island needs to attract and retain talent, encourage investment and remain competitive. Now is the time to look carefully at the island’s business proposition with the number crunching out of the way.  Having said this, it is encouraging that Treasury is to put more funding into certain key areas (digital economy, a Brexit fund and the economic development fund).  On the latter, and continuing on the theme of transparency, it would be helpful if there was much more public information as to how the fund is being allocated and the key performance indicators to measure success.

There is much more to say and these for me are some of the highlights. Of course, the fact that the economy has grown is a good thing but the real key to is the approach taken by Treasury. I will finish where I started: it is very refreshing to see the new breed of politicians (ministers and backbenchers alike) actually beginning to tackle the issues we have to face up to as an Island community — recognising and being public about our problems is a big step towards finding solutions.  Some of these matters are not straightforward and very often a careful balance needs to be maintained: one cannot please all the people all the time. Pre-election there was much noise in the business community and from retiring politicians post-election that the new administration were inexperienced with doubt being cast that they could step up to the plate-—this budget and the way the Government has handled itself since late last year to my mind clearly demonstrates that their abilities have been underestimated.

Unlike The Jam, we do not need to go underground: everything is now above board.

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