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Treasury Minister Alfred Cannan MHK’s Budget Update Speech

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Mr President 

The collapse of Flybe on the 5th March this year rapidly brought home the growing impacts of the Coronavirus pandemic on our economy. 

At that point, work had already begun to protect our core internal infrastructure but this single event was to bring with it the inevitable recognition that there was to be an immediate credible and serious threat to our economy. 

The dangers to jobs and businesses on the Island were of course not just being driven by the actions that we as a Government were taking, but the actions that were also being pursued across the UK and the globe to combat this steadily worsening global health crisis. 

In response, on the 23 March this year, some 16 weeks ago, I brought forward a package of measures designed to protect the economy and jobs from the implications of the actions that were being taken to protect lives from this deadly virus. I can update Hon Members on the cost: 

The Salary Support Scheme has to date supported 1,999 businesses, 12,295 employees and paid out £27.5M 

The Strategic Capacity Scheme has paid out £2.5M to 182 hotels and tourist accommodation providers. 

The Fisheries Industries scheme has paid out £330k. 

The Business Support Scheme has paid out £9.2M to 3,061 businesses. 

The Disruption Loan Scheme has backed £1.8m of loans for 37 applications, protecting 275 jobs. 

Over £30M of Government taxation payments have been deferred, providing breathing space for businesses and individuals. 

Between 1 March and 13 July the MERA has paid out £4.9M in addition to increased welfare spending of £3m compared to this time last year. 

Mr President, this was a full, unique and comprehensive package of support, delivered rapidly and decisively, comparable with any delivered anywhere in the world and, for the most part, it has done its work.

But some 16 weeks on from the 23 March, we are still facing a great deal of uncertainty. 

As honourable members will be aware in June we undertook some economic analysis, including business and household surveys. 

Last week we updated this with a further survey with some 400 businesses and 500 households responding. 

Whilst the results are still being analysed, what I can tell you is that whilst our initial survey established a somewhat pessimistic mood, the most recent survey has returned a much improved level of confidence and indeed many businesses reporting restored turnover and sales figures at pre pandemic levels - or better. 

However, whilst I welcome a reported uplift in confidence, we cannot be complacent and we cannot ignore the economic statistics that are being produced by respected institutions around the globe. 

The UK’s Office for Budget Responsibility’s Fiscal Sustainability report published this month states that ‘the coronavirus outbreak and the public health measures taken to contain it have delivered one of the largest ever shocks to the UK economy and public finances’. 

Furthermore it states that ‘the UK is on track to record the largest decline in annual GDP for 300 years’. 

UK GDP has fallen by one fifth, UK unemployment is predicted to rise significantly, Critical impacts are being felt in manufacturing, hospitality and retailing and the World Bank states that COVID-19 recession is expected to be twice as bad as the 2009 financial crisis. 

It is of course a huge step forward to have large parts of our economy functioning and to be clear of the Virus on the Island, but the job is not over, the virus threat remains, our requirement for crisis management remains and there is a clear and unequivocal threat to the global economy. 

Failing now to take continued action to protect our economy in these circumstances would in effect be preparing our economy to fail. 

We cannot just stand by. We must act.

So today I have asked Tynwald to approve further direct measures to support our businesses and our economy which includes the creation of a £100m Economic Recovery Fund to be able to respond to the continued threats and to assist the Island in tackling both the expected and indeed  the unexpected when it comes  to what happens next both economically and - intrinsically interlinked - from a  health perspective. 

Support Schemes 

Before I inform you how that money is intended to be used, let me explain what is, with Tynwald approval, to happen with the existing support schemes. 

I am sure that we all recognise that providing taxpayers’ support directly to businesses cannot in essence continue at either the current level or indeed under the current frameworks. 

Nevertheless, there is, and there is likely to be, a necessity for Government to continue to provide direct support to certain parts of our economy and I want to be clear with you, as far as possible, as to the broad principle that we are seeking to apply when we are using taxpayers’ funds to directly support businesses from here on in. 

Specifically, we must first recognise that we cannot expect businesses where their market place has all but been closed off due to the restrictions or Government actions as a direct result of the emergency, out with their control, to be able to find new ways of operating or meeting their overheads. 

On this basis we will therefore provide direct support to such businesses operating in a sector that we consider to be materially impacted in this way - on a fair and equal basis until such time as we believe that sector can reasonably trade on its own taking into account all prevailing circumstances. 

This is particularly applicable to the internal or domestic economy where businesses are acting in direct competition with each other. 

In terms of the external economy for those businesses whose trade is off Island, we will consider a more tailored approach if there is no internal market distortion amongst competitor or similar businesses. 

As a result of this determination of principle, the Strategic Capacity Scheme that is supporting hotels and tourist accommodation providers has been extended until at least September at enhanced rates. 

This provides extended support of £3.7M to the accommodation sector, who we accept is under significant stress. 

In addition, we have extended the Business Support Scheme to provide additional support directly to businesses associated with the travel and tourism industry who have equally been severely impacted by the loss of tourists this year and clearly need direct taxpayer support at an anticipated cost of £1.7M.

We still have work to do to consider what support will need to be extended over the winter months in these areas and will, together with the Department for Enterprise, continue to discuss with Visit Agency and broader visitor economy how best to do this. 

We are acting to support businesses and jobs in these areas. 

The Fisheries Industries Scheme, a scheme that has provided vital support to the industry where the export market has been severely reduced is proposed to be extended for a further three months at an estimated cost of £400k. 

This support will assist in maintaining the core heartbeat of our fishing industry and thus supporting what has historically been family businesses in this centuries old industry. 

The Salary Support Scheme has provided support to so many employers assisting them to continue to pay their staff whilst the business has been closed or suffering a significant reduction in turnover. 

The scheme saw a peak in applicants in Period 2 (30 March -26 April) whilst we were virtually in total lockdown. 

The number of applications has fallen noticeable in Period 4 as the economy recovers 

Now that many businesses can start trading again we must ensure that the resources we have available are now focussed on creating a platform for our economic fight back. 

I am sure that you will understand that continuing to provide direct taxpayer support through the salary support scheme runs the risk of the market becoming distorted and anti-competitive, may support jobs that are no longer viable or hold businesses back from adaptation as well as placing a considerable strain on public funds. 

The salary support scheme now needs to be more targeted and will be tapered down in the next few months to only provide support in limited circumstances. 

So, for the four week support period 5, which ended on 19th July, businesses in the: 

  • Construction sector,
  • agriculture and forestry
  • wholesale distribution,
  • professional services including legal and accounting,
  • private education and
  • mining and quarrying sectors 

will be requested to provide evidence the business continues to suffer the required level of revenue downturn for this period.

For these business sectors the scheme will then be closed for the next claim period, period 6; that commenced on the 20th July. 

For businesses in the remaining sectors the requirement to provide evidence of a downturn in revenue will be increased in period 6 with the scheme then closing to the majority of the sectors from 17th August [this date is a correction as the speech originally referred to the closing date, wrongly, as being 14th August].. 

For businesses in the travel and tourism sectors the Salary Support Scheme will continue will be extended for at least one further 4 week period until the 14th September. 

Details of these changes will be reflected in the guidance for the scheme and published shortly and are estimated to be a cost of £15m. 

This graduated change will provide support for businesses to transition into the new trading environment. 

It is time for businesses to move from relying on this direct support scheme to other self-help support that Government has and will be making available. 

However as there is still much uncertainty, and as there is always the potential for a resurgence of the virus, the Salary Support Scheme will not be completely terminated. 

Should the circumstances change and the economic situation regresses to the point where this scheme is necessary once again, the scheme amendment before you today allow for support payments to be made to appropriate sectors should they be required. 

I have mentioned self-help support schemes and a key one that has been put in place has been the Business Loan Guarantee Arrangement. 

I can announce today that this arrangement providing a taxpayer backed 80% guarantee for lending through existing bankers will continue but will now be supplemented with a new additional £10M Working Capital Loan scheme

This fall-back loan scheme will be available to the majority of businesses and Government will provide a 100% guarantee to enable viable companies to secure cash to support their operations. 

Providing this further safety net for businesses is the responsible thing for Government to do. 

The Manx Earnings Replacement Allowance has been effective, however it is important that its recipients return to work as soon as they can.

The MERA was always intended to provide temporary respite during the most difficult of times and now that our economy is beginning its resurgence it’s time to end this particular support scheme. 

People who become newly unemployed from 1 August will not be eligible for MERA, but may instead be entitled to benefits such as Jobseeker’s Allowance. 

From the 3rd August the weekly rate of MERA will reduce to £100. 

At the same time I am proposing to increase the maximum amount of money an individual can earn whilst claiming the MERA - from £50 per week to £150 per week - so that the total value of the income ceiling for MERA claimants remains constant at £250 per week. 

MERA will end for all residual awards on the 20th September, with those unable to secure employment at this point being supported by the substantive welfare system, according to their individual financial circumstances. 

I expect the residual cost of the MERA to be no more that £3m. 

By way of enhancing protection for society I am introducing a Social Care Staff (Coronavirus) Support Payment that will be made available to ensure that individuals who are employed in certain social care settings and don’t get sick pay from their employer are able to self-isolate where required to protect the most vulnerable in our society. 

This additional support will mean that a qualifying care worker can claim up to £150 a week for up to 14 days at a time - almost double the rate of Incapacity Benefit - thus providing a sensible incentive to make sure that those looking after our most vulnerable are being offered more protection and don’t have to choose between work and safety. 

Economic Recovery Plan

Mr President, given that the direct support schemes for the majority are tapering off, I want to return to the actions that we are proposing to take to drive the Island forward through the Autumn and Winter. 

Let me be clear; our core sectors are fundamentally strong, we have faced turbulent conditions before, our business leaders and executives have demonstrated strength and ingenuity in the face of adversity and the core values of hard work, determination and resilience are ingrained in the people of this Island.

Nevertheless it would be remiss of me not to be straight with you.

Prior to the outbreak of the coronavirus registered unemployment in the Island had been at a 16-year low.

At the middle of March 2020 the number stood at just under 400.

By the beginning of April this had more than doubled – to around 850 – and by the beginning of May it had increased to almost 1,350 and currently there are around 1,100 people registered as unemployed and claiming jobseeker’s allowance.

This includes around 300 students who are back home for the summer months, but for whom the usual array of seasonal work has not been available this year.

In addition, just under 1,500 people are currently getting MERA.

It is very likely that there will be higher levels of unemployment and the global economic conditions will inevitably mean a difficult period ahead for some, if not all sectors of our economy. 

However, we should not prepared to simply accept this as an inevitability and we should all be determined that Government must do all that it can to protect and stimulate our economy.

Our economic fightback plans must be measured, appropriate and responsible but most importantly they must be capable of gearing up (or indeed gearing down) as appropriate.

To meet these objectives, to ensure that we are prepared, to ensure that we deliver on our plans and to ensure that we can react further if necessary, we are creating a new Economic Recovery Group to work across Government and report directly into the Council of Ministers.  

This Group will operate at pace, building on the work undertaken in response to the pandemic.   

This Economic Recovery Group will oversee the 6 key strands of our economic recovery programme, backed by a substantial £100m Economic Recovery Fund:

Using this money and other support that has already been put in place:

We stand by to invest in our economy using the direct and indirect support that has been already outlined as well seeking and developing opportunities for our local businesses to grow and develop

We stand by to invest in our people by expanding the opportunities for developing core skills– at schools, at UCM and working with employers and standing ready to create up to 1,000 additional retraining and employment opportunities if needed

We stand by to invest in our island by accelerating investment programs and schemes to improve our digital capabilities, speed up national high speed broadband, accelerate the climate change commitments and improve core infrastructure being ready to support up to 1,000 jobs and taking our Island forward to a greener, cleaner future

We will further invest in our future, moving towards an inclusive digital, green and safe Island byexploring ideas and accelerating delivery of major initiatives that might take a little longer but can deliver economic benefit for years to come. 

We will look to capitalise on the opportunities our response to the pandemic has given us – through enhanced marketing of the Island as a great place to live for entrepreneurs and business leaders,

We will look to accelerate initiatives already underway to improve our national infrastructure and we will actively invest now to support the development of new sectors of our economy. We will plant the seeds now that will bear fruit in 2021 and beyond.

Finally we will develop further our future economic strategy seeking to understand the changing world around us, what our economy might look like in 5 years’ time, building on global shifts in employment, in technology and in taxation policies, how this is likely to challenge us and, where it may also present us with opportunities.

The Economic Recovery Group will continue to oversee this structured response across these programmes holding the whole organisation to account to rapidly deliver real change where it is needed, or where it is beneficial.

I cannot promise you a panacea, I cannot determine how good, bad or indifferent the economic outlook will be, but I can promise you that we are shaping ourselves, our budget and our Island to not only to come through these next nine months, but to build the platforms for our future recovery and prosperity.

Mr President, Whilst I hope all will agree that the creation of an Economic Recovery Fund is an essential mechanism to ensure our economy fully recovers, I also acknowledge that £100M is a lot of money. I must therefore emphasise that it is intended that “up to” £100m be used. I am asking Tynwald effectively to commit “up to” £100m. I am sure we are all cognisant that the Pandemic costs are mounting and whilst we absolutely must be ready to invest, we must do so responsibly.

I am therefore committing today to provide Tynwald with a quarterly update starting in October outlining economic progress, actions undertaken and detailing associated expenditure.

To be clear, whilst there is uncertainty still in how much of the fund we will require, I do want to assure members that spending from the is fund is not a free for all and there will be robust scrutiny surrounding its utilisation.


I want to turn in a little more detail to the budget papers that are before you today and essentially the question that must be pressing you most is can the Island afford this and how are we going to pay for the commitments?

The budget update includes some estimates and possible scenarios for reduction of income to Government this year, it shows the projected position for our financial support schemes and also shows the estimated impact on Government net spending this year.

I want to stress that the income reduction scenarios presented in the budget are just that, they are broad based assumptions on this year’s outturn and they are only meant to be illustrative of the possible scale of the impact this year.

The budget update also proposes changes to the capital programme this year, accelerating and increasing spend where we can and where we think it will benefit our economy, recognising that some schemes will now be delivered later than planned.

I’m sure members will realise that process undertaken to produce this document has not been a normal one, the timeframe simply didn’t permit us to undertake a full budget process. 

Departments were asked to undertake a line by line review of expenditure to identify those areas of their budgets that would be likely to change this year.

This is not another carry-forward budget, where Departments have identified that they face reduced income this year, they have sought to offset this by cost reductions where possible.

The biggest impact on Departmental net revenue is estimated to be a reduction in income received.

The estimates in the purple book clearly show this, DFE some £7m down, DESC, £1.5m down, DHSC £3.2m and DOI estimates an income reduction of approximately £17m this year.

I want to stress to Hon Members that this budget update process has not been intended to be a cost cutting exercise in response to the projected income reductions.

These are times for careful consideration of spending changes, we must seek to support our economy by continuing to spend within it, but spending on the right things and making sure we have done our best to mitigate the cost to the overall public purse whilst doing so.

The overall outcome of the Departmental review is a net cost of just under £25m, with £22m of that identified as being covid-19 related and just under £3m being related to other causes.

We all know that the Department for Health and Social Care has struggled to meet its budget for the past few years, the Departmental review identified that its budget is likely to come under pressure again this year, this budget update therefore includes an increased estimate for the year end result at Nobles, mostly in employee costs.

In compiling this budget update the Treasury has been mindful that there still must be appropriate financial controls maintained to ensure financial discipline and to minimise the actual overall variance to the existing budget agreed in February.

The budget updates proposes that an additional £17.5m is approved to be transferred into contingency, which when combined with the £40m already previously approved by this Court, should allow Treasury to fund the support schemes already approved and manage the impact on departmental net budgets.

Treasury will scrutinise departmental spend against the estimates presented in this budget update throughout the year.

The budget update does not propose to change the figures for Treasury income as there is too much uncertainty, however Members should be clear, it is likely there will be a significant shortfall in Government income this year.

A key element of this investment is our capital programme and is closely linked to the economic stimulus projects identified above.

This budget update proposes realistic changes to the capital programme for this year only.

The aim of the changes is to accelerate or even increase spend on schemes that we can get going quickly as a means to inject money into our economy. 

We have identified some £910k of additional spend proposed for this year, to a large extent in the minor capital works budgets and some £6.1m of spend where budget is proposed to be brought forward from future years.

The changes are designed to being spend to the market quickly, across a wide variety of trades where we have confidence that resources exist on-Island.

To speed up the process, Treasury has recently agreed to an amended procurement process for schemes up to £250k on a temporary basis to ensure the investment in our economy is accelerated.

Hon Members will have noticed that the budget includes a request to increase the budget for the Douglas promenade scheme by £750k.

This increase, and associated acceleration of budget from future years, is proposed to allow the scheme to be completed by the Department of Infrastructure, in its revised scope by the start of next year’s tourism season.

I recognise there are strong feelings in this about this project, however the benefits of avoiding further disruption next year to a hard pressed tourism sector are self-evident. 

The department has reduced its heritage rail budget this year to compensate for the proposed increase in this scheme.

There are also a number of schemes were spend has been proposed to be delayed until after April 21.

I wish to stress to Hon Members that this does not mean the scheme will not progress or that, in some way, budget has been withdrawn.

It merely means that a realistic assessment of the timeline or deliverability of the scheme indicates that it is likely to happen later than planned, therefore the financial timeline has been adjusted.

Whilst we have made these adjustments I would also remind honourable members that there are a great many substantial projects that are progressing injecting money into the economy including:

  • £12M for Summerhill View an exciting new residential care unit in Douglas providing modern care facilities;
  • £9M for Airport Ground Services delivering a two stage programme of works to ensure the effectiveness and compliance of our airports aircraft stands, runways and taxiways. 
  • £1.3M for Castle Rushen High School sports pitches to prepare for the redevelopment of the school
  • £1.4M for Peel Marina
  • £0.9M for Peel GP surgery extension

Our current capital programme remains intact, albeit with slightly different phasing due primarily to the pandemic. 

We have accelerated items which have scope to get to a wide range of suppliers into the market quickly and in the light of feedback from industry. 

We continue to invest in the preparation of future schemes which support the principles of efficiency as well as projects that support our community and economy.

Whilst preparing this budget update, the Treasury has also been negotiating appropriate and prudent measures to ensure the financial resources are available to it to deliver the economic recovery plan.

Mr President, the Island remains in a strong financial position, we are very fortunate that we still have our reserves to cushion any financial impact from events such as the pandemic.

Indeed the Island’s economy’s robustness and return to work has been such that we have expended less in overall revenue than we had initially anticipated.

These reserves have been accumulated through prudent financial management over the years, I believe it is important that we maintain that prudent approach now.

I have already explained that there remains significant uncertainty, Treasury must stand by to support the economy and our people should there be a second wave of this awful disease.

Markets have recovered somewhat from a few months ago but remain subject to shocks.

We must be careful about cashing in our investments when we do not fully understand the ultimate scale of the financial challenge facing us.

I think Hon Members would reasonably expect the Treasury to have in place plans which are prudent and allow for a response to unexpected movements.

To this end, and as part of the short term funding plan for our economic response, we have been negotiating a revolving credit facility with a syndicate of banks, all of whom have a presence on the Island.

This facility has an initial limit of £150m, extendable to £250m and a term of two years extendable ultimately to four on agreement.

In operation it would allow the Treasury to access “tranches” of funds for short periods to provide an alternative means to access cash against cashing in our investments. 

I wish to assure Hon Members that having access to this facility does NOT means we have to use it, however it does provide another tool in the box for us to use to implement our economic recovery plans.

As an example the Treasury initially plans to borrow £40m for a period of 3 months to provide liquidity and to allow investment managers cash holdings to return to a more normal position.

Hon Members you can be assured, if we do not need to borrow we will NOT, but we do need to ensure that we are giving ourselves as many options as we can to deliver our financial plans.

Hon Members, as we move forwards we must review and refocus our plans.

The budget update in front of us today is merely the first step in an ongoing process of reviewing our financial planning for the medium term.

Treasury is already conducting an in-depth review of how to fund and account for our capital programme and expenditure.

We have an upcoming review of our National Insurance arrangements to bring forward in due course.

It is entirely proper that we take our time to step back to plan the medium term financial plan, we have many options to consider including the possibility of sovereign debt issuance as part of a longer term financing strategy.

All these matters will be considered as part of the budget process building towards February 2021.

Mr President, I recognise that this budget update and indeed the spending commitments being sought are laced with uncertainty and in some areas a lack of detail. 

Particularly the ask today to commit £100m of funds to protect our nation without scheme specifics and key targets may cause some nervousness; particularly the ask today to support what is effectively a £250m overdraft facility without further examination of drawdown plans may cause some nervousness but I ask Hon Members today to consider these questions;

  • Do we consider that Coronavirus continues to pose a dangerous threat to health and economic trading conditions on this Island? 
  • Do we consider that there is substantial evidence of a global economic recession? 
  • Do we acknowledge that it is impossible to gauge with any certainty how a global recession and recovery might play out? 
  • If you consider the answer to those questions is yes, then failing to prepare will indeed be preparing to fail. That will not be acceptable - We must be preparing to succeed.

Mr President, I do not believe that we have been found wanting in our response to the immediate crisis and neither should we be found wanting now in our response to the short, medium and longer term challenges.

£100m is being asked today to prepare this nation to succeed, to create opportunities for training and retraining, to create opportunities for infrastructure delivery, to create and support jobs, to support businesses and to support our Island.

We are bring forward Capital Schemes to support jobs and infrastructure, we committing to retraining and reskilling, we are committing to developing schemes that will both enhance our climate change targets and create economic opportunity, we are providing continued support mechanisms for business, we are putting together an economic recovery group at the heart of Government

We shall act and react in equal measure. 

We are preparing to overcome challenge and recognise opportunity in equal measure.

Mr President, this budget sets course for the expected storm and the sea mist, sets course for the best but acknowledges the worst and sets course to take us through the dark clouds to the future – an inclusive digital, green and safe future for our Island nation.