The Isle of Man is likely to continue facing difficult decisions for at least the next couple of years, according to the treasury minister.
Earlier this week, UK Prime Minister Sir Keir Starmer warned of a 'painful' autumn budget but pledged not to increase taxes on working people, such as VAT and National Insurance.
However, Dr Alex Allinson notes that due to the Customs and Excise Agreement with the UK, fiscal decisions made in Westminster can still directly impact the Island.
Hello, and welcome to another episode of Manx Radio's newscast. My name is Oliver Sykes, and I've spent the past week on work experience here, and I was tasked with interviewing the Treasury Minister, following the UK Prime Minister's warning of a painful, autumn budget. Sakeer Starmer pledged not to increase taxes on working people, such as VAT and national insurance. But back here, Dr. Alex Allenson believes the Isle of Man is likely to continue facing difficult decisions for at least the next couple of years. He told me that because of the customs and excise agreement with the UK, fiscal decisions made in Westminster can still have a direct impact on the island. Keir Starmer gave a speech yesterday regarding the autumn statement which he's due to give in several weeks' time. One of the key things he said was painful decisions are having to be made on public finances as the Treasury Minister of the Isle of Man. Are you in the same position? I think most Treasury Ministers and most governments in Western Europe are in a similar position. We've gone through periods of the pandemic, which obviously had a big economic impact then. We've had a war in Europe, inflation, interest rates going up, lots of economic issues with that, both in terms of the cost of borrowing, the cost of lending, the cost of living, as well going up. And obviously energy prices as well. On top of that, for those Western countries with developed welfare states, we've got increasing demands for raises in the public sector pay as well. We certainly are party to that on the Isle of Man. I think one of the things with Keir Starmer was taking over from the previous story administration, they've identified what they say is a £22 billion black hole in public finances. We don't have a black hole in the Isle of Man public finances, but we have been quite realistic that we've needed to draw down on reserves over the last couple of years to try to balance public finances and with a medium term financial plan to reduce that. But at the same time, there are some difficult decisions to be made about what the country can afford both to spend but also to pay for the public services we now expect. With the recent Labour government coming into power, is their concern over how their budget and tax strategy may affect the Isle of Man? We are very closely linked to the UK in certain respects, probably more so than Jersey and Guernsey. So for instance, we have a VAT sharing agreement with them, so when he changes in VAT and quite a few of the duties such as tobacco and fuel and alcohol, we tend to mirror with the UK. Now Kistama and Rachel Reeves have both currently ruled out raising income tax, national insurance or VAT in the October budget, but they have said that they're going to put taxes up. So if they put various duties up, that will have an effect here because we will mirror those changes. They are talking also about perhaps making changes to inheritance tax and capital gains tax. Now they wouldn't have a direct effect here, but we are very wary of slowdowns in the UK economy because it can affect, for instance, the number of tourists coming over here, it can affect the business we do with the UK. And so we will as a treasury be watching quite closely what happens, both in terms of the autumn statement but also the October budget as well. You mentioned there about the VAT agreement, obviously it was announced regarding private school, the exemption there, obviously we've got KWC, a private school on the island. I understand that treasury is already in talks with KWC. Do you think that that is going to have a big impact on KWC? I mean, there are two things. I think in the Labour Party manifesto they've been quite clear for a number of years that they were going to remove the exemption of VAT on private school fees in the UK because of our VAT sharing agreement with them we will follow suit, so VAT will be charged on private school fees. Now quite a few private schools in the United Kingdom have decided to absorb that increase, but to do that through various ways are they using reserves or other ways of introducing better efficiencies in terms of the way they run their establishments. In terms of charging VAT also means you can reclaim VAT and there is a retrospective claim. So what treasury and the Department for Enterprise have been doing with the trustees of King Williams College is sitting down looking at some of their business plans for the future, looking at the effect of VAT on their tuition fees, but also perhaps some of the VAT that they can reclaim for previous years or other capital projects that they're planning in the future and balance that transition that they will need to make going forward so that they don't jeopardise their long-term future and don't necessarily significantly impact either the students and their families that they have at the moment or future students and families because I think the King Williams College has a long history on the Isle of Man and the choice of being able to decide to use private education is quite important for some people on our island. Moving on to areas where the Isle of Man does not follow suit with the UK in terms of capital gains, tax, wealth taxes, with the announcements that that's where KISS Dharma and Rachel Reeves are looking to be putting up hiking the taxes in that area, this could be seen as a real positive for the Isle of Man. Yeah, I mean one of the quotes from KISS Dharma's speech was he said that those with the broader shoulders should bear the heavier burden. I think earlier on this year when we had the February budget and increased taxation by 2% as a temporary measure before we investigate bringing in a healthcare levy, we talked very much about how we would have a progressive taxation system so those who were earning more paid a little bit extra. There are two sides of that though, I think when we look at the Isle of Man economy we do have a large number of people who were earning a median income, we do have some very wealthy people here on the island, some of whom, a minority of whom use the tax cap and we're looking at that again as we set out in the tax strategy. I think there are some obvious opportunities for the Isle of Man if there are significant tax changes in the United Kingdom but similarly we have to be quite careful of our relationship with the United Kingdom because we have spent many years trying to ensure that we're seen as a well-regulated financial centre and not a bolt hole for people who want to avoid UK taxes and so we work very closely with HMRC to make sure we have the right sharing the information so that we are not seen as being a place for tax avoidance in any way. You talk about the relationship and how important that is to be maintained, obviously the Labour Government is fairly new, the Labour Party Conference will be in a few weeks time, is yourself or any of the other Manx politicians or government officials going to be going to that? I went to the Labour Party Conference last year and met with a number of then MPs who were now ministers and part of that was just an awareness of the Isle of Man so that they knew who we were, what we were and what our long-term aims were which are basically protecting what we have on the island, serving the Isle of Man people but also having a close link with the UK and wider field in terms of trade, in terms of commerce, we will be having a presence again at the Labour Party Conference hopefully capitalising on some of those contacts we had last year. I'm not sure there I'll be going myself yet but certainly the chief minister normally goes to the party conferences and meets senior ministers there to explain what we're doing but also to work with Jersey and Guernsey in terms of some of the challenges we're facing for instance on beneficial ownership and make sure that the UK government are aware of our commitment to international taxation treaties. The biggest allocation of money in the budget was to health care and that's an important issue for a lot of people. As Streting when he came into power said that the NHS was broken, is manx care broken like the NHS? No, I think it is experiencing significant issues like the NHS and a lot of those are around recruitment of skilled staff particularly nurses and doctors. It's also struggling with increased demand and the increased cost and complexity of medical treatments but I think manx care have been extremely good in terms of working with the people who work at Nobles Hospital and Primary Care to provide a very good service particularly during difficult periods when we've had COVID outbreaks, when we've had bad winters to maintain ambulance services for instance to maintain a decent weight at A&E to make sure people get the treatment that they want. So I don't think our health care system is broken however it is under significant pressure with both the costs of treatment particularly our violin treatment and also that the huge range of activities it carries out at the moment and we know that health care spending has gone up but health care costs have also gone up very much at an existential rate. One of the quotes of Kia Stama was saying that in October they're going to be honest with the people about the choices we face so I think for some time we've been looking at the health care system we have on the Isle of Man and I think we do need to be honest with the manx people about what we can provide and what we can afford on the Isle of Man and do that in a rational way which actually uses the skills that we have on the island, the excellent stuff we have on manx care and across the health and social care sectors to actually deliver the right services but it has to be affordable because certainly in our budget the health care and social care side of it is becoming the dominant expenditure but also with the increases there it's becoming one of the largest risks in terms of balancing a budget and making sure that we don't have to constantly draw down on reserves. If the UK budget is sort of set in stone what they've said over the past couple of days is going to remain the same or if they do go back on their word is it a good thing that the manx budget is going to fall several months after the autumn statements? I think that gives us a time to reflect on what they've done to look at some of the impacts or potential impacts of that you've talked about some of the opportunities but also some of the issues that may raise for us in terms of our own budget I think that there is a difference between our two countries in terms of the party system in the UK and we often see it swinging from one side to the other particularly around times of elections. We on the Isle of Man I think have a lot more certainty and stability in terms of our political structure and our budgeting which certainly from my perspective we're looking five, ten years into the future rather than looking up to the next election. So I'm hoping that we can digest what's going to happen in October, we're really working on some of the projections for what this financial year will look like and we can then build them into next year's budget which we announce in February. The new levy which is expected to replace the tax hike we've seen this year is going to be set out soon. Can you tell us anything about this at the moment? What's the 2% rise in the high rate of tax that was announced in February was doing was filling in some of that the increased investment in our health and social care service because we've seen those costs increasing as I've set out and we need to have a balanced budget on the Isle of Man we cannot do what my counterparts in the UK can do which is borrow large amounts of money. We have to have a balanced budget and reduce our reliance on reserves. What we're doing at the moment is working out what the economic outlook will look like for next year, what the costs will look like for next year particularly in terms of health care and how we balance that. So one of the ideas with the health care levy is to try to make it more progressive to look at how we can reduce the burden on working families, increase the support they get for instance the change that we made to child benefits and also the changes we made to the funding of preschool places that we'll kick in next month but also going forward how we can fund a health care system both that provides the services that people need but also is affordable. So obviously the UK looks to be in sort of quite a difficult position at the moment. Are you looking optimistic for the island? Do you believe that over the course of this administration you've already had to take some of the more difficult decisions and the future ahead is looking slightly brighter? I think it is but it's still going to be difficult. I mean in case Thomas said there's a budget coming on October and it's going to be painful. He also said that frankly things were going to get worse before they get better and summed up that we have to end the politics of an easy answer that solves nothing. I think sometimes there aren't easy answers for increasing costs, increasing wage demands, increasing minimum wages but also increasing the prosperity of the Isle of Man. What I would say though is I think we do have a very resilient economy. We have fantastic people living and working on the island and the makes community I think is incredibly committed to the long-term prosperity of the island. I think the next couple of years will be challenging, the last couple of years were and I don't see that ending soon but with inflation coming down with the way our economy is working in terms of record low jobless figures, I think what we can do is look forward to reduced interest rates, try to boost our economy with some of the activities that the Department of Enterprise and have some of that certainty and stability that we've been lacking over the last couple of years. One of the aspects is our relationship with the United Kingdom. We are very close both in terms of fiscal policy but we also think we need to develop a better understanding in Westminster of who we are and what we are. We've seen a lot of new MPs coming into Westminster now and so I hope by having a presence at the party conferences, by having a presence at Westminster, we can get a greater awareness of what the Isle of Man is and bust some of the myths about us and make sure that those people who determine policies, wherever that may be, actually know the effects that may have on us and are happy to pick up the phone with us. Chief Minister has been travelling quite a lot recently and we've also been inviting people to our island such as the British Irish Council earlier on in the summer and I think these improved international links will pay dividends in the future. Thank you for making it to the end of the Manx Radio newscast you are obviously someone with exquisite taste. May I politely suggest you might want to subscribe to this and a wide range of Manx Radio podcasts at your favourite podcast provider so our best bits will magically appear on your smartphone. Thank you. [Music] [Music] You
