The Cost Of The Pandemic

The Budget has delivered an opportunity to the gov to provide an update as to the cost of the pandemic and how much cash is being spent on the recovery plans.

Following on the theme from last autumn’s Budget update, Alf Cannan says it is estimated that Covid has had an impact of about £208m. This includes a revenue deficit of c£74m, an expectation that FERSA (see below) will be about 10% down, £53m is forecast to be drawn from the contingency funds, £71m will be taken from the National Insurance Fund and up to £10m Emergency Recovery Funds.

The Treasury says this is ‘significantly lower than feared in April, but very significant nonetheless’. 

The forecasted hit to the public piggy bank for 2020/21 financial year:

  • Income Taxes – £23.2m down

  • VAT and duty – £45.6m down

  • National Insurance receipts – £2.4m down

  • Other income – £18.7m down

Directly, the gov spent c£108m of taxpayers’ money on the pandemic and economic recovery so far:

  • Salary Support – £61.3m between 12,490 people

  • MERA – £9.5m between 3,800 people

  • Coronavirus Business Support Scheme – £14m between 3,200 businesses

  • Sector Specific Strategic Capacity (April 20 – April 21) – £10m

  • Travel and Tourism – £1.7m

  • Fisheries – £1m

As well as the National Insurance Holiday, VAT deferral and cutting VAT to 5% on certain goods and services, additional support has been provided for:

  • Deposit Loan Guarantee (80% guarantee) – £40m

  • Working Capital Loan (100% guarantee) – £10m

  • Business Capacity (50% funding) – £0.6m

Meanwhile, the Economy Recovery Funding, which the gov has used to provide a platform for exiting the pandemic, has supported:

  • Extra capacity at UCM – £938,000

  • Additional funding for students – £3m

  • Manx Restart Scheme – £1.75m

  • Medicinal cannabis – £550,000

  • Fibre broadband rollout acceleration – £1.4m

  • Town and village regeneration – £1m

Total funding from the scheme this financial year and next could total £40m, with £100m made available.

Mr Cannan said: ‘We find ourselves operating in a changed world, but this Budget will provide the stability and targeted investment needed for the future.  As a nation, we can take confidence from the fact that we have been able to withstand external challenges thanks to the resilience of the economy and the health of our reserves.  In the face of a pandemic, our targeted approach to public finances over recent years has placed us in a strong position, enabling us to withstand the pandemic’s impact and build for the future.’

Recovery

Despite the cost of Covid, the Treasury’s key assumptions is that public sector revenue will ‘broadly recover’ to the level set out in the 2020/21 Budget by 2023/24. The two key elements of this projection are tax income and how the island’s economy recovers from the pandemic. 

The assumptions behind this are that tax revenues will fall in 2021/22 but then bounce back at ‘5% per annum for the next two years’. The other core element of tax income is shared indirect taxes collected through the Customs and Excise Agreement with the UK (FERSA).

Alternatives

Essentially there is an uncertainty over the economic outlook of the island. While public sector finances remain strong, there remains these chances could be too positive or too conservative. 

It is possible that the early and successful rollout of vaccines leading to a resurrection of the tourism industry, higher than anticipated revenues or more inward migration to the island leading increased economic growth may lead to the island being in a stronger financial position than currently believed.

However, a further lockdown, the economy suffering further shocks, a weaker than expected recovery, including key sectors being unable to recover or a further deterioration of the global markets eroding reserve values, could lead to a weaker performance than forecasted.

FERSA – The Final Expenditure Revenue Sharing Arrangement (FERSA) with the UK’s gov. FERSA is based on final expenditure by households and businesses and is designed to provide the Treasury with the revenue due to it from the consumption of goods and services in the island, whether purchased on or off the Island, including those bought over the internet and by mail order.