GR No 034/06 ISLE OF MAN GOVERNMENT ANNUAL REPORT 2006 Laid before Tynwald on 17th October 2006 D J Gelling MLC Chief Minister October 2006 Price: £5.00 ISLE OF MAN GOVERNMENT ANNUAL REPORT 2006 To: The Hon. Noel Q. Cringle, President of Tynwald, and the Honourable Council of Keys and Tynwald assembled. CONTENTS Foreword by Chief Minister PART I: General Overview Page No. 1 The Economy 2 2 Population 4 3 Capital Spending 5 4 Revenue Spending 8 5 Personnel 11 Part II: The Isle of Man Government Plan 2005/08 6. Introduction 14 Economic Progress 14 Social Well Being 15 Quality Environment 16 Good Government 17 Sound Infrastructure 18 Positive National Identity 19 Department of Agriculture Fisheries & Forestry 20 Department of Education 22 Department of Health & Social Security 24 Department of Home Affairs 27 Department of Local Government & the Environment 29 Department of Tourism & Leisure 32 Department of Trade & Industry 35 Department of Transport 38 The Treasury 41 Chief Secretary’s Office 45 Communications Commission 48 Financial Supervision Commission 50 General Registry 52 Insurance & Pensions Authority 54 Isle of Man Post Office 55 Isle of Man Water Authority 56 Manx Electricity Authority 58 Manx National Heritage 60 Office of Fair Trading 62 Personnel Office 64 Part III: Isle of Man Government Plan 2005 – Report on progress of Actions and KPIs Economic Progress 66 Social Well Being 74 Quality Environment 91 Good Government 98 Sound Infrastructure 105 Positive National Identity 111 APPENDICES 1. National Income Data 2. National Income Compared to the UK 3. Income Generated in Basic Sectors 4. Legislation enacted FOREWORD BY CHIEF MINISTER This, the final annual report of the current Government, is an opportunity for reflection on the achievements and challenges of the past five years, and the prospects for the future. Overall, the period has seen the Isle of Man make real and significant progress in the development of our public services, economy and international reputation. It has included, to give just a few examples, a brand new modern hospital, an energy-from-waste plant, new and extended schools, upgraded GP surgeries, new and modernised homes for first-time buyers and public sector tenants, and the splendid refurbishment of the Villa Marina. These and other projects are listed in this report. Although we residents may sometimes take them for granted, visitors to the Island are often impressed by the extent and quality of such improvements in a small community. Contrary to popular perception, all but a fraction of the capital spending programme is delivered within the budget voted by Tynwald. In the field of social protection, the period has witnessed the introduction of a minimum wage and the updating of our employment laws. The Island’s economy has continued to grow and diversify, with national income per capita pulling further ahead each year of the UK and EU averages. The international reputation of the Isle of Man has been further enhanced by our positive engagement with EU and OECD taxation initiatives, by our profile within the British-Irish Council, by a ‘clean bill of health’ on finance sector regulation from the International Monetary Fund, and by our continuing triple-A international credit rating. To outline the fundamental strength of the Island’s position is not to deny that there have been problems, as there are in every country. The important thing is not to ignore problems, nor to get bogged down in them, but to be big enough to investigate any failure and learn from the experience. The recent renewed emphasis on the principles of good corporate governance, underlining the need for openness, integrity and accountability, is one example of this learning process. Looking ahead, the Isle of Man has robust economic and taxation strategies in place to meet the demands of an increasingly competitive global marketplace. The new branding concept ‘Freedom to Flourish’ will help to raise awareness of the Island’s distinct advantages. As I have learned over many years in Government, there will always be challenges on the international front - but there will always be opportunities too. Within the Island there is an increasing awareness that the public purse is not a bottomless pit, which means making the best possible use of the finite resources available and ensuring efficiency and value for money. That can involve taking difficult decisions on a national and long-term basis, and rising above purely local and short-term pressures. Above all, we should maintain a sense of realism – avoiding both bland complacency and negative nit-picking. Given a clear recognition of the challenges to be faced, and our strength as a community to meet those challenges I have every confidence that the people of the Isle of Man will continue to succeed and enjoy the benefits of a high quality of life and the Island’s unique cultural heritage. Donald Gelling Chief Minister 1 PART I: GENERAL OVERVIEW 1. THE ECONOMY Overview 1.1 The Isle of Man economy continues to develop, expand and diversify. 1.2 National income accounts for 2004/05 revealed real growth for that year of 5.2%. Between 2000/01 and 2004/05 the output of goods and services in the economy as measured by gross domestic product (GDP) has expanded by over one-quarter. In per capita terms the increase has been 22%. From a position where the Island’s per capita GDP stood at just 89% of that of the United Kingdom, it is now at 110% of the UK figure and 121% of that of the EU15. 1.3 A key aspect of Government’s economic policy, as reinforced in the Government Plan and the Economic Strategy and addressed in the ‘Economy 2014’ report, is the further diversification of the economic base. The last year has seen major advancement in the development of ‘new’ sectors of the economy such as e-gaming, film, space and satellites, and aircraft registration. These sectors will widen the economic base and confirm the diversification of the economy as evidenced in the national income accounts in, for example, the gradual reduction in the predominance of the finance sector in accounting now for 35% of national income, down from the previous year’s 36% (although unchanged under previously used classifications) and its peak of 42% (in 1998/99) despite its own continued expansion. 1.4 The last year has seen further growth evidenced in all the key indicators, including those relating to employment (numbers in employment have increased by around 500 in the year to June) and job vacancies (notifications to the Job Centre are running at record highs). The unemployment rate has moved above that of the previous five years but nevertheless still stands at only 1.5% (and it should be noted that the economically active population figure which forms the basis for this calculation will be revised upwards – and hence the unemployment rate revised downwards - upon conclusion of the Population Census exercise). 1.5 Domestic price inflation in 2005/06 has again been significantly impacted upon by rising world energy prices. Annual inflation, as measured by the retail price index, has however come off its highs experienced in 2004 and in the year to date has been no higher than 3.6% for the last 12 months. Whilst the trend has been downwards and the rate is now relatively stable, the volatility of fuel prices will see the inflation rate move around the trend from month to month. 1.6 House prices continue to move upwards but at their slowest rate for almost a decade. In the 12 months to the end of June this year the average price of a house sold on the Island was £234,237, compared to £225,275 to June 2005, an increase of just 4%. Despite renewed inward migration since 2003 and the maintenance of low interest rates, the housing market is likely to remain relatively subdued in the year ahead. 1.7 The United Kingdom economy improved in 2005/06, with growth expectations for the year now around 2.5%%. But the UK economy has for a long time now been driven by debt financed consumer spending and there are rising concerns surrounding the ability of households to continue to finance personal debt. These concerns are heightened by increasing unemployment and job uncertainty. Growth targets are unlikely to be reached unless stronger export and investment performance can make up for the anticipated falls in consumer spending. 2 1.8 The year has seen renewed growth in key EU economies and continued strong (if now faltering) expansion in the US. But it is India and China whose growth rates are powering ahead. In so doing, increased demand pressures have been put on commodities prices, including oil. But at the same time their development is creating market opportunities for western companies and so helping to perpetuate the expansion of world trade and investment, to the ultimate benefit of all competitive trading nations. Income from Employment 1.9 In June 2005 the average gross earnings of full-time employees was £489 per week (up 0.9% over the year) with the middle 50% falling in the band £333 to £575 per week. Full- time employees worked an average of 38.5 hours per week, including 1.6 hours of overtime. Average earnings in the Isle of Man were 95% of those in Great Britain. 1.10 The comparatively slow rate of increase in earnings, below the RPI inflation rate over the same period of 4%, has been explained by some employers as a response to general increases in competitive pressures and to the squeeze put on company margins by increases in energy bills.