Lobby group calls for cut to government pay bill

A business lobby group has said while some measures in the latest Isle of Man budget were "a great step in the right direction", more needed to be done to cut the cost of government.

The measures outlined in the 2026-27 financial plan included the largest every rise in personal tax allowance, taking it to £17,000, and a freeze on other tax thresholds and rates.

Chamber of Commerce President Claire Watterson said while that was welcomed, the burden of the public sector pay bill, which stood at £605m, remained a concern.

Among the measures outlined by Treasury Minister Chris Thomas were the use of priority-based budgeting within departments and a 2% cap on pay budgets.

Watterson said although the island remained an "attractive place", operating businesses had "always been difficult because of the nature of an island", which meant increased costs in bringing in supplies.

Steep increases in the cost of living – including utilities and energy costs – in recent years had been "putting pressure" on firms.

The rise in personal allowance would therefore benefit workers and firms as it would put a "bit more money in everybody's pockets", which would mean they would "hopefully be spending more locally", she said.

However, she said: "Unfortunately the main issue is that it hasn't addressed the size and the cost of the government."

She said the document highlighted that public sector pay now stood at £605m with pension costs of £161m, which accounted for "over half the total government expenditure".

"If we can bring down that cost of the public sector pay, then that feeds back into a lower-cost government," she said.

She said while freezing the higher tax rate at 21% following changes in recent years had created some "stability", that could not be reduced to the previous 20% as the tax-take was needed "just to keep the government running".

Public sector median earnings sitting 28% higher than those in the private sector meant firms were "competing directly against government for quality employees", which "reduces the talent base available to private sector employers".

She said while there was only a 2% allocation for pay increases in the latest budget, the government was forecasting a £36m overspend in pay for the current year "so we need to be able to start keeping control off these costs".

Watterson said efficiency measures suggested in this budget, which included investment in the digital transformation of the government to enable better public services, were something the chamber welcomed "wholeheartedly".

However, she said if those moves – including the increased use of AI to streamline some areas – did lead to the "freeing up" of some government workers, it would not mean a rise in unemployment.

"If people are released due to digital transformation they're going to be an absolute asset somewhere else in the private sector or somewhere else in government because we are always crying out for staff," she added.

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