With the House of Keys general election approaching in September, it is no surprise that the headline measures of the 2026 budget put more money in voters’ pockets, particularly those on minimum wage and the retired.
Public finances remain stretched and the economic outlook uncertain. Against that backdrop, the budget struck a balance between the need to raise income levels for those with the lowest earnings and the most vulnerable in society, without burdening the Island’s businesses with the cost.
This represents a change from policies announced earlier in the year. When Chris Thomas replaced Dr Alex Allinson as Treasury Minister just four weeks before the statement, Chief Minister Alfred Cannan described the move as an economic reset.
“The intention of this budget is clear: support the Island’s residents and deliver more money in people’s pockets, while protecting businesses that have faced sustained increases in wage and energy costs,” Keith Bull, Head of Tax in Isle of Man, said. “It has not gone far enough to provide a genuine economic reset, but more drastic changes were always unlikely this side of the election.”
For now, the emphasis remains on continuity and fiscal restraint rather than ambitious economic reform.
“This turned out to be a classic pre-election budget and missed opportunities to deliver more fundamental reform, both in managing the cost of services and in growing the tax base,” Simon Nicholas, Head of Practice, said. “With care costs increasing by more than £50 million on a population of 84,500, Government reserves continue to come under pressure.”
“The Chief Minister has acknowledged that further tax reform may be required if care costs are not brought under control. However, businesses will expect to see clear discipline in Government spending before supporting any additional tax measures. I hope there is fresh thinking in the election manifestos that will soon be landing on doorsteps across the Island,” he added.
Striking a balance
One of the new Minister’s first decisions was to slow the planned rise in the minimum wage. Originally due to increase to £13.05 on 1 April, the rate will instead rise to £12.86, or £10.16 for those over compulsory school age but under 18.
The decision to halve the planned increase was driven by sustained pressure from the Island’s business community, who warned the additional cost to the retail and hospitality sector could result in significant job losses.
To balance this more gradual increase in the minimum wage, the Treasury Minister also announced a ‘substantial’ rise in personal allowances. This results in a £2,250 increase in the personal allowance for individuals, delivering a tax saving of up to £500 per year.
Taken together, these measures increase take-home pay while reducing immediate cost pressure on employers. However, they stop short of reshaping the Island’s economic trajectory.
Labour market pressures and structural challenges
Although unemployment remains low, at around 300 individuals, this reflects a weakening demand for workers, rather than underlying market strength. Advertised vacancies have fallen year on year, and sectors such as eGaming now support fewer roles.
The Island also faces ongoing challenges in attracting and retaining skilled individuals, which are central to meeting the Government’s population targets. There was little in this budget specifically aimed at incentivising inbound relocation, encouraging new role creation or supporting the domiciliation of businesses. This comes against a backdrop of technological change reshaping administrative roles within what is predominantly a service-led economy.
What is missing from this Budget is any meaningful stimulus to reverse these core economic trends by diversifying the economy and bringing more well-paid jobs to the Island. Financial services and eGaming are expected to continue supporting the wider economy, but the underlying economic data suggests this reliance may not be sustainable.
Key measures and tax changes
Changes announced in the budget provide a welcome boost to personal finances, but continues to erode Government reserves. These include:
Personal allowances
Increased personal allowances to £17,000 from £14,750.
Higher rate of tax
Higher rate of tax remains at 21%.
National Insurance
An increase in the Class 1 Primary, Class 1 Secondary and Class 4 thresholds, allowing most workers to earn more before paying National Insurance.
Minimum wage
Minimum wage increased to £12.86 per hour from £12.25.
Tax cap
The tax cap, which benefits the highest earning taxpayers, remains at £220,000.
According to Treasury calculations, a single person earning £40,000, close to the Island’s median salary, will be about £520 better off than they were last year. This also brings median earners broadly into line with UK counterparts in terms of net take-home pay, where they have historically lagged at this income level.
However, with most departments receiving their budgets as requested and care costs increasing by more than £50 million on a population of 84,500, Government reserves continue to come under pressure.
Many business leaders will welcome the Chief Minister’s comments on the need for fundamental reform to bring care costs under control. If that does not happen, further tax reform may be required.
The Island’s businesses will expect to see discipline and meaningful cost control before supporting any additional tax measures. Attention will now turn to whether the forthcoming election manifestos offer fresh thinking.
What this means for individuals
The most significant changes relate to earnings, allowances and contribution thresholds.
From 1 April 2026, the minimum wage will be set at £12.86 for those aged over 18 and £10.16 for those over compulsory school age but under 18. This is a 5% increase from 2025/26 rates of £12.25 and £9.55, but significantly less than the 10% increase previously announced.
Having scaled back the increase previously approved by Tynwald, it remains to be seen whether further increases are planned. This is likely to be a key discussion point during the September general elections.
To help balance the impact of the lower-than-expected minimum wage rises, the Treasury Minister has increased the personal allowance for individuals from £14,750 to £17,000 and for jointly assessed couples from £29,500 to £34,000.
With a top rate of tax at 21%, this delivers tax savings of up to £472 for individuals and £945 for jointly assessed couples.
Following the reduction in the top rate of income tax in last year’s budget, the Treasury Minister has held the rate at 21% for 2026/27. With Tynwald having abandoned plans to introduce an NHS levy to help fund healthcare, a return to the pre-2024 rate of 20% has been delayed. Healthcare funding is likely to remain a major talking point ahead of September.
The ‘tax cap’ election allows Isle of Man resident individuals to cap the amount of income tax they pay. The amount payable under the cap was increased last year from £200,000 to £220,000, so those benefiting from the cap will be pleased to see no further increases this year.
There were no changes announced to NI rates. The current Class 1 rates of 11% for employees (on earnings above the primary threshold) and 12.8% for employers remain. However, the Primary and Secondary Thresholds, the points at which employees and employers begin paying Class 1 NI, will increase from £168 to £176 per week.
The Upper Earnings Limit, above which an individual’s contributions drop to 1%, has also increased from £1,032 to £1,082 per week from April 2026.
For the self-employed, the profits level at which Class 4 NI becomes payable has increased in line with the Class 1 change to £176 per week, and the Upper Profits Limit has also increased to £1,082 per week.
There will be a minor increase in the Class 2 contribution from £6.45 per week to £6.75.
As usual, several benefit rates have changed. The more significant were:
- The basic pension increased by approximately 4.8% under the triple lock.
- Maternity, adoption and paternity allowances increased by 2.9%.
What this means for businesses
The biggest change, welcomed by businesses, was the moderated increase in the minimum wage. Otherwise, the budget largely maintains stability.
Once again, the Treasury has continued its divergence from the UK when it comes to the rate of employer NI, which remains at 12.8%, compared to 15% in the UK. This is positive news for the Island’s employers.
No changes were announced to corporate tax rates, preserving the Island’s established business tax framework. The higher rate of income tax remains at 21%, giving certainty to entrepreneurs, owner-managed businesses and internationally mobile individuals who value stability when making long-term commercial and investment decisions.
Treasury forecasts now include £31 million in 2026–27 from Pillar 2 Global Minimum Tax, highlighting the growing importance of international tax rules to the Island’s public finances and to in-scope groups operating here.
Beyond the adjustment to the minimum wage, the budget introduced few initiatives targeted at encouraging inward investment or the creation of new jobs on the Island. While this approach reinforces predictability, it offers limited direct stimulus for businesses looking to relocate or invest on the island.
Unemployment remains very low. The Pink Book highlights that advertised vacancies fell notably during 2025, with job numbers in sectors such as eGaming continuing to decline. Without a strong labour market, it is unclear how the Government intends to meet its own population target of 100,000 by 2037.
The focus on fiscal restraint raises the question of whether, as new revenue streams such as Pillar 2 begin to materialise, greater emphasis could be placed on allocating resources towards targeted business incentives to support growth and job creation.
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