Government forecast to underspend despite mounting health and pension pressures

Tax receipts offset rising costs in Manx Care, pensions and benefits

Government is forecast to have finished the 2025/26 financial year under budget.

Newly published management accounts suggest this was largely driven by stronger-than-expected tax income rather than a reduction in spending pressures.

Figures covering the first nine months of the financial year, to the end of December 2025, indicate overall net government spending was expected to come in around £9.6 million below budget by year-end.

However, the report makes clear that this position was supported by a significant uplift in income, particularly from taxation, rather than across-the-board cost control.

Tax receipts

Government income was forecast to end the year £37.8 million ahead of budget, with income tax receipts alone expected to exceed forecasts by around £37 million.

Treasury says the stronger performance reflected collection patterns during the year, but warned there remains uncertainty in the final out-turn and that this level of overperformance is not expected to continue at the same level in future years.

Because of the higher-than-expected income, government did not expect to draw on planned investment income from reserves to support spending during the year.

Health spending

The Department of Health and Social Care was forecast to overspend by around £15.8 million, largely due to the cost of funding Manx Care.

Manx Care itself was forecasting a significant gap between spending and budget, with the overall mandate cost expected to be £28.3 million higher than planned before support from contingency funding and internal reserves was taken into account.

The report points to a range of pressures, including higher operational costs, additional service demands, and the expense of specialist placements and high-cost patients.

A £10 million contingency allocation from Treasury was used to help offset part of the shortfall.

Pension and benefits

A major source of pressure came from pension-related spending.

Superannuation costs were forecast to exceed budget by more than £11 million, driven in part by higher-than-expected lump sum payments.

At the same time, National Insurance-funded benefits were also expected to run ahead of budget by around £10 million, largely due to increases in retirement and state pension payments.

Although National Insurance income was also higher than expected, it was not enough to fully offset the increase in benefit costs.

Departmental spending

Across government, most departments were expected to finish the year broadly in line with budget or with small underspends.

The report says departments operated under ‘tight financial constraints’, with budgets set below inflation. To remain within limits, departments were required to deliver around £9.8 million in efficiency savings.

This was achieved through measures such as holding vacancies, limiting spending, and closely monitoring activity levels.

However, some areas continued to face pressure. 

The Department of Home Affairs saw higher costs linked to policing, forensic services and a rising prison population, while the Department of Education, Sport and Culture dealt with increased staffing needs for pupils with additional and complex needs.

The accounts also show that some spending pressures were managed through the use of internal government funds.

By the end of December, government spending was £3.2 million below budget for the year to date, with the report noting that some of the previously stronger position was due to timing differences in tax receipts, which later evened out.

While the accounts indicate the fiscal year (2025/26) is likely to have finished under budget, suggestions point to this being largely due to stronger-than-expected income rather than a reduction in underlying cost pressures, particularly in health, pensions and benefits.