MPs warn Brown over 'challenging' forecasts

Gordon Brown has little margin for error in his forecasts for the public finances if he is to avoid raising taxes or slashing his spending plans before the next general election, MPs said yesterday.

Gordon Brown has little margin for error in his forecasts for the public finances if he is to avoid raising taxes or slashing his spending plans before the next general election, MPs said yesterday.

The Commons Treasury Committee said the Chancellor's forecasts for a surge in tax revenues and a £20bn cut in Whitehall waste were both "challenging".

But it concluded that the Government remained on track to meet its main fiscal rules to balance the public finances over the economic cycle.

"The margin for error has, however, diminished further over recent months, in spite of the strong growth in the economy," the 38-page report said. "This is a development which requires careful monitoring by the Treasury."

In last month's Budget, Mr Brown pencilled in a £37bn deficit in the tax year that ended on Monday, narrowing to £33bn this year and £31bn in the following period.

This is much more optimistic than most City forecasts, while a number of independent think-tanks have warned the Government is on track to break its fiscal rules. The MPs' committee highlighted a confusion over the way the rules - especially the golden rule on balanced budgets - were framed. "Any differences in Treasury documents in this crucial area may be a source of confusion which may undermine the rule's credibility," it said.

It said it was waiting "with interest" for a clarification by the Treasury over its use of the margin on its annually managed expenditure (AME) budget in calculating the golden rule.

The Labour-dominated committee said the Treasury had over-estimated tax revenues for each of the past three years and said its forecasts for a strong rebound over the next few years were "challenging".

The committee criticised the Treasury for failing to foresee that the introduction of a zero-rated corporation tax band would create a loophole that had to be closed in the Budget.

On public spending, the MPs said Whitehall departments would struggle to meet the Chancellor's targets to cut costs by 2.5 per cent-a-year for the next three years.