MPs demolish Budget forecasts as 'optimistic'

Government schemes to beat recession show no sign of working says committee

(REUTERS)

Alistair Darling's credibility was dealt a blow yesterday when an influential group of MPs denounced his Budget for its "optimistic" prediction of a rapid economic recovery and its lack of action over child poverty.

The Treasury Select Committee, comprised mostly of Labour MPs, said the Budget had revealed "the worst fiscal outlook since the Second World War" and warned that many expensive government schemes designed to bolster the economy were not showing signs of working.

The MPs warned that Mr Darling may not be able to raise the £700bn required to cover his record borrowing plans because the City remained unconvinced about how he would pay the money back.

The criticism of the Chancellor will be particularly difficult for Gordon Brown, as the committee is chaired by Mr Brown's close ally, the Labour MP John McFall.

In his assessment of the Budget, Mr McFall hit out at Mr Darling's claim that the economy would grow by 3.5 per cent in 2011. "As the Chancellor said, we are living in extraordinary and uncertain times," Mr McFall said. "However, we are not convinced that the Budget forecasts fully acknowledge this uncertainty. We all want to see a way out of recession, but we need to be realistic."

The MPs also delivered a pointed attack on the Government's lack of help for children in poor homes, adding that it would almost certainly fail to hit its pledge of cutting child poverty in half by next year. "We are concerned by the lack of any substantial measure to combat child poverty in both the pre-Budget report 2008 and Budget 2009," the report stated.

"On current indicators the Government will fail to meet its 2010–11 target by a significant margin."

Colette Marshall, UK director of Save the Children, said the Government appeared to have "given up" on the target. "We are at least encouraged that the Treasury Select Committee has reacted with dismay at the lack of action in the recent Budget," she said.

Today, the Government will publish new figures on poverty levels in Britain. Experts expect the data to confirm that no progress has been made towards tackling the problem, with many believing that the situation may have got worse.

The report raised serious questions about the Prime Minister's plan to tackle growing unemployment, which the committee warned could top three million. It said that it was "too soon to judge" whether Mr Darling's guarantee to provide a job, work placement or training scheme for all young people would be a "sufficiently timely and substantial response to the unemployment challenge".

In a barely coded plea to the Chancellor to give a candid assessment of how Britain's debt mountain could be brought back under control, the committee said: "It is now critically important that the public and crucially the markets believe that the Chancellor is working to an adequate plan to restore the markets to good health."

The shadow Chancellor, George Osborne, said the report was a "huge blow to the credibility of the Chancellor".

"It vindicates the economic judgements David Cameron and I have made as we have warned about the alarming rise in national debt and the absence of any credible plan from the Government to deal with it," he said. "Only a change of government and a return to fiscal responsibility can put the public finances back on track."

Vince Cable, the Liberal Democrat Treasury spokesman, called on Mr Darling to be more "open and honest" about the problems Britain would face in the future as a result of the appalling state of the public finances.

"The only person who believes that Britain will soon return to rapid growth is the Chancellor himself," he said. "Both Gordon Brown and Alistair Darling have relied on pie-in-the-sky growth forecasts to dodge the difficult decisions that need to be made."

What the Chancellor said... and the committee's verdict

Growth forecasts

Mr Darling forecast the economy would shrink by 3.5 per cent this year but grow by 1.25 per cent next year and 3.5 per cent in 2011.

The committee said: "While it is possible that the Government will meet its growth forecasts, on the available evidence this is an optimistic assumption."

Housing market

The Chancellor extended the Stamp Duty exemption on homes up to £175,000 until the end of the year.

The committee said: "We are not convinced that schemes to boost the market, such as the stamp duty holiday, will have any marked effect."

Car scrappage scheme

Car owners are to be given a £2,000 discount off the price of a new car for trading in vehicles more than 10 years old.

The committee said: "Although it will support 300,000 new vehicle sales, it is likely that only one-third will be additional sales. Of the additional or accelerated new vehicle sales just 12,600 could be new UK-manufactured vehicles."

50p tax rate

The Treasury hopes the 50 per cent tax rate for those earning over £150,000 will raise £2.4bn by 2012-13.

The committee said: "We believe that there are considerable uncertainties over the yield to be raised by the 50 per cent top rate of income tax. We are concerned that the Chancellor lacked a robust basis for the selection of the threshold from which the new rate would apply and for choosing what that rate should be."

Child poverty

The Chancellor said poor families hit by reduced wages would see an increase in tax credits.

The committee said: "We are concerned by the lack of any substantial measure to combat child poverty in both the Pre-Budget Report 2008 and Budget 2009. On current indicators the Government will fail to meet its 2010–11 target by a significant margin."