 Public spending in the UK has risen |
The Treasury may have underestimated the impact of global financial uncertainty, MPs have warned. In its report on the 2008 Budget, the Treasury Select Committee said the Treasury now faced a major challenge in meeting its own targets. "Some of the very things that kept our economy growing over the last decade may start to cause us problems", said the committee's chairman John McFall. The UK faces an economic slowdown while public borrowing has soared. Evidence suggests that the Treasury's forecasts remained optimistic despite downward revisions, said the report. In the 2008 Budget, Chancellor Alistair Darling warned that economic growth this year and next would be slower than the government expected. He reduced his growth forecast for 2008 to 1.75%-2.25%, well below the 2.5%-3% predicted in last year's Budget. He also said public borrowing would rise to �43bn next year, rather than falling to �36bn as he had hoped. The Treasury's optimism is based on the view that it is better positioned than other OECD nations in relation to market turmoil, said the report. But characteristics that have helped in the past - including rapidly rising residential property prices, close links with the US and an increasing reliance on the financial services sector - could be the "conduits" through which global market problems reach the UK, it said. The government would need to be "extremely vigilant in how it manages the public finances if it wishes to maintain its so far clean record in meeting its own fiscal rules," said Mr McFall. "The government's own forecasts show that it will be extremely tight as to whether it will meet the sustainable investment rule," he added. Under this rule, aimed at preventing a Chancellor from spending and borrowing too much, public-sector debt must be no more than 40 per cent of British economic output or GDP. 'Main losers' The report also cited concerns around child poverty reduction targets. While it welcomed the government's aim to halve child poverty by 2010-11, how this was going to be achieved was unclear. It said the government needed to make "an unambiguous commitment" to the resources to attain such goals. Another area highlighted by the report included the impact of the new 10 pence tax rate. The committee concluded that "the main losers" from the abolition of the 10 pence rate of income tax were those under 65 years old with an income under �18,500 in childless households. This group seemed an "unreasonable target" in the government's plans to raise further taxes. "It seems strange that the abolition of the 10 pence starting rate of income tax disadvantages mainly low income households." The committee also showed concern over the poor take-up rate of working tax credit among eligible families without children. On the topic of non-domiciled individuals, the committee cautioned that following a focus on the wealthy in this group, "there has been insufficient consideration" of the possible impact of tax changes on middle and lower income individuals.
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It seems strange that the abolition of the 10 pence starting rate of income tax disadvantages mainly low income households
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