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Darling's 'recession over soon' forecast under fire
GOVERNMENT claims that the recession will be over by the end of the year have been cast into further doubt after MPs dismissed the Budget forecast as "optimistic".
The influential Treasury Select Committee said Chancellor Alistair Darling's forecasts for public borrowing and national debt "make sobering reading" and represent "the worst fiscal outlook since the Second World War".
Taxpayers are warned they face "substantial" tax increases or "unprecedented" service cuts to repair the public finances, with Ministers urged to spell out their plans this autumn.
In a further blow to the Government, the Labour-led committee questions how much money the new 50p tax band will bring in and criticises delays in introducing support for homeowners. It was also highly critical of the lack of measures to help tackle child poverty.
It also suggests the Government's car scrappage scheme - where owners of old vehicles will get 2,000 towards a new greener car – could end up with only 12,600 extra sales of UK-manufactured cars.
Mr Darling's forecast that the economy will begin growing by the end of this year and expand by 3.5 per cent in 2011 had already been questioned by the Tories and Liberal Democrats while the International Monetary Fund has produced a far gloomier forecast.
Treasury select committee chairman John McFall said: "As the Chancellor said we are living in extraordinary and uncertain times.
"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 Treasury is reliant on its forecasts being accurate to avoid an even bigger hole appearing in the public purse. In the Budget Mr Darling was forced to admit public borrowing will soar to 160bn this year, but there were few details of how the Government plans to reduce the national debt in future years once the recession is over.
Shadow Chancellor George Osborne, said: "This report from a committee with a Labour majority is 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."
Liberal Democrat Treasury spokesman Vince Cable said: "The only person who believes that Britain will soon return to rapid growth is the Chancellor himself. 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."
Yesterday's report calls for the Government to be honest about how it plans to repair the public purse.
"We are very concerned about the state of the public finances," said the report. "What is now of critical importance is that the public, and crucially the markets, believe that the Chancellor is working to an adequate, and credible, plan to restore the public finances to good health."
It said the Government faces uncomfortable choices between "substantial" tax increases, "unprecedented" service cuts, or a combination of the two and calls for the Government to set out options in the autumn.
MPs warned there are "considerable uncertainties" over Treasury predictions for the amount to be earned from the new 50p top tax rate, and said the Treasury should report back in autumn 2011.
Meanwhile, it says that although 300,000 new car sales will benefit from the scrappage scheme, at least 200,000 would have happened anyway and only 12,600 of the extra sales could be UK manufactured cars.
A Treasury spokesman said: "There is significant uncertainty surrounding economic forecasts at this time, as a result of the exceptional nature of the global financial crisis and its effect on the world economy.
"However, the Government's fiscal forecasts are based on cautious assumptions and the judgements we made remain unchanged from the Budget."
Comment: Page 12.
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Saturday 26 May 2012
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