Following a number of evidence sessions prior to the Easter recess, including one with the Chancellor of the Exchequer, George Osborne, the Treasury Select Committee today publishes its report into the Budget 2012.
The report highlights a number of areas of concern as well as outlining recommendations for Government action and future Treasury Committee activity.
Some of the recommendations contained in the report include (additional quotes from the Chairman of the Treasury Select Committee, Andrew Tyrie MP, in italics):
On the Macroeconomy
The powers of direction to be granted to the statutory Financial Policy Committee of the Bank of England are likely to have a significant impact on the economy when used, and the possibility of their use will have to be taken into account in the forecasts of the Office for Budget Responsibility.
We will inquire into the new macroprudential tools.
"Given the potential impact on millions of people of the Financial Policy Committee’s new powers of direction, this will be an issue of intense public, and thus Parliamentary, interest.
The Committee will be examining the Bank's proposals for the operation of these tools in detail."
The Output gap
As an unobservable measure, the output gap is prone to great uncertainty and frequent revision.
We recommend that the Treasury ask the OBR to evaluate other, supplementary, approaches.
"The output gap is better than nothing but should not be excessively relied upon to assess the Government’s progress in meeting its fiscal mandate."
Loose monetary policy, achieved through quantitative easing and low interest rates, has redistributional effects, particularly penalising savers, those with 'drawdown' pensions and those retiring now.
The Bank of England after, where appropriate, consultation with the Treasury, should provide its estimate of the overall benefit and loss to pensioners and savers from quantitative easing.
"The Bank of England has made some valuable points on this. We now need a more detailed assessment of the effects."
Wider economic risks
We welcome the OBR's use of scenario analysis to further its understanding of the major risks to the UK economy. The Treasury Committee recommends that the OBR consider a wider range of risks and associated scenarios in future forecasts.
Personal tax statements
Personal tax statements have the potential to add some additional transparency for taxpayers.
The will need fairly to describe Government spending. We recommend that the Treasury consult the OBR on their design.
"There's merit in this.
Every taxpayer deserves to know how their taxes are being spent. It is important that this is presented in a fair and independent way without excessive expense."
We recommend that the Government clarify what retrospection is proposed with regard to stamp duty.
We recommend that the Government restrict its use of retrospective legislation to wholly exceptional circumstances, which should be narrow and clearly-defined.
The Treasury should set these out as soon as possible for consultation.
"Retrospective tax legislation conflicts with the principles of tax policy recommended by this Committee and with those laid down by the Chancellor.
We therefore have serious reservations about retrospection in the tax system."
45p tax rate
The costs and benefits of reducing the additional tax rate to 45p are both highly uncertain, and could be significantly more or less than the cost included in the Budget.
We recommend that HMRC publish in due course a comprehensive assessment of the effect on the Exchequer of the new 45p rate.
On the Child Benefit system
The Government's latest proposals for reform of Child Benefit solve only one of the two main problems identified with its original policy.
They add further complexity.
We will review the effect of the changes on HMRC, where further staff reductions are being implemented, in our regular hearings with it.
Appropriate pre-Budget consultation on specific measures, especially in the tax field, is to be welcomed. It is possible that there may also be cases where the Treasury judges it necessary to canvass views about a measure intended for the Budget which has not been put out for consultation. Information about such measures should be publicly released by the Treasury in the normal way and, as appropriate, accompanied by a written or oral parliamentary Statement.
Coalition Government is not a justification for Budget leaks.
We recommend that the Government review its practices, based on the experience of this Budget, for preserving Budget confidentiality in a coalition context.
On the timing of the Budget
The timings of the Second Reading of the Finance (No.4) Bill and the Committee of the Whole House stage are highly unsatisfactory.
The new pattern of Prorogation and State Opening risks making the timing of the stages of future Finance Bills tighter than in the recent past.
This may require the Budget to be somewhat earlier in future.