Treasury Committee: Press Notice

Treasury Committee calls for commitment on Child Poverty target

The Treasury Committee today releases its report on the 2009 Budget. The report calls for clarity from the Government as to how, amidst the current economic difficulties, it plans to meet its commitment to halve child poverty by 2010-11. It also raises doubts about the official growth forecasts and urges the Government to restore credibility with regard to the public finances though greater accountability to Parliament and the public.

John McFall, Chairman of the Committee said:

“We acknowledge the pressure on Government finances but the lack of any substantial measure to combat child poverty in both the Pre-Budget Report last year and this Budget is alarming. On current indicators the Government will fail to meet its 2010-11 target to halve child poverty by a significant margin.

Though spending in this area may not seem a priority amidst the sudden collapse of banks, in the long run it is the right thing to do. Nearly 4 million children in this country are still growing up in poverty. They are suffering now: they are likely to experience ill health, to underachieve in school and to be denied the opportunities that others are given. Indeed, child poverty and youth unemployment are linked. Now more than ever it is vital to support our young people. They will be the ones who will help us out of these difficult economic times; investment in their future is just as important as support for banks and businesses.”

The economy:

Whilst it is possible that the Government will meet its growth forecasts, on the available evidence this is an optimistic assumption, the report says. The Committee is also concerned that the sharp recovery in consumption forecast for 2011 might be too optimistic given that the UK economy will only just have emerged from a sharp downturn.

With unemployment likely to rise above three million, and approximately 40 percent of the unemployed likely to be young people aged under 25, the report agrees that this necessitates measures focusing on assisting young people. It is, however, too soon to judge whether the Government’s proposed guarantee of a job, work placement or training scheme for all young people who have been on Jobseeker’s Allowance for 12 months, together with the monetary and fiscal stimuli, will be a sufficiently timely and substantial response to the challenge.

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. We are also concerned about the as yet not fully realised impact of the recession on unemployment, particularly amongst the young. Periods of unemployment whilst young can be more damaging than at any other time. We cannot afford to have a lost generation on our hands. Whilst we welcome the measures to boost employment in the Budget, particularly those aimed at the young, we will continue to monitor their effectiveness closely.”

Public finances:

The report notes that the Chancellor’s forecasts for public borrowing and national debt represent the worst fiscal outlook since the Second World War. The credibility of any attempt to restore the public finances will depend on an acceptance that the structural deficit must be addressed as well as the consequences of the current extraordinary circumstances. The report therefore recommends that future Budget and Pre-Budget Reports provide a sectoral analysis of tax revenues, so that, as the UK economy becomes less dependent on financial services and other sectors become more prominent, the basis of the Treasury’s revenue forecasts can be scrutinised.

The Temporary Operating Rule appears to the Committee to offer no constraint at all on the fiscal decisions of the Chancellor. It is clear to the Committee that the only real financial discipline on the Chancellor is the opinion of the gilt market on the sustainability of the public finances. The report calls for a thorough analysis of all the options for a fiscal framework to be considered.

John McFall said:

“It is critically important that both the public and financial markets believe that the Chancellor is working to an adequate plan to restore the public finances to good health. Accountability to Parliament and proper public consultation are more important than ever in restoring confidence.”

Other measures:

The 50p tax rise

The Committee believes that there are considerable uncertainties over the yield to be raised by the 50 percent top rate of income tax. The report recommends that the Treasury should report on the revenue raised, both nominally and as a percentage of the theoretical maximum revenue, by the new top rate of income tax, and assess at that time the yield obtained from the higher rate against its disadvantages. If the higher rate were to continue it would be appropriate to consider what reforms are required to prevent further leakage. The Treasury should also indicate if it would revise the rate in the event that the estimated revenue yield fell well below its forecasts.

Housing market:

The Committee remains unconvinced that schemes to boost the market, such as the stamp duty holiday, will have any marked effect. The report calls on the Government to provide a cost-benefit analysis of the stamp duty holiday and to report in the PBR for 2009 on the implementation of the asset-backed securities scheme. It also calls for a more stable framework for the payment of Local Housing Allowance.

Vehicle scrappage:

The report recognizes the importance of the car industry and notes that the vehicle scrappage scheme has been welcomed in some quarters. However, the Committee awaits the 2009 Pre-Budget Report to assess how effective the scheme has been.