Session 2002-03 No. 11 16 January 2003
THE 2002 PRE-BUDGET REPORT
The Treasury Committee today published its Second Report of the 2002-03 Session, The 2002 Pre-Budget Report (HC 159).
Summary of the Report
The Pre-Budget Report
In November 2002, the Chancellor of the Exchequer, Rt Hon Gordon Brown MP, made his sixth annual Pre-Budget Report statement to the House of Commons. The Pre-Budget Report provides an indication of possible Budget changes in fiscal policy, updated interim economic and fiscal projections, and an update on progress against the fiscal objectives.
We call on the Government, in the interests of fuller parliamentary scrutiny, to allocate each year a half or full day's debate to the Pre-Budget Report, ideally on the floor of the House before the Christmas recess or if necessary very shortly after. We suggest it would be helpful for the Chancellor to announce the date of the Budget statement as far in advance as possible, and that he should give the House at least two months notice of the date of the statement.
We review HM Treasury's revised forecasts for the UK economy, and conclude that, on the basis of the evidence we had received, while the Treasury's expectation of growth of 1.6 per cent in 2002 was below the 2002 Budget's central forecast of 2.25 per cent, given the adverse global circumstances the UK economy had performed comparatively well. In regard to their short and medium term forecasts of the economic outlook to 2005, we observe that the Treasury's forecast for 2003 is a quarter of a percentage point higher than the average independent forecast, but is nevertheless lower than that envisaged by the Bank of England. We note that the forecasts for 2004 and 2005 could turn out to be optimistic. We believe that the overall balance of risks to the Treasury's growth forecasts is to the downside.
Imbalances in the economy
Although the economy overall has experienced continued growth and stable inflation, this masks potentially serious and increasing imbalances within the economy, and the continuation of these imbalances could pose increasing dangers to the future stability and growth of the economy. In particular, we note that house price inflation is currently at an unsustainable rate, but price levels may stabilise.
Some may argue that there are issues regarding the role played by economic policy in contributing to the current sectoral economic imbalances. In the light of the evidence we considered, we consider this to be an area where the Treasury and the Bank of England should undertake a joint review of the UK experience of inflation targeting to date, in the light of the inflation target of 2.5 per cent set by the Chancellor, examining its impact on both aggregate and sectoral inflation and growth.
We note that the Chancellor had sufficient scope to allow borrowing by the Exchequer to overshoot his 2002 Budget projections, given the low level of overall public debt and the current state of the economy. While the Treasury is on course to meet its fiscal rules, we believe that in the light of experience it would be prudent to keep the workings of the fiscal rules under review. We also call for clarification by the Chancellor as to whether he regards it as his policy to limit the level of the public deficit to three per cent as stated in the European Communities Treaty. In regard to the Treasury's presentation of its key projections of the public finances, we recommend that the Treasury should adopt a "fan chart" style.
Note for editors
Mr John McFall MP, Chairman of the Committee, is available for comments on the Report today: telephone 0773 098 7802.
The Report can be purchased from the Stationery Office Bookshops (telephone 0870 600 5522). The full text will be available on the internet from the afternoon of the day of publication at: