Session 2002-03 No. 29 16 May 2003
THE 2003 BUDGET
The Treasury Committee published its Seventh Report of the 2002-03 Session, The 2003 Budget (HC 652-I) at 11 am today.
A summary of the Report appears overleaf.
Mr John McFall MP, Chairman of the Committee, is available for comments on the Report today on 0773 0987802 (mobile) or 07644 004586 (pager).
The Report can be purchased from the Stationery Office Bookshops (0870 600 5522) and from the Parliamentary Bookshop, 12 Bridge Street, Parliament Square, London SW1A 2JX (020 7219 3890). The full text will be available on the internet at or before 3.30 pm on the day of publication at: www.publications.parliament.uk/pa/cm/cmtreasy.htm#reports.
Summary of the Report
The date of the Budget was announced on 5 March 2003, just over one month before the Budget itself on 9 April. We have previously requested that the Chancellor should announce the date as far in advance as possible, but give at least two months notice. While we recognise the complications introduced this year by the Iraq war, we reiterate our request and hope that the amount of notice given this year will not set a precedent for the future.
Growth of 1.8% in 2002 was weaker than forecast in the Budget 2002, but the UK performed better than any other major European economy. The Treasury growth forecast for 2003 of 2% to 2% is similar to most other forecasts, but we note that the Treasury forecasts for 2004 are more optimistic than those of a wide range of other forecasting bodies. There are concerns that pension fund deficits may pose a threat to the recovery, particularly through their impact on business investment; the Treasury should co-ordinate the publication of aggregate data to facilitate assessment of this issue. We recommend that the Treasury should consider commissioning a technical review of its forecasting procedures to reinforce its reputation in the area of economic forecasting, as has usefully been done by the Bank of England.
Treasury projections assume that tax receipts as a share of GDP by 2007-08 will climb back to the highest level since the mid-1980s. To be fulfilled, this forecast requires not just a sharp rebound in overall economic activity but also a rapid recovery in the prosperity of the City. There is a risk that tax revenues will not recover as rapidly as the Treasury suggests.
Public sector spending in 2002-03 came in close to the original forecast, after adjusting for the costs of the Iraqi conflict. Even so, current spending was above and capital spending below planned totals. We recommend an investigation of the reasons for the inability to adhere to investment programmes. Dramatic fluctuations in public sector investment militate against the efficient delivery of a sound public sector infrastructure. It may help deliver a smoother, more efficient flow of public sector investment if the Treasury were to adopt an explicit target range for public sector net investment as a percentage of GDP over the cycle.
The Government is on course to meet the golden rule during the current cycle, thanks to the large surplus built up in the early years of the current cycle. As we move into the latter half of the current cycle, we await with interest the Treasury's views on the public finances over the next cycle.
Individual budget measures
The Report contains brief discussions on protecting tax receipts, stamp duty, Child Trust Funds, regional and local variations in pay, and tax credits