Treasury Committee press notice no.43

Session 2006-07, 23 April 2007

The Treasury Committee publishes its report on The 2007 Report as the Fifth Report of the Committee of Session 2006-07 (HC 389) at 11:00 hours today.

Significant improvement required for Government to halve child poverty in four years

A “significant improvement” during the period of the Comprehensive Spending Review will be needed for the Government to meet its target for halving child poverty over the next four years.

The Rt Hon John McFall MP, chairman of the Treasury Select Committee, said: “This year’s Budget represents a small step in the battle against child poverty, but a significant will be needed in the Comprehensive Spending Review if the Government’s target for halving child poverty by 2010-11 is to be met.”

He was speaking following the publication of the Committee’s report into this year’s Budget.

Mr McFall welcomed the extra resources allocated in the Budget, which it is estimated will help around 200,000 children out of relative poverty.

However, the Committee has expressed concern about recent figures indicating a rise in child poverty.

It calls on  the Government, when it reports on the outcome of the Comprehensive Spending Review, to state how it intends to meet the four-year target to halve the number of children in poverty.

Mr McFall said: “We would like the Government to publish its analysis of the impact of improving incentives to work on meeting its child poverty targets.

“Autumn will be time for the Government to spell out how they intend to meet the four-year target.

“Extra resources will need to be devoted both to welfare-to-work measures and to the benefits and tax credits systems for this to happen, and the Government needs to set out its strategy at that time.”

Migration  and the output gap

Mr McFall also drew attention to the Committee’s observations about the implications for economic and fiscal forecasting of changes in the character of the United Kingdom economy. The Committee concludes that migration of uncertain magnitude and the greater stability of the economy may reduce the value of the concept of the output gap as a tool of economic analysis and recommends that the Government examine the impact of these factors on the role which the concept of the output gap should play in Treasury forecasting and analysis.

Mr McFall commented: “The Treasury’s forecasting methodology places greater emphasis on the concept of the output gap than that of the Bank of England, for example. The Governor of the Bank of England told us that ‘I myself have doubts as to whether, in a situation where it is possible to acquire labour from abroad when demand for labour expands here, the output gap is as precise and useful a concept as it was’. We call on the Treasury to respond to such views so they can satisfy us that Treasury’s economic forecasting and fiscal planning are not unduly reliant on the concept of the output gap.”

North Sea oil revenues

The Committee’s report draws attention to the continued problems the Treasury faces in accurately forecasting North Sea oil revenues and notes that volatility of North Sea oil revenues constitutes a risk to taxation revenues in the future.

Mr McFall commented: “The Treasury told us of the reasons why they have revised down significantly their forecasts of North Sea oil revenues, and time will tell whether the Treasury have finally got their forecasts right, but clearly the difficulties they face in forecasting in this area represent a risk to their overall fiscal planning and forecasting.”

The fiscal rules

Turning to the overall fiscal context, the Committee examines the operation and interpretation of the two fiscal rules-the golden rule and the sustainable investment rule. The Committee reiterates its recommendation that the Government review the golden rule and consider how to make it more forward-looking and its application less dependent on the dating of the economic cycle and calls for the Government to give an account of the circumstances in which it would change its current interpretation of the sustainable investment rule for the next economic cycle.

Mr McFall commented: “It is clear that the time is ripe for a review of the two fiscal rules-the golden rule and the sustainable investment rule. They have served this Government exceptionally well, but the likely start of a new economic cycle is the right time to look at them again.”

Administrative arrangements

Copies of the Report are available to witnesses, government departments and accredited members of the press from 11.00 am today at the reception desk at 7 Millbank, London SW1P 3JA. Copies are also be available in the press gallery of the House of Commons.

Mr McFall is available for comments on the report today on 020 7219 3521 (Westminster office), 0773 0987802 (mobile) or 07644 004 586 (pager). For all other media inquiries, please contact Laura Humble,  Select Committee Media Officer, on 020 7219 2003, or 07917 488 489.

Reports can be purchased from the Stationery Office bookshops (tel: 0870 600 5522). The full text will also be available on the internet on the day of publication: