Page last updated at 14:37 GMT, Wednesday, 6 May 2009 15:37 UK

Budget forecasts 'too optimistic'

The Chancellor Alistair Darling
MPs questioned the chancellor's growth forecasts

The UK chancellor's forecasts for the economy are "too optimistic", a committee of MPs has said.

Alistair Darling said in the Budget he expects the economy to contract 3.5% this year and to grow by 1.25% in 2010.

But the Treasury Committee has said there is "considerable uncertainty" about the growth forecasts.

The committee heard evidence last week from Mr Darling, Treasury officials and financial experts on the Budget and the state of the economy.

"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," said John McFall, chairman of the Treasury Committee.

"We all want to see a way out of the recession, but we need to be realistic," he said.

Considerable concerns

The committee said their uncertainty was demonstrated by the number of independent forecasts which were pessimistic about the speed of recovery.

Forecasts on UK economic growth

In particular, it pointed to the prediction by the International Monetary Fund that the economy in the UK will continue to contract in 2010.

A separate report out today by the National Institute of Economic and Social Research also has a more pessimistic forecast for GDP.

It forecasts the economy in the UK will shrink by 4.3% in 2009.

The committee also said it was "very concerned" about the state of public finances as net borrowing at the end of this financial year is forecast to hit £175m or 12.4% of GDP.

The report said increasing tax revenues from their current low levels would be crucial to restoring health to the UK's finances.

But it warned against assuming the growth of new industrial businesses, like the green economy and digital sectors, would yield as much in tax revenues as financial services.

50p tax doubts

Doubts were also raised over whether the new 50p top rate of income tax would raise as much money as outlined in the budget.

Alistair Darling's estimates suggest additional tax revenues of £1.1bn between 2010 and 2011.

But the committee said that there are considerable uncertainties about the figures and questioned why the sum of £150,000 had been chosen as the threshold.

It also suggested more thought go into preventing large numbers of wealthy people leaving the country in response to the change.

Car scrappage scheme

The committee was unconvinced that measures to boost the housing market would have any marked effect.

It repeated concerns about the Chancellor's holiday on stamp duty for homes worth more than £175,000.

Some members of the committee believed the measure might slow the adjustment of house prices to what many people would think as a more sustainable level.

Others questioned how much it would help given the relatively high price of houses.

Their report also cast doubt on the government's much publicised vehicle scrappage scheme.

The committee acknowledged the policy would help the sales of 300,000 new vehicles between May 2009 and March 2010.

But it believed two thirds of those sales would have happened anyway and of the total amount just 12,600 would be new UK-manufactured vehicles.

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