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Last Updated: Friday, 16 May, 2003, 13:33 GMT 14:33 UK
Brown's Budget 'over optimistic'
Gordon Brown
MPs say Treasury's credibility must be maintained
Chancellor Gordon Brown has come under fire for what a group of MPs say were overly optimistic growth forecasts in his Budget.

The Commons Treasury committee also criticise Mr Brown for what they say was a failure to focus on the potential impact on the economy of the crisis in pension funds.

In a report on the Budget, the influential cross-party group question Mr Brown's prediction that economic growth will recover strongly in 2004 and 2005, rising to between 3% and 3.5%.

The MPs also claimed it was "simply unacceptable" that the new system of tax credits for families and the unemployed had failed to pay up on time.

Strong economic fundamentals mean that the UK is well placed to respond positively as the global recovery gathers pace
Treasury spokesman
The report, issued on Friday, says Mr Brown's "optimistic" growth forecast for 2004 risked undermining the credibility of the Treasury's economic assessment.

The committee notes that the chancellor's Budget took place last month during the Iraq war, and therefore against a backdrop of uncertainty, but the report says: "The Treasury's forecasts for 2004 are notably more optimistic than those of a wide range of other forecasting bodies.

"It is important to maintain the credibility of the economic assessment underpinning Treasury forecasts for the public finances."

'Rigorous assessment'

Robert Chote, of the Institute for Fiscal Studies, told the committee that Mr Brown's "forecast for growth for the year ahead is further away ... from prevailing perceived wisdom than it has been on any previous occasion".

The MPs called on the Treasury to mirror the Bank of England's quarterly bulletin and publish technical studies to explain the basis of its forecasts

A technical review of its forecasting procedures should also be considered to reinforce the Treasury's reputation, the committee┐s report argued.

But speaking ahead of a formal response to the committee's report, a spokesman for the Treasury claimed its forecasts were "based on a rigorous assessment of prospects and risks".

"Strong economic fundamentals mean that the UK is well placed to respond positively as the global recovery gathers pace," he said.

'Rapid recovery needed'

Earlier, experts giving evidence to the committee raised concern about the impact on investment of the corporate sector's pension fund liabilities.

"The potential impact on the broader economy of the current weak state of many pension funds is a serious issue that does not yet seem to have received the attention it deserves, even if the stock market recovery were to continue to the point that the current problem with deficits was resolved," the MPs said.

They claimed that the chancellor had forecast a strong recovery in corporation tax revenues, which they claimed implied a "far sharper recovery in corporate profitability than it currently envisaged by independent forecasters".

"To be fulfilled, the Treasury's forecasts require not just a sharp rebound in overall economic activity, but also a rapid recovery in the prosperity of the City of London.

"At a time of significant structural change in financial markets and the financial services industry, there is a risk that profitability and tax revenues will not recover as rapidly as the Treasury suggests."

Tax credits

The MPs called on the Treasury to investigate the "substantial" underspending by government departments, local authorities and public corporations of money budgets for investment.

They welcomed Paymaster General Dawn Primarolo's acknowledgement of the difficulties some families and unemployed people met in claiming tax credits.

The report says: "It is simply unacceptable that some families that had submitted their claim for tax credits by January 31, as requested by the Inland Revenue, had not received their award notice or payment by the start of the scheme in April."

The MPs said they were concerned that inaccurate and confusing information had been issued to the public about tax credit payments.

Helpline

Last month Ms Primarolo told the Commons that interim payments will be made to people where necessary, with compensation payable to others.

Some 3.6m calls were received by the Inland Revenue's helpline in the two months before the launch of the new tax credits system at the beginning of April.

Although staff manning the phones was increased from 2,000 to 2,777, the Revenue "appears to have seriously under-estimated" the number of calls as the deadline approached, with the service "suffering accordingly".

A Treasury spokeswoman said the service would be reviewed by the Revenue.




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