Page last updated at 17:20 GMT, Monday, 26 July 2010 18:20 UK

Treasury under Brown accused of 'excessive' optimism

The Treasury under Gordon Brown's chancellorship made "excessive use of hopeful judgment" to predict how much money would be raised in taxes, a former senior civil servant has said.

Lord Stern of Brentford, head of the government's economic service from 2003 to 2007, also accused the Treasury at that time of a reluctance to engage with the Bank of England.

As peers began consideration of the Finance Bill, which enacts the budget, at second reading on 26 July 2010, he said that undue optimism led to the country entering the world economic crisis with "a substantial structural deficit".

Lord Stern, who wrote an influential report on climate change, welcomed the establishment of the Office for Budget Responsibility (OBR), which was set up by the present government to provide independent assessments of the public finances.

Treasury commercial secretary Lord Sassoon, opening the debate, said measures in the Budget were necessary "to gain control of the public finances and to strengthen the economy".

"Our budget was necessarily a tough Budget," he told peers. "It was also a fair Budget."

Lord Tunnicliffe, for Labour, said most objective observers believed that the tax changes would "harm the wellbeing of the British people".

He said the government's "broken promise" on VAT would cost each household more than £500 and would make the economic recovery less likely.

Meanwhile, Liberal Democrat Lord Razzall said: "There is a major issue if the coalition is going to claim that this is a fair Budget. The government needs to look at how the Treasury models the impact of these reductions in taxation at the bottom end."

The House of Lords does not have the power to amend or vote down money bills.

Click here to watch part two of the debate.

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