11 April 2011
MPs have endorsed the chancellor’s decision not to reveal any ‘Plan B’ for fixing the fiscal deficit, but have raised concerns about some aspects of his plan for growth.
The Treasury select committee published its inquiry into last month's Budget on Saturday.
Chancellor George Osborne has come under repeated fire for not deviating from his plan to eliminate the structural deficit within this Parliament in the face of weak economic growth.
But after hearing from expert witnesses, the cross-party committee concluded: ‘Markets need to be confident that the government is committed to its fiscal policy.A government which talked of a Plan B as a substitute for that policy would prejudicethat confidence. However, as we explored in our evidence, a responsible chancellor islikely to have contingency plans to deal with a variety of scenarios where economiccircumstances are fundamentally changing. Those plans should not be made publicunless and until they are needed.’
While the MPs welcomed the ‘start’ the government had made with its plan for growth, published alongside the Budget, they were sceptical about the potential of the 21 new Enterprise Zones announced by Osborne on March 23.
‘Almost all the evidence received is unsure about the extent to which they will contribute to UK growth,’ the report said.
The most positive witness, Simon Hayes, chief UK economist of Barclays Capital, described the zones as ‘a gamble’, where ‘you may just end up financing activity that would have already happened’.
The committee concluded that there was still much to be done on the Enterprise Zone policy and recommended that the Treasury provide an analysis of the overall economic impact, ‘including measurement of anyfrictional and deadweight costs’.
The report also raised concerns about the timetable of economic forecasting by the Office for Budget Responsibility, which had to provide its estimates to the Treasury at least two weeks before the Budget.
Committee chair Andrew Tyrie called for more flexibility to take account of potential economic shocks and late political decisions. ‘It would be concerning if the construction of Budgets was prejudiced by an arbitrarily tight timetable. The OBR and Treasury need to sort this out,’ he said.
