Pre-budget report 2009: fourth report of session 2009-10, report, together with formal minutes, oral and written evidence(2009-10 180 House of Commons Papers)

"Pre-Budget Report 2009 (HC 180)" acknowledges that deciding the right time for fiscal consolidation requires making a fine judgement about the resilience of the recovery. There is currently considerable uncertainty in the economic outlook and any fiscal consolidation will have to function in that context. It may be difficult for any current consolidation plan to command universal support. It will therefore be very important to add greater detail and clarity to the plan sooner rather than later. The Report emphasises that a plan to restore the health of the public finances must deal with the structural deficit. While the Treasury aims to cut the deficit from 9 per cent of GDP to 3.6 per cent of GDP in four years, the Committee notes that despite the Treasury's belief that the Pre-Budget Report (PBR) contains sufficient detail about the way in which the structural deficit would be reduced, the expert witnesses who examined it all criticised the document for not providing enough information about how this will be achieved. Structural Deficits - "Pre-Budget Report 2009 (HC 180)" also calls for future Budgets and PBRs to attempt to quantify the downside risks around the structural deficit forecast. In particular, the Committee sees no good reason for the Treasury failing to produce more detailed illustrative figures for future expenditure, at least the projected split between DEL and AME. The Report recognises that there will be uncertainty in these figures, but they are produced as part of the Spending Review process so there appears to be no argument of principle against their publication. Similarly the Bank of England publishes forecasts showing the possible range of inflation rates and the Committee recommends that the Treasury consider whether publishing information about debt interest on a similar basis would be useful. Labour Market - The Committee notes that the recession appears to have had substantially less impact on the labour market than might have been feared, though it remains concerned about the level of youth unemployment. The report also cautions Government to remain vigilant to the potential that there may be further weakening in the labour market above that which it has forecast, which would of course impact on the public finances. The Committee welcomes the fact that repossessions have been far lower than expected. However, the report recommends that the Treasury proceeds cautiously over the timing and removal of Government support in this area. The report also notes that the picture on bank lending remains uncertain, to say the least. While the Committee does not want to see a return to the times of easy credit, it urges the Government to remain aware of the risk that lending will not support renewed private sector growth as the public sector retrenches. Tax on Bank Bonuses. The Government considers that the purpose of the tax on bank bonuses is to change behaviour so that banks increase their capital, rather than providing large discretionary payments to employees. The Report urges the Treasury Committee in the next Parliament to assess how effective the tax has been in this aim, and to examine the effectiveness of any regime introduced by the Financial Services Bill, in terms both of its success in altering bank behaviour, and of its effect on the competitiveness of the UK financial sector.