Wednesday 21 July 2010

Budget risks return to recession, warns Treasury select committee

George Osborne's austerity budget has increased the risk of Britain sliding back into recession and is unfair on the least well-off, according to the influential House of Commons Treasury select committee. The cross-party group of MPs cited concerns from some commentators that Osborne's plans to cut Britain's deficit had slightly raised the near-term risk of a double-dip recession and said it might require a plan B from the new chancellor. "It is possible that the chancellor may need to alter his current plans to compensate for external events," its report on the budget said, citing the "fluid and fragile global economic situation".

George finds it all highly amusing

Although the report did say there was an "increased likelihood of positive growth in the outer years" it also shared many economists' worries that the new government's tax measures and spending cuts are too much, too soon. "There is concern that such a consolidation may come too early and cut too deeply, and as such cause the economic recovery to falter, leading to a 'double-dip' recession," it said. The Tory-dominated committee also questioned the chancellor's insistence that the budget was "fair" and that the pain would be borne equally.

Committee chairman Andrew Tyrie welcomed Osborne's decision to publish tables setting out how changes affect different households but he raised concerns over what they showed. "There is much debate about whether the chancellor's budget measures are progressive. Whilst those on the lowest incomes bear less of the strain than those on the highest incomes, I am concerned that those at the bottom appear to pay proportionately more than those in the middle of the income distribution," he said.

However, a Treasury source stressed that the committee had not challenged the central budget judgment. "When we are borrowing one in every four pounds we spend that our kids will have to repay we must act but we have acted fairly. The alternative is higher interest rates … which will hit families up and down the country hard," the source added. The committee urged the coalition government to again make clear in this autumn's comprehensive spending review how any changes would affect different income groups.

There were also concerns on the committee over the status of Osborne's newly created fiscal watchdog, the Office for Budget Responsibility. The report commented: "It is unfortunate that the independence of the OBR has been called into question." But it said the OBR's publication of forecasts for employment was "new and welcome", at the same time noting the forecast of considerable public-sector job losses and strong private-sector hiring.

the Guardian