Darling derided as too optimistic

Published on Wednesday 6 May 2009 22:02

SEVERE doubt was yesterday cast on government predictions that the recession would end later this year and the UK economy bounce back strongly in 2011.

An influential committee of MPs said Chancellor Alistair Darling's growth forecasts – at a time when the nation's finances were in the worst state since the Second World War – "might be too optimistic".

The Treasury select committee, in a report on last month's Budget, also said there were "considerable uncertainties" about how much money the new 50p income tax rate would raise. It was also strongly critical of an "alarming" lack of effort to meet a totemic Labour promise to eradicate child poverty.

Conservative shadow chancellor George Osborne said: "This report from a committee with a Labour majority is a huge blow to the credibility of the Chancellor."

The report said there was "considerable uncertainty" around the Chancellor's Budget forecast of GDP growth of 1.25 per cent next year and 3.5 per cent in 2011.

It noted that the International Monetary Fund believed the UK economy would continue to shrink next year, by 0.4 per cent, and judged Mr Darling's forecast for 2011 "optimistic" as the economy would just have emerged from a sharp downturn.

The committee, chaired by Labour's John McFall, normally an ally of the Prime Minister, said it was "critically important" that the Chancellor convinced the markets he had a plan to restore public finances to good health or Britain could face difficulty financing its plans to borrow 700 billion over the next five years. We are very concerned about the state of the public finances," the report said.

Mr McFall said: "As the Chancellor said, we are living in extraordinary and uncertain times. However, we are not convinced that the Budget forecasts fully acknowledge this uncertainty. We all want to see a way out of this recession, but we need to be realistic."

The committee also criticised a series of government initiatives to tackle the recession, saying there were "considerable uncertainties" the 50p income tax rate, to be introduced from next April for people earning more than 150,000 a year, would raise the 3bn expected by the Treasury by 2012.

It was "unconvinced" the suspension of stamp duty until the end of the year on properties costing up to 175,000 would do much to help kick-start the housing market.

And it said the 300 million car scrappage scheme – offering 2,000 discounts on new cars for people who traded in vehicles at least ten years old – was likely to result in the purchase of only 12,600 UK-manufactured vehicles. This would mean the taxpayer subsidised each sale by 23,809.

Liberal Democrat Treasury spokesman Vince Cable said: "The only person who believes Britain will soon return to rapid growth is the Chancellor himself. Gordon Brown and Alistair Darling have relied on pie-in-the-sky forecasts to dodge the difficult decisions that must be made."