George Osborne under fire from own MPs over report

Chancellor George Osborne. Picture: Ian Rutherford
Chancellor George Osborne. Picture: Ian Rutherford
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CHANCELLOR George Osborne was today strongly criticised for using his annual autumn statement on the economy as a second full-scale Budget, as MPs cast doubt on the coalition’s fuel duty freeze and its much-vaunted £2.5 billion business loans scheme.

In a hard-hitting report on the statement, the Treasury select committee, chaired by Conservative MP Andrew Tyrie, also attacked the UK government for failing to explain properly why some departments had been spared cuts in their budgets.

The conclusions of the committee, which is dominated by coalition Tory and Liberal Democrat MPs, is a further blow to Mr Osborne’s economic strategy and comes as the UK faces the threat of an unprecedented triple-dip recession.

The report into the government’s Autumn Statement –which was actually delivered in December – follows Mr Osborne’s admission that the central target of bringing down public debt would not be met in time.

With the business groups, opposition parties and leading Conservatives such as London mayor Boris Johnson all raising concerns that the economy is stagnating, the committee has added its voice to fears that the government strategy to boost growth is failing.

In particular it raised questions about the £2.5bn Funding to Lending Scheme, which was meant to provide cheap loans to small and medium-sized companies (SMEs) through the banks.

The report noted: “The Funding for Lending Scheme was designed to boost the provision of credit to the economy.

“The committee is concerned by reports that while benefits may flow to mortgage lending, they may not reach SMEs as intended.”

The committee expressed concern that the economic forecasts of the independent Office for Budget Responsibility (OBR) – established by Mr Osborne to take over forecasting from the Treasury – had been “biased to over-optimism”.

“This would not have been a cause for concern but for the fact that the OBR’s forecasts have implications for decisions on public policy,” it said.

It questioned whether there was a “bias” in government’s funding for lending scheme towards providing mortgages for homebuyers rather than credit for small and medium firms.

“The supply of corporate lending by the banks remains of significant concern, especially for smaller firms,” the committee said.

While “exceptionally accommodative” forbearance by the banks towards companies struggling to repay loans had helped many firms to survive the recession, the committee warned there could be a long term cost to the economy.

“Some companies may remain trading when a more prudent examination of their business plan would suggest that they should not,” it said.

“Loans given to such companies may hamper banks’ ability to lend to new firms with better prospects.”

On Mr Osborne’s decision to freeze fuel duty, again the committee was highly critical of a lack of government strategy.

The committee said the decision failed to provide “either the certainty or the stability that are the hallmarks of good tax policy”.

Mr Osborne was also strongly criticised for using his annual Autumn Statement on the economy as a second full-scale Budget.

In the Autumn Statement, Mr Osborne announced a series of changes – including a £3.7bn benefits squeeze and a rise in tax thresholds – as well as admitting he would miss a key target for reducing the deficit.

He was urged by the committee to re-establish the spring Budget as the focus of fiscal policymaking, with the Autumn Statement no more than an “updating” of the position.

“There are good reasons for having a single substantial annual review of the fiscal and economic state of the country,” it said.

Committee chairman Mr Tyrie said: “The Autumn Statement is not, nor should it be, a second Budget. In recent years it has come to read like one.

“The case for two Budgets is weak. An additional one can create uncertainty and carries an economic cost. Only in an emergency would it be likely to carry long-term benefit.

“The primacy of the Budget as the main focus of fiscal and economic policy making should be re-established.”

The Treasury declined to comment.