MPs publish report on the 2011 Budget

• Report - Budget 2011
• Budget 2011 inquiry page
• Commons News: Budget 2011 statement
• Commons news: Budget debate
• Treasury Committee 

Office for Budget Responsibility

The report looks at the way the OBR has functioned in this, the first Budget since it was permanently established. It raises concerns about the timetable for the economic forecast, noting:

the timetable agreed for this forecast and Budget required all decisions which would impact on the economic forecast to be made at least a fortnight before Budget day. We recommend that the timetable should be revisited to provide more flexibility enabling economic shocks and late political decisions to be accommodated. It is understandable that a number of adjustments to the process and timetable will be needed, given that this was the first full forecast cycle since the creation of the OBR.

Committee Chair, Andrew Tyrie MP commented:

"It would be concerning if the construction of Budgets was prejudiced by an arbitrarily tight timetable. The OBR and the Treasury need to sort this out."

The committee was also concerned that decisions on whether potential privatisation receipts should be included could affect the reliability of the forecast, saying:

We urge the OBR to reconsider the way in which asset sales are treated both in the Economic and Fiscal Outlook and in the forthcoming sustainability report. All economic forecasts deal with a number of specific and very uncertain outcomes to which numbers or assumptions are attached in the forecast. Asset sales are no different from many of these. (Paragraph 180) 

Committee Chair, Andrew Tyrie MP commented:

"We are concerned that caution in the treatment of asset sales may lead to a bias in the central forecast. A forecast is no longer central if decisions are made which have the effect of entrenching 'upside risk'."

The committee continues to press for a full review of the OBR, including its powers, remit and relationship to Parliament, saying:

We welcome the provision for independent review of the reports from the Office for Budget Responsibility, and may well engage with the Non-Executive directors on the arrangements for those reviews. However, we continue to believe there is a need for a fundamental review of the Office for Budget Responsibility, which would not be confined to assessing the output of the new organisation, but which would consider whether the framework established by the Budget Responsibility and National Audit Act was the most appropriate one. A wide ranging review of the OBR is essential. There is, of course, no need for such a review to be statutory. (Paragraph 185)

Committee Chair, Andrew Tyrie MP commented:

"The committee was pleased that the Chancellor has agreed in principle to independent review of the OBR after 5 years, albeit at a late stage. The committee expects to be involved in the review in due course, which will need to consider whether the OBR has the right structure." 

Tax

The committee repeated its call for gradual reform of the tax regime in line with the principles of certainty, stability and simplicity identified in its recent report: Principles of tax policy. 

The committee said:

The Budget may not lead to a net simplification in tax law—although this is difficult to quantify. We recognise that it is very difficult to simplify an already complex system and welcome the work of the Office of Tax Simplification and the establishment of a 'direction of travel' towards simplification. (Paragraph 131)

Treasury Committee Chair Andrew Tyrie MP said:

"Tax reform cannot be achieved overnight. We welcome the Government’s intentions. To some degree, tax simplification is measureable; we intend to monitor it closely and also to monitor the extent to which the Treasury reforms the tax system in accordance with the principles established in the Treasury Committee's report."

The committee also noted the Government's decision to increase the supplementary rate of corporation tax on the oil and gas industry by 12 percentage points in the Budget —less than a year after promising to provide a stable tax regime in the sector —might weaken the Government’s credibility in seeking to establish a stable tax regime.

The Plan for Growth

The Committee was pleased with the further reduction in corporation tax announced in the Budget. It considered that this was a positive measure aimed at boosting growth. The report said:

We welcome the reduction in the headline rate of corporation tax and note the evidence provided that this has boosted business growth and tax revenues elsewhere. We will monitor closely the impact of this policy on corporation tax revenues in the UK. (Paragraph 81)

The committee urged the Government to monitor the effect of the FirstBuy scheme on the supply of additional housing.  The scheme should—along with reforms to the planning system—increase the supply of new houses. It was important for the housing market that it did so.

On Enterprise Zones the report says:

Enterprise Zones may have some effect in reviving particular areas, but we note that almost all the evidence received is unsure about the extent to which they will contribute to UK growth. It is clear that there is still much to be done on the details of this policy. (Paragraph 93)

The plan to boost micro businesses and start-ups by a moratorium on new domestic regulation is intended to reduce the burdens on business. The committee has taken limited evidence on this. We have however received evidence that the proposal may create problems. Several lists of regulatory exceptions and some administrative complexity could however be created by this apparently attractive proposal. (Paragraph 106)

Treasury Committee Chair Andrew Tyrie MP said:

"The Government has made a start with the plan for growth. The crucial task is to ensure that the full effects of specific and detailed measures are carefully monitored."

Treasury Committee Chair, Andrew Tyrie MP said:

"The committee's conclusion about the apparent trailing of budget measures by successive administrations speaks for itself."

Further Information

• About Parliament: Select Committees