The economy

We note that the lower boundaries of the Treasury's forecasts for economic growth in 2008 and 2009 are above the average of independent forecasters. We conclude that the Treasury may have given insufficient weight to the risks of continued financial market turbulence and that some of the UK economy's characteristics that have proven beneficial in past crises (rapidly rising residential property prices, close links with the US and an increasing reliance on the financial services industry, for example) might prove to be conduits through which the current problems in global financial markets are transmitted to the UK real economy.

The public finances

We note that there has been a further weakening of the Treasury's forecasts of the current budget balance from 2008-09 onwards and that the latest forecasts for the fiscal position are based on forecasts for economic growth that are subject to considerable downside risks. We continue to believe that the golden rule should be more forward looking. Even on the Treasury's own current formulation, it appears to us to be premature for the Treasury to state that it is "on course" to meet the golden rule in the next economic cycle, given the lack of an end date for the previous economic cycle. We note that the margin by which the Treasury forecasts that it will meet the sustainable investment rule is extremely tight, especially considering the uncertainty surrounding the overall economic situation. We call for the Government to clarify in the 2008 Pre-Budget Report how it proposes to revise the sustainable investment rule in the light of implementation of International Financial Reporting Standards.

Child poverty

We welcome the measures on child poverty in this year's Budget, which will make an important contribution towards reducing child poverty. However, we remain concerned that the Government has yet to provide a clear explanation of the linkage between its target to halve child poverty by 2010-11 and the proposed deployment of resources to meet that target. We emphasise that it is of crucial importance that the Government makes it clear that the necessary resources to meet the 2010-11 target are available and that the Government is committed to deploying those resources directly to support low-income families.

Fuel poverty

We note that it is important that the Government continues to tackle fuel poverty through a combination of targeted and universal measures. In view of the importance of measures announced in Budgets and Pre-Budget Reports to the progress of the targets to eradicate fuel poverty set by the Government itself and by the devolved administrations, we recommend that the Government report in Budgets and Pre-Budget Reports on the effect of any measures announced at that time on progress towards meeting fuel poverty targets.

The 10 pence rate of income tax and tax credit take-up

We note that those most affected by the abolition of the 10 pence rate of income tax appear to be those below the age of 65 with an income under £18,500 who are in childless households. We accept that there are benefits in tax simplification and that there are merits to focus on both the needs of children and motivation to work, but conclude that the group of main losers from the abolition of the 10 pence rate of income tax seem an unreasonable target for raising additional tax revenues to fund these and other initiatives. We are concerned by the poor take-up rate of working tax credit among eligible families without children, especially given that working tax credits are intended to mitigate for low-income households the effect of the removal of the 10 pence starting rate of income tax. We recommend that the Treasury commission research into whether the withdrawal of the 10 pence income tax band and high marginal deduction rates are creating disincentives that could frustrate the Government's welfare to work objectives.

The Saving Gateway

We have previously called for the introduction of a national Saving Gateway targeted on low-income households. We suggest that the first priority for extension beyond the initial proposals should be those who would qualify initially in terms of income, but are not in receipt of a qualifying benefit or tax credit. We argue that both the simplicity of operation and the appeal of the Saving Gateway would be assisted if it were offered on a tax-free basis.

The tax treatment of residence and domicile

We are concerned that, as a result of the focus on wealthy individual non-domiciles, there has been insufficient consideration of the possible impact of tax changes announced in the Budget on the middle and lower income groups of non-domiciled taxpayers. Due to the complex nature of the policies on domicile and residence, and the distinction between how liability is incurred for the annual £30,000 charge and the loss of personal tax allowances, we are concerned that the new policies will create a group of non-domiciled taxpayers who would be unwittingly in breach of the new law. We are also not convinced that sufficient consideration has been given to the possible further burden that the measure will place on HM Revenue & Customs.

Income shifting

We welcome the Chancellor of the Exchequer's decision to undertake a further consultation on the issue of income shifting. However, we are concerned that this proposed legislation would place an additional tax burden on small businesses. We recommend that the terms of the consultation be widened to constitute a full review of the principles of small business taxation to ensure that the taxation system rests on practical, workable rules for the small business community.