Introduction

In this Report we consider the state of the United Kingdom economy, the public finances, individual tax measures in the 2007 Pre-Budget Report and the consultative nature of the Pre-Budget Report.

The economy

The Government has down-graded its forecast for economic growth in 2008 since the 2007 Budget. We identify some downside risks to this forecast, particularly if the wider effects of the credit crunch are greater than currently expected. We also note some risks going forward to the Treasury's forecast that the economy will return to trend growth in 2009 and conclude that the Treasury's optimism that the growth rate should revert to trend in 2009 has not been adequately explained.

The public finances

The Treasury has recently reduced the scale of errors in its forecasts for the public finances. This may be related to the current stage in the economic cycle. We expect the Treasury to continue to exercise vigilance in addressing errors in its forecasts of the public finances. We note risks to the public finances from a deeper or more prolonged downturn in the financial sector than currently forecast. We reiterate our recommendation that the Government review the golden rule such that it becomes more forward-looking and less dependent upon the dating of the economic cycle.

Taxation issues

We are concerned that the Treasury appears not to have consulted explicitly on the withdrawal of taper relief prior to the publication of the 2007 Pre-Budget Report. We call for the Treasury to clarify the points on which it is prepared to consider the representations of affected parties. We recommend that Government, in its response to this Report, set out how it proposes to mitigate the effects of the reforms of capital gains tax, particularly the effects of the withdrawal of taper relief for those already within the two-year qualifying period and with especial reference to small businesses.

We recommend that the Government clarify its projections for the cost to the Exchequer arising from the proposed inheritance tax reforms and the assumptions about taxpayer behaviour that underpin those projections.

We call for clarification on the extent to which changes to the rules applicable to non-domiciled taxpayers are open to consultation, and also for clarification on whether people who have been resident in the United Kingdom for more than ten years will pay a higher charge.

Nature of the Pre-Budget Report

The Pre-Budget Report is intended to be largely consultative in nature, and we conclude that it should retain its focus on consultation on fiscal measures.