The Economy

The Treasury's forecast in the Pre-Budget Report is for a swift recovery in economic growth for 2010, after a significant decline in output in 2009. The outlook for economic growth remains highly uncertain, but the balance of risks to the Treasury's forecast is on the downside, as illustrated by the two packages which have since been introduced. The overall effect of the fiscal stimulus remains uncertain. The cost of the reduction in VAT is considerable and, in the view of the majority of commentators, the Treasury's analysis of its impact is an optimistic one.

The lack of bank lending remains the single most critical problem for the economy in the near term. The Government must ensure the availability of credit increases quickly. Without that increase in availability, the recovery of the economy will be placed in jeopardy. We recommend that the Lending Panel, or a suitable agency of the Treasury, provide regular updates on the actual lending by the banks to the real economy. We have noted the Government's proposals announced on 19 January 2009, and we will monitor their implementation and effectiveness.

The risk of a self-reinforcing deflationary cycle exists in the UK economy at present. We recommend that the Treasury prepare and publish the actions it may consider taking should a period of "quantitative easing" be needed.

While the need for lower interest rates to maintain economic growth is crucial at the present time, the needs of savers must not be forgotten. We recommend that the Treasury consider measures that will support savers at this difficult time.

Public Finances

The forthcoming period during which the Temporary Operating Rule applies provides an ideal opportunity to re-evaluate the fiscal framework for the future. We recommend that the Treasury conduct a full public consultation on the design of such a framework. We note that at the time of writing the markets are supporting the Government in its raising of debt. We note the Chancellor's acceptance that in due course the level of public sector net debt needs to be addressed.

Child poverty

We note with concern that the Pre-Budget Report contains no policy measures which will significantly advance meeting the 2010 child poverty target. We recognise the fiscal position is strained and that resources are limited, but believe meeting the 2010 child poverty target must not be allowed to fall by the wayside.

Fuel poverty

On fuel poverty, we expect the Government to act promptly on the Ofgem quarterly reports in order to ensure that consumers are not charged an inflated price for energy.

It is important that the Government ensures that the energy companies take urgent steps to resolve the unfair gaps in energy pricing and if necessary take the statutory powers to do so.

Efficiency

We note that the announcement of an additional £5bn of efficiency savings, without any supporting schedule showing the derivation of this figure. We recommend that the Government publishes where and how the additional savings will be made.

Small firms

We welcome the package of measures the Government has introduced to support small and medium sized enterprises. We welcome the measures to ease the tax burden on small firms facing difficulties, but will continue to monitor whether HMRC are devoting sufficient priority to this initiative.

Improving the flow of credit to consumers

We recognise that steps taken by the banks to rebalance their assets following the banking crisis late last year have resulted in reduced credit lines being made available to the public. It is clear that schemes introduced in the Pre-Budget Report, and the stamp duty holiday announced earlier, are not having any widespread effect. We recommend that the Government takes all possible steps to ensure that the banks lend fairly and responsibly to each other and consequently to the public. We are concerned that piecemeal measures introduced by the Government may not be adequate in the face of the crisis in lending.

Air Passenger Duty

We recommend that the Government monitors the impact of the introduction of higher banding Air Passenger Duty in order to ascertain the impact of APD on UK hubs and passenger preferences.

Road Fuel Duty

We note that the Government is relying on falling oil prices to counterbalance the impact on businesses of the 2 pence per litre rise in fuel duty. We believe that the Chancellor has missed an opportunity to assist the road haulage industry, a matter we think the Chancellor should address at the time of the Budget. We recommend that the Government continues to monitor oil prices and adjusts the level of fuel duty in light of any future increase in oil prices.