The Economy

1.  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. (Paragraph 4)

2.  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. We will continue to monitor its effect as part of our ongoing work, and will return to this issue at the time of the Budget 2009. (Paragraph 12)

3.  The lack of bank lending remains the single most critical problem for the economy in the near term. The Government must ensure that the availability of credit, both to households and businesses, 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 were very struck by the Governor of the Bank of England's analysis that lending at the present time might not appear to be in individual banks' interests even if it were in their collective interest. We note the Government's proposals announced on 19 January 2009. We will monitor their implementation and effectiveness, both at the time of our inquiry into Budget 2009, and as part of our ongoing inquiry into the Banking Crisis. This is a matter we will discuss with the Chancellor in due course. (Paragraph 17)

4.  We are concerned that the terms of the original recapitalisation programme of the banks may be hampering their ability to lend. We note the conversion of preference shares held by the Treasury in RBS into ordinary shares. We recommend that the Treasury continue to monitor the effectiveness of the recapitalisation scheme, and whether further renegotiation of the original contracts will be required so that the banks concerned can maintain and increase their lending. (Paragraph 20)

5.  We note the creation of the guarantee scheme for asset backed securities. We will examine this proposal as part of our inquiry into the Banking Crisis (Paragraph 25)

6.  The current forecast suggests that any future falls in prices will only be temporary. But the risk of a self-reinforcing deflationary cycle exists in the UK economy at present. The Treasury must be alert to this possibility. Nominal interest rates have already fallen significantly, and may soon reach a rate of zero percent or just above. We recommend that the Treasury prepare and publish the actions it may consider taking should a period of "quantitative easing" be needed. We note the creation of the Bank of England asset purchase facility, and would expect it to be included in such an analysis (Paragraph 30)

7.  This paper must also contain the actions that will be expected of, or have been recommended by, the other relevant public bodies related to the Treasury, such as the Bank of England and the Debt Management Office. We will continue to examine the need for, and design and function of, the Bank of England asset purchase facility in our future inquiries into the Budget 2009, and the Bank of England's Inflation Reports. (Paragraph 31)

8.  Interest rate reductions, while favourable to borrowers, once passed through by financial institutions lead to a decrease in income for savers. 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 the Treasury consider measures that will provide support to savers at this difficult time. (Paragraph 33)

9.  The recent fall in sterling is providing a stimulus to the exporting sections of the UK economy. However, the fall in sterling has its negative impacts, such as the risk of imported inflation, and we will continue to monitor the situation. We recommend that the Treasury include an update at the time of Budget 2009 about these negative impacts, and what mitigating measures, if any, it has taken. (Paragraph 38)

10.  The rebalancing of the UK economy will require healthy UK exports, along with adequate access to foreign markets. We endorse the Treasury's anti-protectionist stance. (Paragraph 41)

11.  Support provided directly by Government to industry may be justified. Clearly, reasons of commercial confidentiality make it difficult for an open debate to take place over specific measures. However, we recommend that the Treasury, in consultation with BERR, should provide a consultation document setting out the criteria against which support packages would be considered. (Paragraph 44)

The Public finances

12.  We accept the Chancellor's argument that a rigid application of the fiscal rules in the current circumstances would have been damaging to the UK economy. The fact that a temporary departure from the fiscal rules has been required serves to reinforce our view that a revised fiscal framework is needed. The forthcoming period during which the Temporary Operating Rule applies provides a good 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 remain of the view as expressed in our previous Reports, such as on the Budget 2008, that it is our desire to see a credible framework which is more forward-looking than the fiscal rules used over the last cycle, which have been beset by problems surrounding the dating of the economic cycle. (Paragraph 57)

13.  It is encouraging that at the present time the markets are supporting the Government in its raising of debt. We note the Chancellor's acceptance that in due course the levels of public sector net debt need to be addressed. (Paragraph 61)

Child poverty, Fuel poverty and the poverty trap

14.  We welcome the decision in the Pre-Budget Report to bring forward measures on Child Benefit and Child Tax Credit, including the reforms on Housing Benefit and Council Tax Benefit due this autumn, which will provide increased support to families with children. However, we note with concern that the Pre-Budget Report contains no policy measures which will significantly advance meeting the 2010 child poverty target. The Chancellor has told us that the Government remains strongly committed to meeting the child poverty targets, but this needs to be demonstrated through firm action on tackling child poverty in the 2009 Budget, including the deployment of additional resources. 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. (Paragraph 72)

15.  We note that the price of fuel has fallen considerably in recent months. Ofgem has a clear responsibility to ensure that energy providers are not taking advantage of British consumers. We expect the Government to act promptly on the Ofgem quarterly reports in order to ensure, by whatever means necessary, that consumers are not charged an inflated price for energy. (Paragraph 81)

16.  We welcome the progress made to close unfair gaps in energy pricing. For too long vulnerable and fuel-poor consumers who should have been assured of receiving the best deal from their supplier have struggled to pay energy bills. It is important that the Government ensures that the energy companies take urgent steps to resolve this matter quickly and if necessary takes statutory powers to do so. (Paragraph 86)

17.  The increase in the number of households facing marginal deduction rates of over 60% is a direct consequence of decisions made by the Government as to how the tax and benefit system will work. We acknowledge that there is no easy solution to the problem of high marginal deduction rates, and that this results in part from the Government's approach of targeting support on lower-income households. That said, we welcome the fact that the Government has ensured that no household now faces a marginal deduction rate of over 100%. However, we are concerned by the increase in the number of households facing high marginal deduction rates of over 60% and recommend that the Government examine ways to over time reduce the number of households adversely affected by high marginal deduction rates. (Paragraph 96)

18.  We welcome the increased take-up of Working Tax Credit amongst low-income individuals and couples without dependent children, although there is clearly very considerable scope to increase the take-up of Working Tax Credit amongst this group. As we originally said in our Report on Low Income Households, whilst one of the reasons for low take-up of Working Tax Credit amongst this group—lack of awareness of eligibility for Working Tax Credit—can be tackled through publicity campaigns, other factors will be more difficult to overcome. These include making the system more responsive and user-friendly for those with volatile incomes and circumstances. To this end we welcome the increased resources that the Government is devoting to helping tax credit recipients to claim, manage and renew their awards. That said, awareness-raising measures do have a role to play in boosting take-up rates, particularly in correcting the perception that access to Working Tax Credit is restricted to those with dependent children. We will continue to monitor Government progress in this area, including the implementation of Housing Benefit and Council Tax Benefit reforms due this autumn, during our inquiry on the 2009 Budget. (Paragraph 101)

Public expenditure issues

19.  We note that the announcement of an additional £5bn of efficiency savings was made in the 2008 Pre-Budget Report without any supporting schedule showing the derivation of this figure. In order to demonstrate the robustness of this figure we recommend that the Government publishes details of where and how the additional savings will be made. In providing these details the Government should also set out the measures in place to ensure that public service delivery does not deteriorate. (Paragraph 107)

20.  We broadly welcome the package of measures the Government has introduced to support small and medium-sized enterprises through the economic downturn and related credit crisis. That said, the Government must keep the size and duration of the Small Business Finance Scheme under constant review given the possibility that bank lending to small firms does not return to 'normal' during the course of 2009. (Paragraph 119)

21.  We also 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. With respect to the impact on small firms of the temporary reduction in VAT, we note that businesses argued that the short notice caused an administrative burden. We trust that the Government will take note of the concerns that small firms have expressed in their assessment of how the exercise impacted on small firms. (Paragraph 120)

22.  We note that the Government has published a list of assumptions, but declined to publish any official forecast of unemployment levels. We accept that this has been the established practice of all governments but believe that the current circumstances demand maximum transparency. Accordingly, we recommend that the Government publishes its forecast for unemployment. (Paragraph 125)

23.  We note that 1.8 million pensioners are missing out on pension credits which they are entitled to and which would offer them additional financial support at this time. We recommend that the Government takes further steps to increase the take up of the support available, and we will be taking further evidence about the rate of take up in due course. (Paragraph 130)

24.  We recognise that steps taken by the banks to rebalance their assets following the banking crisis late last year has 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. (Paragraph 140)

25.  We welcome the extended provision of free impartial debt advice outlined in the PBR through the Citizens Advice Bureaux, and through online and telephone services. Citizens Advice is well placed to offer advice to those struggling with debt problems and the public is certain to benefit from the funding allocated to increase its capacity. (Paragraph 145)

Other tax measures

26.  We note that Air Passenger Duty excludes freight flights and imposes comparatively low charges on private planes, maintaining an inconsistent handling of aviation emissions. We further note the risk that distance based bands of APD will encourage travellers to fly via European hubs. We are of the view that the disparity in fare level will indeed encourage passengers to fly via European hubs. 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, passenger preferences, and the financial consequences for airlines. If the recovery from recession is to be a 'green recovery', as the Pre-Budget Report has stated, this rhetoric has to be supported by an appropriate taxation strategy. (Paragraph 153)

27.  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. (Paragraph 157)

Timing and debate on the Pre-Budget Report

28.  We accept that it may be unrealistic for the Government in the current climate to give any commitment to a particular notice period though we maintain that a longer lead-time would be helpful. (Paragraph 159)

29.  We recommend that the Government makes available a full day's debate for the Pre-Budget Report. (Paragraph 161)