The Treasury has revised upwards its forecast for economic growth in 2006, and also its estimate of trend growth in the next economic cycle. We welcome the recent rise in the growth rate of business investment, while noting that the previous weakness in business investment remains unexplained. Difficulties in measuring net migration and predicting the future path of net migration are a significant constraint on the reliability of economic forecasts, including the trend growth assumption that informs the Treasury's assessment of its compliance with fiscal rules.
The public finances
Despite the improved forecast for economic growth in 2006, the fiscal position has not improved since the 2006 Budget, as a result of pressures on current public spending in 2006-07 and the downward revision of forecast tax receipts as a proportion of GDP in subsequent years. We recommend that the Treasury review the golden rule to consider whether it could be made less dependent on the process of dating the economic cycle in the next economic cycle. We call on the Government to clarify how the sustainable investment rule will operate in the next economic cycle.
We conclude that confidence in the Gershon efficiency programme would be enhanced by greater transparency and by measures to provide greater assurance that service quality has been maintained. We consider the extension of child benefit, from April 2009, to every mother-to-be from week 29 of their pregnancy in the context of the range of measures that will need to be considered if the Government is to meet its outstanding targets relating to the reduction and ending of child poverty. We examine some of the individual taxation measures set out in the 2006 Pre-Budget Report.
The role of the Pre-Budget Report
We propose steps to enable the strengthening of the central role of Pre-Budget Reports in consultation on fiscal measures under consideration for the Budget.