June 2010 Budget - Treasury Contents

6  Conclusion

102. There is political and economic disagreement about what response to the economic crisis would be most prudent. Policymakers have to choose a response, knowing that any response will bring its own set of risks and uncertainties. The Chancellor has chosen a more radical set of Budget measures than his predecessor in tackling the deficit. This Report only begins to explore some of the risks and uncertainties that that has entailed. Some commentators have suggested that this Budget has raised the near-term risk of a period of negative growth; whether or not this is the case, the global economic situation is fluid and fragile, and it is possible that the Chancellor may need to alter his current plans to compensate for external events.

103. We asked the Chancellor whether there was a Plan B. He replied that:

The plan is to have confidence in the British economy and its ability to pay its way in the world. Of course, if you look at the fiscal mandate that I have set it is based on an assessment of the structural deficit to allow automatic stabilisers to operate. I have also built a degree of caution into the fiscal mandate by seeking to achieve it a year earlier. I was absolutely clear, and indeed this was the external advice I was receiving as well and the British public were receiving from the Governor of the Bank, that the first and most pressing issue to deal with was to produce a credible plan for the budget deficit. I would also draw the Committee's attention to the fact that the measures I announced are staggered over three or four years. I think people have assumed they all come into effect in July 2010 and of course they do not, the VAT rise is next year and some of the welfare measures take effect in 2012 and 2013, so it is also a plan not just for this year but a plan for this Parliament.[147]

104. As the Chancellor has noted, the fiscal tightening is staggered over several years. In addition, should the economic forecast of the OBR prove to be optimistic, the fiscal mandate is set so as to allow the automatic stabilisers to operate. We hope that this will be sufficient. However, some of the tax and benefit changes adopted to tackle the structural deficit may reduce the force of the automatic stabilisers. The Chancellor told us that he had built a degree of caution into the fiscal mandate by seeking to achieve it a year early. We welcome this as a signal that if economic conditions demand it he may be prepared to take measures to stimulate the economy, even if these delay the current plans for cutting the deficit.

147   Q 221 Back

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