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
| 
