Select committee inquiry
Budget 2018 inquiry
Closed
What the inquiry looked at
“Report: Budget 2018 Report: Budget 2018 (PDF 630KB) Government response (PDF 47.2KB) “The Chancellor of the Exchequer, Philip Hammond, delivered the Budget Statement to the House of Commons on Monday 29 October 2018. The Treasury Committee will conduct post-Budget scrutiny, including taking evidence from the Chancellor, the Office for Budget Responsibility housebuilders, economists and tax experts.””
The committee's words, from the inquiry page on parliament.uk ↗.
What the government said
The government responded on 5 April 2019.
Summary written by Accountability Index from the government's response.
The government's response largely defends its Budget 2018 approach, describing a "balanced approach" to the public finances and disputing several of the Committee's criticisms, while noting some changes to the forecasting process.
- On the OBR timetable, the government says the Treasury has worked with the OBR to review the process, with "new processes" involving "the earlier delivery of policy and forecast information".
- On the fiscal objective, the government says it "remains committed to meeting its fiscal rules" and does not accept that the objective lacks credibility, citing the Charter for Budget Responsibility approved by Parliament.
- On equalities analysis, the government says it "remains committed" to publishing distributional analysis at future Budgets, but says breakdowns of individual measures "are unlikely to be reliable". The Treasury "continues to look closely" at methodological issues.
- On the Digital Services Tax, the government says it "will be reflecting on responses to the consultation ahead of drafting legislation" and is "supportive of OECD efforts to secure global agreement by 2020".
Read the government's response ↗ Read the report ↗ Report an error
How the inquiry ran
Each dot is a dated item listed on this page, from the inquiry's opening on 1 October 2018 to its close on 5 April 2019.
- Oral evidence 3 sessions
- Report 12 Feb 2019
- Government response 5 Apr 2019
- Correspondence 20 Nov 2018
What it recommended 0 recommendations · 14 conclusions
1The creation of the independent OBR has led to much higher standards for the forecasting...
Concluded (the committee's words)
The creation of the independent OBR has led to much higher standards for the forecasting process, and it is important that these do not slip. At this Budget, the Treasury failed to keep to the timetable it had agreed with the OBR at the outset of the forecasting process, with the result that the economy and fiscal forecasts are not fully consistent. The forecasting round had been particularly challenging due to a compressed timetable and relatively large underlying forecast revisions and policy changes.
2It is not enough to say, as the Chancellor did, that these problems are unlikely...
Concluded (the committee's words)
It is not enough to say, as the Chancellor did, that these problems are unlikely to recur since future and policy revisions are unlikely to be as large in future. In fact, the scale of the revisions was not unprecedented even in the short history of the OBR. There is no excuse for the Treasury taking a chaotic approach on timetabling and policy discussions. The Committee expects the Treasury to engage with the OBR on its suggestions for reviewing and improving the forecast timetabling process. The Committee will consider the detail of this review as part of its scrutiny of the 2019 Spring Statement.
3The forecast the OBR prepares for the 2019 Spring Statement may be the first opportunity...
Concluded (the committee's words)
The forecast the OBR prepares for the 2019 Spring Statement may be the first opportunity it has to make a more detailed assessment of the UK’s short-term economic prospects after Brexit than the broad-brush assumptions it has made to date. It will also need to make its usual assessment of the impact of global developments on the UK’s growth prospects, on this occasion including the recent slowdown in the Eurozone. It will be even more important than usual that the Government co-operates effectively with the OBR and provides it with the resources and information it needs in a timely fashion. The Committee will seek assurance that it has done so.
4The Budget includes some policies to support over-indebted households, but the Treasury has once again...
Concluded (the committee's words)
The Budget includes some policies to support over-indebted households, but the Treasury has once again failed to make an assessment of the overall state of household finances and household savings, and the implications for wider economic stability. This is despite the fact that the OBR forecasts the household cash savings ratio to fall further and into negative territory. It is concerning that the Treasury has no obvious strategy in connection with household finances. The Committee re- iterates its recommendation that the Treasury should report on these issues and set out a clear strategy for addressing them at future Budgets.
5The OBR already assumes in its forecast that the UK makes an orderly transition to...
Concluded (the committee's words)
The OBR already assumes in its forecast that the UK makes an orderly transition to its new economic relationship with the EU. Therefore, no “deal dividend” over and above the existing forecast could be attained simply by avoiding a disorderly outcome. Beyond this, there could be some improvement to business confidence and investment following a an orderly transition or a resolution of Brexit-related uncertainty that is not currently forecast by the OBR. It is not credible that this be described as a dividend.
6The Chancellor said that the “era of austerity is coming to an end”, which he...
Concluded (the committee's words)
The Chancellor said that the “era of austerity is coming to an end”, which he told the Committee meant more generous funding of public services, real wage growth and a lower proportion of income going into taxation. This is an expansive but also imprecise definition. At the next Budget and Comprehensive Spending Review, the Chancellor will have the opportunity to set out his meaning in more measurable terms. This could include, for example, a plan for the overall levels of government revenue and spending as shares of GDP.
7This Budget did announce the largest discretionary fiscal loosening since the founding of the OBR,...
Concluded (the committee's words)
This Budget did announce the largest discretionary fiscal loosening since the founding of the OBR, dominated by the NHS funding settlement. However, many decisions await the announcement of the envelope for and allocation of public spending at the Comprehensive Spending Review, when the Chancellor will need to substantiate his claims to be ending austerity.
8The Chancellor’s record to date has been to loosen fiscal policy when the public borrowing...
Concluded (the committee's words)
The Chancellor’s record to date has been to loosen fiscal policy when the public borrowing forecast falls, but not to tighten policy when it rises. If continued in the long run, this approach would lead to a ratcheting up of debt levels.
9The Chancellor was fortunate at this Budget, in that the OBR’s reassessment of the structural...
Concluded (the committee's words)
The Chancellor was fortunate at this Budget, in that the OBR’s reassessment of the structural level of the tax revenue to GDP ratio enabled him to fund increased spending plans and some tax cuts without an increase in the borrowing forecast. However, the UK faces risks to its growth outlook, including Brexit and the recent slowdown in the Eurozone, that could lead to less favourable revisions to its growth outlook. More difficult choices will likely lie ahead at future Budgets about the UK tax base, and how to fund the Chancellor’s pledge to “end austerity”.
10At this Budget, the Chancellor could have met the fiscal objective to reach a balanced...
Concluded (the committee's words)
At this Budget, the Chancellor could have met the fiscal objective to reach a balanced budget without further fiscal tightening, but instead he chose a fiscal loosening. Furthermore, the Chancellor told the Committee that securing economic growth was a better way of reducing the public debt-to-GDP ratio than running a budget surplus. Given that the Chancellor both appears to be disregarding the fiscal objective and has told the Committee it is not the best way of reducing the public debt, it is now clear that the fiscal objective now has no credibility, so it cannot be used by Parliament to hold the Government to account. The Committee recommends that it be replaced before the next Budget with something that accurately reflects Government policy and priorities, which clearly do not include running a budget surplus.
11The Chancellor is maintaining a £15 billion margin against the fiscal mandate in his official...
Concluded (the committee's words)
The Chancellor is maintaining a £15 billion margin against the fiscal mandate in his official spending plans, but he is suggesting that all or part of it will be spent both in orderly and disorderly Brexit scenarios. This means that there is an inconsistency between the spending totals he has submitted to the OBR and those he has described to Parliament.
12There is evidence in some of the new tax measures that the Government has responded...
Concluded (the committee's words)
There is evidence in some of the new tax measures that the Government has responded positively to issues raised in consultation. However, there are also indications that the consultation process could be used more consistently. A good consultation process, with effective participation from stakeholders including those likely to be directly affected by proposals under consideration, will help new measures meet the Committee’s guiding principles for tax policy.
13The Government is consulting on its proposals for a Digital Services Tax while at the...
Concluded (the committee's words)
The Government is consulting on its proposals for a Digital Services Tax while at the same time taking part in international efforts to reform the corporate tax system. It is to be hoped that a global agreement on a fair and sustainable way to tax digital businesses will be reached soon. But, until or unless that happens, it is important that the design of the Digital Services Tax takes account of responses to the consultation and ensures that there is a level playing field between digital and physical businesses.
14There is some improvement in the provision of equalities and gender impact assessments in this...
Concluded (the committee's words)
There is some improvement in the provision of equalities and gender impact assessments in this Budget, but they fall well short of the “robust […] assessments of future Budgets, including the individual tax and welfare measures contained within them” that the Committee recommended at the last Budget. At the next Budget, there should be quantitative analysis of the equalities impact of individual tax and welfare measures in all cases where data are available.
Evidence
Oral evidence sessions 3
- 5 Nov 2018No witnesses recordedparliament.uk ↗
- 1 Nov 2018No witnesses recordedparliament.uk ↗
- 31 Oct 2018No witnesses recordedparliament.uk ↗