Labour MPs rubbish Darling’s ‘optimistic’ recovery forecasts

The stinging verdict of the Treasury Select Committee was all the more shocking because it came from a group dominated by Labour MPs and chaired by Gordon Brown loyalist John McFall.

The committee warned: "We question the decision to assume that the economy will begin registering positive growth as early as the fourth quarter of 2009, and that the economy will register such strong growth in 2011."

In other highlights of the report, the committee:

● Dismissed Lord Mandelson's £300 million "scrappage" scheme to increase sales of new cars, estimating that it would result in just 12,600 extra British car sales. This would cost taxpayers £23,809 for each British-built car sold, although the committee said nearly 90,000 extra sales of imported cars would contain British-made components.

● Warned of "considerable uncertainties" about the extra revenue from the 50p top rate of income tax on people earning more than £150,000.

● Expressed "dismay" that despite repeated warnings the Treasury was failing "by a significant margin" to meet targets to reduce child poverty.

● Doubted the stamp duty holiday for some
homebuyers would have "any marked effect".

In a 51-page special report on last month's Budget, the committee said it was "very concerned about the state of the public finances", following

Mr Darling's plan to borrow £703 billion over five years.

"It is now critically important that the public, and crucially the markets, believe that the Chancellor is working to an adequate plan to restore the public finances to good health," it said.

Mr Darling forecast a growth rate of 3.5 per cent by 2011 but the committee was concerned he "might be too optimistic". If so, it said, the borrowing would go on for years longer.

The committee said Mr Darling had to consider spending cuts and tax increases as well as higher borrowing to help balance the books when he delivers his autumn pre-Budget report. It said "uncomfortable choices" had to be taken.

In a worrying warning, it said that the gilt markets could lose faith in the Government and "the cost of financing that debt could climb to perilous levels".

Liberal Democrat treasury spokesman Vince Cable said: "The only person who believes that Britain will soon return to rapid growth is the Chancellor himself."

Colette Marshall, of Save the Children, said: "Given that the Government seems to have given up on its target to halve child poverty by 2010, we are at least encouraged that the Treasury Select Committee has reacted with dismay at the lack of action in the recent budget."