All about business

The U.K. Treasury is overestimating economic growth and tax receipts because it doesn't give enough weight to the risks from turmoil in financial markets, a panel of lawmakers from the three main political parties said.

Chancellor of the Exchequer Alistair Darling gave “little analysis'' of the risks from market volatility, Parliament's Treasury committee said in a report today. Slower-than-expected growth may curb tax revenue and jeopardize efforts to close the budget deficit enough to meet rules governing the fiscal purse.

“The Treasury's forecast of economic growth in the next two years is more optimistic than the consensus view,'' John McFall, chairman of the panel and a member of the ruling Labour Party, said in a statement. “There are significant downside risks to the economy and therefore potentially to tax receipts.''

The comments add to criticism of the government's annual budget statement delivered last month in which Darling raised taxes on the lowest earners and on alcohol to keep a lid on the deficit. At least 26 Labour lawmakers signed a petition last week criticizing the measures.

The committee added its weight to those criticisms, saying the poor are “an unreasonable target for raising additional tax revenues.''

Darling estimated the economy will expand by between 1.75 percent and 2.25 percent this year. That compares with a median forecast of 1.6 percent made by 22 independent economists surveyed by the Treasury. The economy grew 3 percent in 2007.

Subprime Woes

The collapse of the subprime mortgage market in the U.S. last year pushed up credit costs around the globe and prompted U.K. banks including Nationwide Building Society to withdraw mortgage offers to consumers.

U.K. interbank loan rates reached 6.01 percent on March 31, the highest this year, as banks posted $230 billion in writedowns from the subprime crisis. The rate for three-month loans was 5.98 percent April 4.

Britons may feel a deeper pinch in their access to credit in coming months. Financial institutions plan a “slightly larger'' reduction in home loans in the second quarter, and default rates and losses on mortgages will increase, a central bank survey published April 3 showed http://us-no-fax-payday-loans.com.

The government may not be able to count on gains in residential property to support the economy. After house prices more than tripled in the past decade, pushing up stamp duties on property purchase paid to the Treasury, the market now is in its worst decline since 1990.

`Problems'

“Some of the very things that have kept our economy growing over the last decade may start to cause us problems, and the 2008 budget may not have recognized this fully,'' McFall said.

Treasury spending has failed to keep pace with tax revenue in the five years since fiscal 2003, erasing three years of surpluses registered after the Labour government took office in 1997. Debt is approaching the 40 percent of GDP ceiling set by the government, the panel of lawmakers said last month.

“Since 2001, the government has never really met its targets for tax receipts or balancing the books,'' Frank Haskew, head of tax at the Institute of Chartered Accountants, said in an interview on Bloomberg Television. “At some stage the government is going to have to bite the bullet that it's not getting enough money in to service its spending commitments.''

Britain had a 2.7 billion-pound ($5.4 billion) budget deficit in February, the most for the month since 1997, as spending rose at almost three times the pace of receipts. A self- imposed golden rule requires that the government raise enough tax revenue to cover day-to-day spending and borrow only for investment over the economic cycle.

Lawmakers questioned Prime Minister Gordon Brown's ability to keep to fiscal rules he established in 1997.

“It appears to us to be premature for the Treasury to state that it is `on course' to meet the golden rule in the next economic cycle, given the lack of an end date for the previous economic cycle,'' lawmakers said in today's report.

Source