BusinessCompany NewsMP suspects ‘black holes’ in Budget

MP suspects 'black holes' in Budget

Liberal Democrat shadow chancellor Matthew Taylor has urged the head of the National Audit Office to replace his partial audit of chancellor Gordon Brown's Budget assumptions with a full audit of all of them.

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Taylor sent a written demand to Sir John Bourn complaining that the figures ‘simply do not add up’ and urged that all the assumptions be examined, not only those needed under a three-year rolling programme specifically required by the chancellor.

Taylor claimed his own initial calculations had revealed ‘black holes’ totalling £10bn by 2006 and that over-optimistic assumptions of revenues from fraud crackdowns, tobacco taxation, corporation tax and the overall growth forecast could cause the British economy and future governments significant problems.

‘Brown is looking at the economy through rose-tinted spectacles, rather than clear-visioned reality,’ Taylor said. ‘The British economy cannot survive on Enron-style accounting practices. The National Audit Office must now check all parts of Brown’s Budget. Only then can we be sure that he is not cooking the books.’

These are strong words from Taylor, but they follow a report from the NAO on the Budget assumptions that warns that there are ‘uncertainties’ underlying the anti-avoidance measures that the chancellor hopes will bring in extra revenues of £1.6bn.

PricewaterhouseCoopers has also warned that a slight miscalculation in economic growth could see the Budget deficit grow to £46bn by 2004.

The biggest ‘black holes’ identified by Taylor were £3.7bn, resulting from growth forecasts higher than independent forecasters, and a £3.5bn shortfall in corporation tax revenue because predicted revenue has only been achieved at the peak of an economic cycle.

Bourn’s review of the budget assumptions concluded those for privatisation receipts were ‘reasonable and cautious’ and that the methodology for projecting interest rates was ‘a reasonable one’.

The NAO’s examination of the Budget assumptions this year included a review of the assumptions underlying the projections for the Budget.

But he also examined the projected outcome of the crackdown on tobacco smuggling at Brown’s request and – notwithstanding Liberal Democrat claims – found Brown’s assumptions ‘less cautious than expected’, but still ‘reasonable’.

A Liberal Democrat spokesman said the NAO had a number of caveats about the tobacco assumptions and there were question marks about VAT fraud assumptions – audited last November.

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