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Treasury report criticises Budget reforms and quantitative easing
The Government should do more to warn savers about the effects of 'loose' monetary policies, including quantitative easing (QE) and low interest rates, which have damaged pension savings; a Treasury Committee report on the Budget has found.
The report, which also highlights a number of areas of concern regarding Budget reforms, found that quantitative easing had 'penalised' savers, particularly those with 'drawdown' pensions and those reaching retirement now.
According to the report, on-going rounds of QE have caused an increase in asset prices and wiped the value off many pensioners' savings, leading the committee to call for the Bank of England to make a more detailed assessment of the effects of QE.
Quoting the bank's deputy governor, Paul Tucker, the report said it was sympathetic to savers, but argued the economy 'would have been destroyed' if QE had not taken place.
Some of the recommendations contained in the report regarding other areas of the Budget include:
- Business finance - Credit conditions for businesses continue to appear strained with banks cautious to lend, particularly to small and medium sized enterprises (SMEs). The report championed the use of non-bank lending, and advised it increase the level and availability of alternative ways of finance.
- Child benefits - In response to reforms in which child benefits are to be gradually withdrawn through an income tax charge based on household income, it said that cuts would not remove the bias against single-earner households against two-earner households. It also added that it created 'further complexity' and increased administrative burden for HMRC with an additional 500,000 individuals needing to fill out tax returns.
- Freezing of age related allowances - Commenting on the freezing of the age-related allowance (£10,500 for those born between 6 April 1938 and 5 April 1948, and £10,660 for those born before 6 April 1938), John Whiting tax director for the Office of Tax Simplification (OTS) was 'surprised it had been taken forward so quickly' and that it would cause significant 'complexities'.
- Reduction in the 50p tax - The committee placed doubts on Government estimations regarding how much a reduction in the top rate of tax to 45p would cost the Treasury, saying it was 'highly uncertain' it would cost the Treasury only £50 million in 2013/14 and £100 million in 2014/15.
- Cap on available reliefs - The committee warned that capping tax relief on donations appeared to be aimed at tax avoidance but may have a 'detrimental impact' on 'charitable giving'.
The report also questioned Chancellor George Osborne regarding the confidentiality of the Budget, who confirmed that that some of the Budget's details had been leaked prior to official announcement on 21 March 2012. It recommended that the Government review its practices, adding that a 'Coalition Government was not a justification for Budget leaks.'
The Treasury said it would respond to all aspects of the report 'in due course'.