MPs doubtful on economic policies

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The effect of the government's effort to boost the economy is "uncertain", MPs have warned.

A report from the Commons Treasury committee also concluded that "piecemeal measures" to restore bank lending could be inadequate given the scale of the recession.

There was also a call to do more to help savers, who have seen their income tumble following Bank of England interest rate cuts.

Ministers have insisted they are taking steps to tackle the recession, but Wednesday's report will raise fresh questions.

"The overall effect of the fiscal stimulus remains uncertain," said the MPs.

"The cost of the reduction in VAT is considerable and, in the view of the majority of commentators, the Treasury's analysis of its impact is an optimistic one."

And the committee said that the shortage of bank credit was "the single most critical problem" at present.

It expressed concern that the structure of last October's bail-out could be "hampering" the ability of the banks to lend.

"The government must ensure that the availability of credit, both to households and businesses, increases," said the report. "Without that increase in availability, the recovery of the economy will be placed in jeopardy."

The MPs added: "We are concerned that piecemeal measures introduced by the government may not be adequate in the face of the crisis in lending."

On savers, the report concluded: "Interest rate reductions, while favourable to borrowers, once passed through by financial institutions lead to a decrease in income for savers.

"While the need for lower interest rates to maintain economic growth is crucial at the present time, the needs of savers must not be forgotten. We recommend the Treasury consider measures that will provide support to savers at this difficult time."

And minsters were urged to depart from past government practice and publishes a forecast for unemployment.

Responding to the report, shadow chief secretary to the Treasury Philip Hammond said: "Now even the Labour-dominated Treasury select committee is questioning Gordon Brown's failing recession policies.

"It's clear that the prime minister is part of the problem, not the solution - and that the longer he is in power, the worse the economic situation will become.

"The fact that this report backs the Conservative position on savers, the need to get credit flowing and the failure of the VAT cut shows yet again that Conservatives have the best economic team, and the best ideas, for these difficult times."

But the Treasury said it was taking action to support lending and help businesses.

"These measures will remove uncertainty in credit markets and accelerate a resumption of lending to companies and individuals who are currently finding it difficult to get loans," a spokesman said.

"We have already seen encouraging signs with the VAT cut contributing to the one per cent fall in inflation in December.

"This, hand-in-hand with interest rate cuts, will continue to support businesses and families."