§ Mr. Lawsonasked the Chancellor of the Exchequer what analysis he has made of the effect of an increase or decrease in the public sector borrowing requirement on the level of unemployment, stating any further assumptions that may be required to give a clear judgment.
§ Mr. Joel BarnettThe effects on unemployment of a change in the public sector borrowing requirement depend on which particular tax rate or expenditure programme changes give rise to the initial change. Both the size of the effects and their profile over time vary. Some changes can have quick acting direct effects on
900WMarch 1974; it has been prepared on the same basis as the previous table:
unemployment; others rely on indirect effects on the level of output, which take time to affect unemployment. In nearly all cases there will also be indirect effects working through movements in the exchange rate and monetary conditions which may either reinforce or erode any direct effects.
Estimates of the effects of changes in tax rates and public expenditure plans on unemployment and other economic variables are produced frequently as part of the Treasury's day-to-day work. They are based on simulations of the macroeconomic model including a substantial judgmental input which varies according to the origin of the change in the borrowing requirement. The estimates depend among other things on what is assumed about the response of earnings and the exchange rate and about the accompanying monetary policy. They are also revised from time to time as the Treasury model itself is revised and improved in line with developments in the economy and our understanding of them.
§ Mr. Lawsonasked the Chancellor of the Exchequer, further to the Written Answer on the public sector borrowing requirement and public sector financial deficit given to the hon. Member for Blaby, Official Report, 17th April, columns 57–8, if he will now provide comparable percentage figures for 1977–78.
§ Mr. Joel BarnettThe information requested is given below, together with revisions to percentages given in the pre- 901W vious Written Answer, which materially affect only the most recent annual periods.
Public sector borrowing requirement Public sector financial deficit As percentage of GNP As percentage of GNP As percentage of GNP As percentage of GNP At factor cost At market prices At factor cost At market prices At factor cost At market prices At factor cost At market prices Calendar years: 1976 … 8.3 7.4 8.4 7.5 7.5 6.7 7.6 6.8 1977 … 4.8 4.2 4.8 4.2 4.7 4.1 4.7 4.1 Financial years: 1976–77 … 7.5 6.7 7.6 6.8 6.4 5.7 6.5 5.8 1977–78 … 4.3 3.8 4.3 3.8 4.8 4.2 4.8 4.2 Source: Financial Statistics (Table 2.3 September 1978 issue) and the Monthly Digest of Statistics (Table 1.2 September 1978 issue).