§ Mr. Austin Mitchellasked the Chancellor of the Exchequer (1) what assumptions are built into the Treasury macro-economic model concerning the relationship between increases in pay and prices and expenditure on goods and services of (a) central Government, (b) local government and (c) other public institutions;
(2) what assumption is made in the 1982 edition of the macro-economic model technical manual concerning the funding of the borrowing requirement; and what proportion of any increase in the borrowing requirement is assumed to be financed by inflation, by increasing the floating debt and by funding respectively;
(3) what is his evidence for assuming in paragraph 22 of chapter 2 of the macro-economic model technical manual that the marginal propensity to consume is 20 per cent. higher when tax changes are announced; what proportion of take-home pay is consumed on this basis; and whether that proportion would hold reasonably constant in the event of (a) an increase of 5p and (b) a reduction of 5p in the rate of income tax;
(4) what was the running cost of each of the simulations described in chapter 2 of the 1982 edition of the macroeconomic model technical manual;
(5) whether, and to what extent, the results in simulation (iv) in chapter 2 of the 1982 edition of the macro-economic model technical manual correspond with those predicted by the Bank of England model of the economy; and what are the reasons for any differences;
(6) why the Treasury model is so programmed that it does not permit a reduction in the real exchange rate expressed in terms of relative export prices or the terms of trade in manufacturers to the level which obtained in 1968–70, 1973–74 and late 1976;
(7) to what extent the increase in costs referred to in paragraph 21(iii) of chapter 2 of the 1982 edition of the macro-economic model technical manual takes account of the increase in economies of scale as a result of the increase in output;
(8) whether the statement regarding income tax multipliers in paragraph 40 of chapter 2 of the 1982 edition 650W of the macro-economic model technical manual holds good for (a) the reduction of taxation and (b) changes in the employee's national insurance contribution; and whether he will publish in the Official Report a table illustrating the effect of the change in the assumption regarding consumption on the variables in the illustrative tables;
(9) whether he will publish in the Official Report a statement showing the principal changes in the Treasury macro-economic model since May 1979 and their significance in terms of employment, prices, the money supply, interest rates and the exchange rate;
(10) what are the mark-ups referred to in paragraph 16 of chapter 2 of Her Majesty's Treasury macro-economic model techical manual 1982; and what adjustment is contained in it for (a) competitiveness and (b) pressure of demand effects;
(11) whether the statement in paragraph 23(vii) of chapter 2 of the 1982 edition of the macro-economic technical manual concerning loss of competitiveness applies equally to manufacturing industry; whether in year four this output returns to the level of the base run;
(12) what effect the removal of exchange control has had on the assumptions used in the Treasury macroeconomic model; and whether he will publish in the Official Report a table showing for simulation (iv) in chapter 2 of the 1982 edition of the macro-economic model technical manual the resultant change in the variables in table 4;
(13) whether he will publish in the Official Report a table showing the base run figures corresponding to those referred to in the simulations described in chapter 2 of the 1982 edition of the macro-economic model technical manual, together with the corresponding figures from the base run immediately before May 1979;
(14) whether, and in what way, the Treasury model of the economy can be programmed to align the exchange rate on a constant figure for (a) relative export prices and (b) the terms of trade for manufactures.
§ Sir Geoffrey HoweThe questions asked by the hon. Member are concerned with complex technical issues arising out of the recently published Treasury macroeconomic model technical manual. As has been made plain before, Ministers are not involved in the detailed operation of the Treasury model, which is a matter for the professional judgment of Treasury economists.
§ Mr. Austin Mitchellasked the Chancellor of the Exchequer what has been the reduction in Government expenditure on goods and services since 1978 as a percentage of gross domestic product; and whether this has had the effect predicted by the simulation in paragraphs 19–20 of chapter 2 of the 1982 edition of the macroeconomic model technical manual.
§ Mr. BrittanBetween 1978 and 1981, central Government expenditure on goods and services as a percentage of gross domestic product at current market prices increased by 1.5 per cent. from 12.6 per cent. to 14.1 per cent. The effect of such an increase on the economy will depend, among other things, on its composition and on how other elements of fiscal and monetary policy might have changed had it not taken place. As the model manual shows, the results of simulations on the Treasury model are sensitive to the specification of these factors.