HL Deb 07 June 1988 vol 497 cc1396-7WA
Lord Bruce of Donington

asked Her Majesty's Government:

How much the retail prices index as at 21st May 1988 would be reduced if VAT were changed from 15 per cent. to 8 per cent. and, on the assumption that this later rate remained unchanged for 12 successive months, what its effect would be on the annual rate of inflation.

The Secretary of State for Trade and Industry (Lord Young of Graffham)

It is estimated that the impact effect on the retail prices index (as at 21st May 1988) of a reduction in the rate of value-added tax from 15 per cent. to 8 per cent. would be a fall in the index of around 3.2 percentage points.

Assuming that the VAT rate remained unchanged, after 12 months the annual rate of inflation would return to its underlying level—for example, if the underlying rate were 4 per cent., a VAT rate reduction of this order would, if fully passed on in lower prices, reduce it to 0.8 per cent. for 12 months, after which it would return to 4 per cent.