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Unemployment

Volume 973: debated on Wednesday 14 November 1979

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asked the Chancellor of the Exchequer what is his estimate of the loss of revenue to the Exchequer in a full financial year at current rates of incomes, prices and taxation as a result of an increase of 300,000 in the numbers of unemployed broken down into (a) income taxes, (b) value added tax and (c) other indirect taxes.

I regret that I am unable to give the hon. Member the information he requests. An increase in unemployment will affect tax revenues in a variety of ways depending on the reason for the increase and the subsequent effects it has on the economy. Realistic estimates could be produced only from a simulation on a complex economic model. The estimates would depend on a number of assumptions, including those about monetary and exchange rate policies. These in turn would depend on the particular context and would require detailed discussions between the questioner and the operators of the model. The estimate would, moreover, be subject to wide margins of error due to our uncertain knowledge of the underlying economic relationships.

I am unwilling to commit my Department's resources to carrying out such a simulation as it would be costly and would displace other work. The hon. Member may wish, however, to pursue his inquiry via his access to the Treasury's economic model through the Library at the House.