Budget Changes

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To ask the Chancellor of the Exchequer what estimate he has made of the amount by which the increased revenues from changes in taxes and duties announced in his Budget Statement will be offset by additional expenditure on benefits and other payments linked to the retail price index; and if he will make a statement.

The direct impact on the retail price index of the changes in taxes and duties announced in the Budget is estimated to be an increase of 0·4 per cent. The cost of a corresponding increase in social security benefits linked to the index from April 1989 is estimated to be about £165 million in 1989–90. Other payments directly affected by changes in the retail price index include public sector pensions. However, these costs are not additional to the Government's public expenditure plans set out in the public expenditure White Paper Cm. 288 for two reasons:

(a) the impact of the Budget measures on the retail price index is not additional to the assumption on inflation underlying the provision for social security; indeed, the forecast of the increase in the retail price index to the fourth quarter of 1988 published at the time of the Budget is slightly lower than was assumed at the time of the White Paper;

(b) the plans included large unallocated reserves of £7 billion in 1989–90 and £10·5 billion in 1990–91 which will be available to meet unforeseen requirements, including any revised estimates of demand-led expenditure; and

(c) the reduction in income tax announced in the Budget should have the effect of reducing social security expenditure by about £30 million in a full year.

Volume 131: debated on Friday 15 April 1988