To ask the Chancellor of the Exchequer what assessment he has made on the effect on inflation of the reduction in value added tax to 15 per cent. (251915)

In pre-Budget report 2008 (Cm7484), it was assumed that the majority of the VAT rate cut will be passed through to consumer prices, but that prices will be reduced progressively rather then immediately. This is in line with international evidence.

The Office for National Statistics published statistics on UK inflation in December on 20 January 2009. Their First Release discusses the VAT reduction in the context of inflation estimation and can be found at:

http://www.statistics.gov.uk/pdfdir/cpi0109.pdf.

It concludes that the VAT reduction made the largest contribution to the sharp fall in inflation to 3.1 per cent.