To ask the Chancellor of the Exchequer (1) what estimate he has made of the average saving made by households in each income decile with people of working age as a result of the reduction in the rate of value added tax to 15 per cent. over the course of a year; (252977)

The benefit to a household from a reduction in VAT of 2.5 percentage points, net of increases to alcohol and tobacco duty, is, on average, £275. This amount is derived from HMRC revenue forecasts, and therefore cannot be used for analysis by decile and household type.

Household spending patterns vary widely within deciles and household types, so estimates of savings on such a basis should be treated with caution. This is exacerbated by there being greater sampling variability associated with estimates for deciles and groups of given household types due to the relatively small sample sizes.

However it is possible to infer the following estimates of the benefit of the VAT reduction by household type and income decile, based on figures for average expenditures on VAT published by the ONS in their article “The effects of taxes and benefits on household incomes, 2006-07”.

The estimates assume the majority of the VAT reduction will be passed on to consumers in the form of lower prices in line with past experience, and that spending patterns remain unchanged.