Written question asked by Gregory Campbell (Democratic Unionist Party) on Wednesday, 27 January 2010, in the House of Commons. It was due for an answer on Monday, 1 February 2010. It was answered by Stephen Timms (Labour) on Monday, 1 February 2010 on behalf of the Treasury.

VAT

Question: To ask the Chancellor of the Exchequer what assessment he has made of the likely effect on the economy between 1 January and 31 March 2010 of the return of the level of value added tax to 17.5 per cent.

Answer: The annual rate of consumer price inflation is expected to rise in January, partly due to the pre-announced reversal of the cut in the VAT rate from 15 per cent. back to 17.5 per cent.The 2009 pre-Budget report forecast assumes that businesses will smooth the pass-through of the reversal of the VAT rate cut, with inflation peaking in early 2010. It is assumed that households will bring forward some consumption from 2010 to 2009 as a result of the lower relative prices associated with the reversion of the temporary cut in the standard rate of VAT.Consumer spending is forecast to grow over 2010 as a whole. The Government will set out their latest assessment of economic prospects in the Budget as usual.

Secondary information