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EU Budget

Mr. Tyrie: To ask the Chancellor of the Exchequer what estimate he has made of the annual net budgetary contribution by the United Kingdom to the EU; and what plans he has to discuss with his EU counterparts ways in which the size of the United Kingdom's net contribution can be reduced in the future. [3765]

Mrs. Liddell [holding answer 16 June 1997]: The latest estimates of the United Kingdom's net contribution to the European Community Budget for the financial year 1997-98 to 1999-2000 remain as set out in the Departmental Report published by the then Chancellor of the Exchequer on 20 March 1997 (Cm 3617) and are reproduced below:


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The Government are committed to tight control of public spending in the EU as in the UK. We shall work constructively with other Member States and the European Parliament to achieve this.

VAT (Sanitary Products)

Mr. Ivan Lewis: To ask the Chancellor of the Exchequer if he will consider removing value added tax on women's sanitary products. [2259]

Dawn Primarolo: No. In a broadly based tax like VAT many essential goods and services are taxed, and it is not possible to single out sanitary protection for special treatment.

VAT on sanitary protection is included into the category of products which have been taxed at the standard rate since VAT was introduced. The EC 6th Directive, agreed in 1977, prohibits extensions of zero-rates.

Exchange Rates

Mr. Mitchell: To ask the Chancellor of the Exchequer what was the change in (a) the real and (b) the nominal exchange rate against the (i) dollar and (ii) the deutschmark in the year after each change in interest rates over the last four years. [4276]

Mrs. Liddell: The data are available from the following published sources:





Inflation

Mr. Mitchell: To ask the Chancellor of the Exchequer what factors underlie his target of no more than 2.5 per cent. inflation. [3232]

Mrs. Liddell: The Government's inflation target is 2½ per cent. Price stability is an essential precondition for the Government's objectives of high and sustainable levels of growth and employment.

Mr. Maples: To ask the Chancellor of the Exchequer what is the Government's policy for controlling inflation. [3246]

Mrs. Liddell: My right hon. Friend the Chancellor set out the Government's policy for controlling inflation in his statement to the House of 12 June and in his Mansion House speech of 12 June.

Mrs. May: To ask the Chancellor of the Exchequer what steps the Government have taken to agree a standard definition of inflation for use throughout the European Union; and when he plans to introduce such a definition for use. [3541]

Mrs. Liddell: Eurostat (the statistical office of the European Communities) has been publishing annual inflation rates based on the Harmonised Index of Consumer Prices (HICP) since March 1997. The HICP has been designed expressly for comparisons of consumer price indices across all the European Union member

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states, although the Retail Prices Index (RPI) remains the best indicator of UK consumer price inflation. The Office for National Statistics has been closely involved in developing the specification of the HICP.

Mr. Jack: To ask the Chancellor of the Exchequer if he will make a statement on the methodology he will employ to determine his inflation target in future years; and if he will give details of each of the economic indicators he will be monitoring prior to making such a judgment. [3365]

Mrs. Liddell: The Chancellor set out his inflation target in the remit to the Bank of England's Monetary Policy Committee. A copy of the remit and background notes can be obtained from the House of Commons Library. In the Mansion House speech the Chancellor said that if the Government succeeded in strengthening the ability of the British economy to sustain growth with low inflation, and if international conditions permit, he would hope to lower the inflation target.

Mr. Luff: To ask the Chancellor of the Exchequer at what intervals he intends to review the inflation target; and if he will make a statement. [3549]

Mrs. Liddell: The inflation target will be confirmed in each Budget. In his Mansion House speech the Chancellor said that if the Government succeeded in strengthening the ability of the UK economy to sustain growth with low inflation, and if international conditions permit, he would hope to lower the inflation target.

Mr. Tyrie: To ask the Chancellor of the Exchequer what assessment he has made of the economic benefits derived from a long run inflation rate of 2½ per cent. which a rate of inflation of 1½ per cent. or less would not deliver. [4184]

Mrs. Liddell: Low inflation is an essential pre-condition for high and stable levels of growth and employment. The evidence suggests that higher inflation rates bring no long-run benefits, and are likely to involve long-term costs.

Mr. Mitchell: To ask the Chancellor of the Exchequer further to his instruction to the Bank of England to pursue an inflation target of 2.5 per cent., in which stages of the economic cycle an inflation rate of 2.5 per cent. is compatible with (a) a rise and (b) a fall in unemployment. [4037]

Mrs. Liddell: The remit for the Monetary Policy Committee and background notes can be obtained from the House of Commons Library.

Mr. Mitchell: To ask the Chancellor of the Exchequer if he will list the rate of inflation at the time of each increase in interest rates in the last three years and the projected figures for inflation on each date for one year ahead. [3230]

Mrs. Liddell: The table lists the latest available inflation figures and latest published Treasury forecast for inflation for retail prices excluding mortgage interest payments (RPIX), at the time of each increase in interest rates over the last three years.

DateSize of base rate increase New base rate Latest published inflation rate (RPIX) One year ahead forecast
(percentage point)(percentage)(percentage)Publication(14)RPIXPeriod
12 September 1994½5.752.2 (July 1994)SEF 9495Q4
7 December 1994½6.252.0 (October 1994)FSBR 9495Q4
2 February 1995½6.752.5 (December 1994)FSBR 9496Q2
30 February 1996¼6.002.9 (September 1994)SEF 9697Q4
6 May 1997¼6.252.7 (March 1997)FSBR 9698Q2
6 June 1997¼6.502.5 (April 1997)FSBR 9698Q2

(14) SEF denotes Summer Economic Forecast and FSBR denotes Financial Statement and Budget Report.


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Mr. Mitchell: To ask the Chancellor of the Exchequer what research his Department has (a) commissioned and (b) evaluated on the correlation between the independence of the Central Bank and the rate of inflation in different countries over the last 15 years. [3234]

Mrs. Liddell: There have been numerous academic studies of the correlation between central bank independence and inflation, based on different groups of countries and assessed over different time periods.

Mr. Maples: To ask the Chancellor of the Exchequer what indicators he keeps under scrutiny in forming his estimates as to the future rate of inflation. [3248]

Mrs. Liddell: The Chancellor makes a comprehensive assessment of economic developments, taking account of all relevant indicators, in forming a view of inflation prospects. A full forecast for the economy will be published with the Budget on 2 July.

Debt Management

Mr. Maples: To ask the Chancellor of the Exchequer (1) for what reasons he plans to transfer responsibility for debt management from the Bank of England to the Treasury; [3262]

Mrs. Liddell: The decision to give the Bank of England operational responsibility for setting interest rates means that it is important to separate the Government's debt and cash management from the conduct of monetary policy to avoid conflicts of interest. The separation is intended to ensure that debt and cash management decisions continue to be taken in such a way as to minimise the cost of financing the Government's borrowing needs subject to risk and are not influenced by short-term monetary policy considerations (and vice versa).

Mr. Maples: To ask the Chancellor of the Exchequer what assessment he has made of the Bank of England's performance in managing the Government's debt. [3239]

Mrs. Liddell: Ultimate policy responsibility for the Government's debt management has always rested with Treasury Ministers and policy is currently expressed in an

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annual gilts remit to the Bank. The Bank has offered valuable policy advice with regard to debt management and has conducted operations for the Government in the gilts market in an efficient and professional manner. The Bank has taken the lead in recent reforms to gilts market structure, notably gilt repo and preparations for gilt stripping, that have been widely praised by market participants.


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