CPI and the Pre-Budget Report
Estimated Impact on Inflation
The Pre-Budget report published on 24 November 2008 announced that standard rate Value Added Tax (VAT) will be temporarily reduced from 17.5% to 15%. Excise duty for road fuel, alcohol and tobacco will be raised so that the total VAT and duty remain broadly unchanged for these particular commodities.
The Office for National Statistics (ONS) estimates that the combined change to the rate of VAT and excise duties would deduct 1.3 percentage points from the 12-month rate in the December Consumer Prices Index (CPI) if these changes were passed on at once, in full, to consumers. For the Retail Prices Index (RPI) it is estimated that the overall effect would be to deduct 0.9 percentage points from the 12-month rate.
This note is prepared simply as a helpful guide to users of the CPI and the RPI. The Office for National Statistics accepts no liability whatsoever for losses of any kind arising as a result of reliance on this note.
Source: Office for National Statistics (ONS)
Notes: The reduction in the rate of VAT runs from 1 December 2008 until 31 December 2009.
The increase in excise duty for tobacco takes effect from 24 November. The increases for road fuel and alcohol both take effect from 1 December.
The CPI is the main UK domestic measure of inflation for macroeconomic purposes; the inflation target for the UK is expressed in terms of the CPI. The uses of the RPI include indexation of pensions, state benefits and index-linked gilts.
The effects of the changes to VAT and excise duties announced in the Pre-Budget report, given above, are estimates only; they are based on average retail prices as measured in the October 2008 indices.
The estimated impact from the change to alcohol duty is based on an increase of 4% for spirits.
printer-friendly
Consumer Price Indices (CPI) First Release