§ Mr. Tebbit
asked the Chancellor of the Exchequer if, pursuant to the reply by the Chief Secretary to the Treasury, Official Report, 16th December, column 549, which referred to the different assumptions which might produce different answers to estimates of the net gain or loss of jobs through expenditure on employment-oriented measures, he will give the assumptions which he made to lead him to his conclusions.
§ Mr. Joel Barnett
The direct effects of employment-oriented measures on employment were estimated on the assumption that, with the present balance of employment-oriented measures, between 50 per cent. and 75 per cent. of the grants result in additional employment or training places after allowing for some186W displacement of jobs elsewhere in the economy and for the possibility that some grants are made in respect of places which would have existed anyway.
The Treasury macroeconomic model was used to estimate the loss of employment from increases in taxation or the public sector borrowing requirement. The assumptions that are embodied in the model are set out in the published Technical Manual. In operating the model it is necessary to make further assumptions about exchange rate policy—for example, whether the exchange rate is flexible or not—and monetary policy—for example, whether the money supply will or will not be allowed to change from its underlying growth path when taxes and expenditure increase, separately or together. The employment effects of increases in taxation or the public sector borrowing requirement were estimated on the assumptions of a fixed exchange rate and a monetary policy which held interest rates constant. It was also assumed that earnings did not respond to the changes.