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Chapter I. The Economy in 1977
Published online by Cambridge University Press: 26 March 2020
Extract
British economic policy in 1977 was conducted for the most part within the confines of the undertakings given to the IMF in the Letter of Intent of December 1976. Partly as a result, output stagnated almost completely and unemployment rose slowly and erratically by a further 100 thousand during the year. The operation of Stage II of the pay policy during the first half of the year and the almost universal acceptance of the 10 per cent settlements guideline during the second half meant that the wage and salary bill was just under 10 per cent higher in 1977 than in 1976, compared with an increase of over 13 per cent in the previous year. Import prices rose by 16 per cent year-on-year (partly because of the sharp effective depreciation of sterling in late 1976) but the rate of consumer price inflation slowed a little, from 15 1/2 per cent during 1976 (that is, between the final quarters of 1975 and 1976) to just over 14 per cent last year. Despite the virtual stagnation of home demand, the depreciation of sterling (the effective rate was 5 per cent lower on average in 1977 than in 1976) and the net increase in the North Sea oil benefit from about £0.5 billion in 1976 to over £2 billion in 1977, the current account of the balance of payments reached only bare balance (from a 1976 deficit of just over £1 billion).
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References
(1) Industrial production in 1977 was surveyed in Chapter II of the February 1978 issue of the Review.
(1) Income tax, plus the allocation of expenditure taxes to consumption, as a ratio of total personal income.
(2) The regulator surcharge on tobacco and drink, introduced on 15 December 1976, was estimated to raise an extra £50 million in 1976/7 (£200 million in a full year). It was con solidated into the substantive rates of duty in the following budget.
(3) The difference between the effect of the surcharge in 1976/7 and its full year effect.
(1) i.e., at constant survey prices.
(2) cf. table 5.5 of Cmnd 7049-II, which gives public expend iture at 1976/77 prices; here, however, 1970 prices have been used, which gives a somewhat different profile from the White Paper.
(3) Cmnd 6721-1, p.1.
(4) £660 million underspending in 1977/8 occurred on central government cash blocks, £450 million on local author ity blocks.
(5) Including net lending the figures for policy changes were +£713 million in 1977, and -£1,521 million in 1976. (6)See Cmnd 7049-II, table 5.5.
(1) There are well known difficulties in measuring public spending against GDP, since as they stand we would not be comparing like with like; it is therefore necessary to net out of public spending those items which are not included in GDP at factor cost: indirect taxes etc., transactions in existing assets, and stock appreciation as well as the savings offsets against public sector transfers to the personal sector. This process gives, for total public spending, including investment by the public corporations, the ratios to GDP listed in the text. These may be thought of as the proportion of resources pre empted directly and indirectly (through transfers of purchasing power) by the public sector.
(2) House of Commons, Second Report from the Expenditure Committee, Session 1977-78, pp. 68-76.
(3) Total public sector capital expenditure (except net lending) as a ratio of public sector expenditure (including debt interest) as defined in the national accounts.
(4) Subsidies and grants as a ratio of general government expenditure, excluding debt interest and net lending.
(1) Official National Accounts estimates of fixed capital formation are only available for the post-war years. Esti mates for earlier years can be found in C. H. Feinstein, National Income, Expenditure and Output of the United Kingdom, 1885-1965, Cambridge University Press, 1972.
(1) ‘The attack on inflation after 31st July, 1977’, Cmnd 6882.
(1) The problem of unemployed school leavers and the reasons why they may appear on the adult register were discussed in A. J. H. Dean, ‘Unemployment among school leavers; an analysis of the problem’, in National Institute Economic Review, No. 79, November 1976.