^{page 8 note (1)} A small problem does, however, arise in making the sum of the parts add exactly to the totals calculated in the same way. This is because we have scaled each individual series using as the scaling factors the ratios in 1970 of the 1963 price figures (the last set of estimates) to the 1970 price figures. Because, for example, the proportions of GDP accounted for by the various expenditure components differ as between their expression at 1963 and 1970 prices, the new scaled series do not add up exactly to the (scaled) totals. The discrepancies are not however very large. In the GDP table we have put all of the discrepancy (including, as usual, that between the output or compromise estimates of GDP and the expenditure estimate) into stockbuilding. In the fixed investment table (table 5) the discrepancy has been put into fees.

^{page 10 note (1)} The adjustment to factor cost is subtracted in the calculation of the GDP identity: GDP=total final expenditure less imports less AFC.

^{page 10 note (2)} The average import content of total final demand (both in volume terms) in 1971, 1972 and the first half of 1973 was estimated in August to be 19, 19.6 and 20.2 per cent respectively —the last being partly our own estimate. In table 3 of the current Review the corresponding figures are 19, 20 and 20.8 per cent.

^{page 11 note (1)} A period over which, the DTI maintains, the distortions caused by last year's dock strike cancel out.

^{page 15 note (1)} Compared with 19, 19.6, 20.3, and 20.6 in the August forecast.

^{page 15 note (2)} See pages 24-25 below, where it is suggested that it is the service industries in which productivity performance has been poor.

^{page 17 note (1)} Total final expenditure is now forecast to increase by 5 1/4 per cent in 1974, compared with 3 1/2 per cent in the August forecast.

^{page 19 note (1)} Only at constant prices—the current price import figures have not been significantly revised.

^{page 20 note (1)} Miss Pamela Meadows and C. G. Fane of the National Institute contributed substantially to this section, in addition to those named on the front cover.

^{page 21 note (1)} Price Commission, Report for the period 1 June-31 August 1973, London, HMSO.

^{page 21 note (2)} Companies applying to the Price Commission for per mission to raise prices have to submit cost justifications; not all cost increases are allowable.

^{page 21 note (3)} The most important non-allowable cost is advertising expenditure.

^{page 21 note (4)} In Stage III, according to the consultative document, firms are instructed to include depreciation ‘calculated in accordance with generally accepted accounting principles consistently applied by the enterprise concerned’ for the purpose of determining the profit reference level. For the purpose of allowable costs, depreciation provisions are based on historical costs, and this may consequently cause firms to lose rather than gain from the inclusion of depreciation. If depreciation per unit of output falls, total allowable costs are reduced.

^{page 21 note (5)} In Stage II cost figures had to be provided before price increases were approved by some 190 firms in category I. Some 1,000 firms in category II had to provide this cost justification after raising prices. In Stage III, these category II firms will also have to pre-notify their cost justifications for price increases.

^{page 22 note (1)} Price Commission, Report for the period 1 June-31 August 1973, London, HMSO, pages 13, 14.

^{page 23 note (1)} The level of net profit margins in these two years is the profit reference level.

^{page 23 note (2)} Profits on exports are wholly exempt from control.

^{page 23 note (3)} For companies engaged in distribution, the reference levels are those of the last complete account year before 30 April 1973.

^{page 23 note (4)} The current estimate for the residual error in 1972 in the ‘Net acquisition of financial assets' table is + £345 million. (This is the discrepancy between the income and expenditure estimates of gross domestic product.) Only six months ago the estimate for this figure was - £182 million. The current estimate for that error in the first half of this year is + £707 million. In so far as one thinks that the error should be allocated to the company sector, the 1973 figures-from which the 1974 figures are projected—are radically changed. In so far as the error is allocated to other sectors, any exercise of checking the estimate of the net borrowing or lending of the company sector by examining its compatibility with the estimates for the other sectors becomes impracticable.

^{page 24 note (1)} June figures are taken to avoid any influence later of the raising of the school-leaving age.

^{page 24 note (2)} At constant demand pressure.

^{page 24 note (3)} National Institute Economic Review, no. 63, February 1973, pages 28-29 see also pages 25-33.

^{page 26 note (1)} ‘People and Jobs’, Department of Employment, 1971.

^{page 26 note (2)} ‘Men out of Work’, Hill, Harrison, Sargeant and Talbot, CUP, 1973.

^{page 27 note (1)} This was the conclusion drawn from their evidence by the authors. It is, of course, possible to argue that the whole ‘schedule’ of acceptable levels of pay was too high.

^{page 28 note (1)} Geoffrey H. Moore, ‘How full is full employment?’, American Enterprise Institute for Public Policy Research, Domestic Affairs Study, No. 14, July 1973.

^{page 28 note (2)} The SET rebate being related to numbers employed rather than to hours worked or the average wage bill. All manu facturing received premiums in 1966-67, but only certain regions between 1967 and 1973.

^{page 28 note (3)} See Bank of England Quarterly Bulletin, September 1973, page 280.

^{page 28 note (4)} More sophisticated analysis using coefficients of variation confirmed this judgement.

^{page 30 note (1)} However, the continued movement towards self-employed status in this industry may have led to an underestimate of the divisor used (employees) to calculate this particular vacancy rate. In other words, the figures will, if anything, overestimate the pressure in this sector of the labour market.

^{page 30 note (2)} It may also be true to some extent of the motor industry, but the situation is complicated by the unknown, but probably large, effect on production of strikes.

^{page 30 note (3)} The fact that the balance of payments, as usually measured, at current prices has deteriorated massively is irrelevant to the current argument, which is concerned only with the volume of resources. The necessary distribution of these resources is of course influenced by the current and prospective terms of trade.

^{page 30 note (4)} If supplies are in fact inadequate, consumers will pre sumably be forced to save until the goods are forthcoming, unless there is both the possibility and the willingness to switch to buying items which are not in short supply.

^{page 31 note (1)} W. A. H. Godley and J. R. Shepherd, ‘Forecasting imports’, National Institute Economic Review, no. 33, August 1965.

^{page 31 note (2)} T. S. Barker, ‘Aggregation error and estimates of the U.K. import demand function’, in ‘The Econometric Study of the United Kingdom’, eds. K. Hilton and D. F. Heathfield, Macmillan 1970, or Reprint Series No. 307, Department of Applied Economics, Cambridge.

^{page 31 note (3)} D. J. Smyth, ‘The effect of internal demand pressure on U.K. imports of manufactures’, Graduate Centre for Manage ment Studies, University of Birmingham, Discussion Papers in Business Organisation, no. 4, July 1967.

^{page 31 note (4)} R. D. Rees and P. R. G. Layard, ‘The Determinants of UK Imports’, Government Economic Service Occasional Papers, No. 3, HMSO.

^{page 31 note (5)} R. A. Cooper, K. Hartley, C. R. M. Harvey, ‘Export Performance and the Pressure of Demand, A Study of Firms’, pages 35-41. University of York Studies in Economics: 4 Allen and Unwin Ltd, London.

^{page 32 note (1)} Bakke, E. W. (1933) ‘The Unemployed Man’, London, Nisbet. Jahoda, M., et al. (1972) Marienthal: ‘The socio graphy of an Unemployed Community’, London, Tavistock.

^{page 32 note (2)} M. Flynn, P. Flynn and N. Mellor, ‘Social malaise research: a study in Liverpool’, Social Trends, 1972.

^{page 33 note (1)} ‘Prospects of Economic Management, 1972/76’, The Cambridge Economic Policy Group, Department of Applied Economics, University of Cambridge.

^{page 33 note (2)} Oil consumption rose by 5.8 per cent a year in the five years ending 1972.

^{page 33 note (3)} In view of the unilateral increase of the posted price by 70 per cent at least, the producing countries can reduce their exports by 40 per cent and still retain the earlier level of their earnings.

^{page 34 note (1)} These are not prices actually paid but serve for the calculation of royalties and of the tax-take of the producing countries.

^{page 34 note (2)} This is one of the reasons why the 1956 Suez crisis and the 1957 shortage of oil supplies are no guide to the present. In 1956/57 supplies from the Middle East were not cut off but had to be routed round the Cape, resulting in an interruption in arrivals and a transportation problem; moreover, it was possible to double imports from the Western Hemisphere between 1956 and 1957.

^{page 34 note (3)} Different standards in the insulation of buildings may account for a good deal of the gap—and are practically impossible to change in the short term.

^{page 35 note (1)} Since the statement, estimates of stocks have been reduced further than is suggested by table 23. The latter will therefore contain overestimates.

^{page 35 note (2)} 85 per cent came from the Middle East; the difference was due to Iran, which is not an Arab state and has not imposed any oil cuts.

^{page 36 note (1)} It should be remembered that although (in 1971-72) not more than some 7 per cent of all gas was directly made from oil, this proportion went up to 11-12 per cent in the peak winter week.

^{page 36 note (2)} This conclusion is reached by comparing, in chart 4, the data for cuts in oil supplies alone with those for cuts in all energy supplies.

^{page 36 note (3)} The immediate measures were: prohibition of the use of electricity for display advertising and floodlighting, ban on electric fires in offices, and instructions to the public sector, including the nationalised industries, to cut their energy consumption by 10 per cent. On 19 November these were supplemented by a general 10 per cent cut of all deliveries by the oil companies (based on the corresponding month last year); though for consumers on a list of priority users (including the iron and steel, petrochemical, and all power industries as well as some public services) exemption or a smaller reduction can be granted later on, in case of ‘undue hardship or dislocation’. At the same time the public was asked to observe a self-imposed speed limit of 50 miles per hour and to avoid motoring on Sunday.

^{page 36 note (4)} President Nixon's ‘Statement on dealing with the Nation's Energy Resource Problem’ said: ‘A car travelling 50 miles per hour uses 20-25 per cent less gasoline per mile than the same car travelling 70 miles per hour’ (The New York Times. 30 June 1973, page 20).

^{page 36 note (5)} According to a CSO survey, 63 per cent of cars are used for ‘pleasure’ (i.e. not for business) and consume—according to estimates by the Society of Motor Manufacturers and Traders—about 45 per cent of all petrol.

^{page 37 note (1)} The panel is not a representative sample although it covers companies employing about one fifth of all employees in manufacturing and construction. The response rate was 70 per cent. The questions were:

1. (1)

   (1) How far would your production volume be cut by a 10 per cent and 20 per cent cut in your oil supplies, assuming demand for your products and energy from other sources were unaffected by the cut in oil supply? (And the same question concerning total energy supplies—that is: oil, coal, electricity and gas— assuming unchanged demand.)

2. (2)

   (2) To what extent would your unit costs rise if your oil supplies were cut by the magnitudes indicated below, and your output fell by the amount indicated in question (1), assuming that all energy prices remain unchanged and that demand for your products is unaffected by cuts in energy supplies? (And again, the same question for total energy supplies.)

Oil products are used as raw materials as well in some indus tries; the inquiry investigated only the energy and not the raw material aspect of cuts and it follows that the effects are under estimated in the plastic, synthetic fibres, chemicals, rubber and construction industries.