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Published online by Cambridge University Press: 26 March 2020
The movement of the economy since we last reported seems to have been rather weaker than we were expecting. Output seems to have fallen in the fourth quarter of last year—a development which is all the more surprising since consumers' real incomes have been much higher than we anticipated; real personal disposable income is officially estimated to have risen by nearly 4 1/2 per cent in the third quarter of last year compared with our November estimate of only half this amount. The wage and salary bill rose by 8 per cent in current prices as thresholds were paid under Stage 3 agreements, as London weighting was increased and as post-Stage 3 catch-up settlements became effective. Current grants to persons rose by 15 per cent as the large uprating of pensions came into effect. The Forces too appear to have been given a large pay rise, and threshold increases and London weighting have also raised pay in other parts of the public sector.
page 42 note (1) ‘Public Expenditure to 1978-79’, Cmnd 5879, HMSO, January 1975.
page 42 note (2) This was still true in January on our definition of the ‘oil deficit’ which allows for exports to oil producers.
page 50 note (1) No indirect taxes are more than proportional-e.g. VAT- while some are related only to movements in real expenditures —e.g. revenue duties.
page 50 note (2) Given the forecasts of costs, the price forecast is rather lower than we were suggesting in November. Partly this is because we have now taken the full amounts of subsidy as officially estimated: the November Financial Statement estimates have been confirmed by the public expenditure White Paper. But we now think we were making a combination of technical (and, unfortunately, reinforcing) errors: our pricing equation did not, we think, make sufficient allowance for the automatic ‘negative drag’ of the indirect tax system. In addition the ‘residuals’ which have to be projected in connection with most econometric relationships, had been forecast in absolute terms, that is in terms of index number ‘points’. In so far as they reflect price control they probably ought to have been in percentage terms: there is a difference when prices are rising by 20 per cent per annum. In the equations for real expenditures, which normally grow relatively slowly, the difference is small enough to be ignored.
page 54 note (1) C. T. Taylor, ‘Oil developments and the UK economy 1974-80’, Cambridge Economic Policy Group, Discussion paper No. 1, August 1974, Department of Applied Economics, Cambridge.
page 55 note (1) Taylor, op. cit., page 5.
page 55 note (2) See ‘Production and reserves of oil and gas on the United Kingdom continental shelf’, DTI, May 1973.
page 55 note (3) The balance of payments might be affected by this to a second order of magnitude to the extent that the price of gas (therm for therm) is lower than that of petroleum.
page 56 note (1) Taylor, op. cit., page 7.
page 56 note (2) This compares with 120 million tons suggested to Taylor less than a year ago by an economist with a major oil company (ibid, page 9).
page 57 note (1) Though ‘non-oil’ GDP is assumed to be the same in each case.
page 59 note (1) Assuming no further non-oil deficit is incurred after this year.
page 61 note (1) GDP at factor cost plus the adjustment to factor cost.