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Chapter II. The Medium-Term
Published online by Cambridge University Press: 26 March 2020
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In making any projection, it is necessary to rely to a greater or lesser extent on the continuation of past patterns of behaviour. This may be through the use of econometric relationships or by the extrapolation of past trends of various kinds. The latter are often of critical importance in medium-term projections. Yet in a number of areas, there is growing evidence that patterns of development may have been fundamentally altered by the world and domestic recession and inflation of the years after 1973, and by the adoption of a flexible exchange rate regime.
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- Copyright © 1978 National Institute of Economic and Social Research
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(1) Even if ten major European countries are taken as a group, the overall elasticity of their imports relative to their GDP changed only from an average of 1.9 for the years 1960-73 to 1.7 for 1974-78 (Reports of the working group on foreign trade, Association d'Instituts Européens de Con joncture Economique, May and October 1978).
(2) Ireland deserves particular mention, not only because it is still an important export market for the United Kingdom, but because there appears to have been a return to a growth rate at least as high as in the 1960s, with an apparently higher import elasticity leading, unusually, to higher projected import growth than in the past.
(3) United Kingdom market shares in 1976 are used as weights; using total world shares would not make a significant difference.
(1) National Institute Economic Review, November 1977, Chapter II, ‘Medium-term policy options’, and S. A. B. Page, ‘The value and distribution of the benefits of North Sea oil and gas, 1970-1985’.
(1) The value of gas is assumed (as in last year's estimates) to be measured by the price of oil (for equivalent energy, tonnes of oil equivalent), on the assumption that oil would be the substitute; this method is also now used by the Treasury and the Department of Energy. The CSO prefers to use the price received by producers: as indicated in table 2, this gives much lower estimates (Economic Progress Report, October 1977; Development of the oil and gas resources of the United Kingdom 1978; United Kingdom Balance of Payments 1967-77). The fall in the dollar price of oil and rise in the sterling dollar exchange rate in the last year have greatly narrowed the gap between the oil price and the price at which gas is sold by the British Gas Corporation and only a small price rise for gas (assumed to occur in 1979) is necessary to eliminate the ‘consumer benefit’ from relatively cheap energy that gas has provided since the rise in the oil price.
(2) It is proposed that the rate of Petroleum Revenue Tax be raised from 45 per cent to 60 per cent, the extra capital allowance reduced from 75 per cent to 35 per cent, and the amount of oil exempt from the tax reduced from 1 million tons to 0.5 million tonnes.
(3) The Treasury (Economic Progress Report, October 1978) estimates for taxes are much higher than those given here, presumably because a rising real oil price has been assumed and, as the calculations must have been done early in the summer, a lower exchange rate from which to make a constant competitiveness assumption; both these would increase the share of tax revenue. The implied average tax rate on revenue appears to be 44 per cent for oil and gas together; the equivalent figure on the assumptions here would be 32 per cent.
(1) In practice, there are a number of complicating factors including, inter alia, the structure of output, the structure of the labour force and the propensity to register as unemployed.
(1) Attempts were made to adjust the output per person employed growth rates by industry for hours worked on the grounds that the growth rate of output per person hour may not have fallen so much because of a higher proportion of workers doing less overtime, more short-time work, going part-time, etc. However, these adjustments did not signific antly alter our conclusions.
(2) This chart is intended for heuristic purposes only and is not drawn to scale.
(3) H.M. Treasury, Macroeconomic model technical manual, 1978, page 7.5.
(4) R. Lindley (ed.), ‘Britain's medium-term employment prospects’, University of Warwick Manpower Research Group, 1978, page 38.
(5) Cambridge Economic Policy Group, Economic Policy Review, March 1978, University of Cambridge, Department of Applied Economics, p. 10.
(6) Bank of England Quarterly Bulletin, vol. 18, no. 3, September 1978, pp. 346-8.
(1) W. W. Daniel and Elizabeth Stilgoe, ‘The impact of employment protection laws’, PSI No. 577, June 1978, page 77.
(2) See P. McCracken et al., Towards full employment and price stability, OECD, June 1977.
(3) C. Freeman, ‘Technical innovation and British trade performance’ in Frank Blackaby (ed.), Deindustrialisation, Heinemann, forthcoming, (1979).
(1) See Bank of England Quarterly Bulletin, September 1978, page 346.
(2) Department of Employment Gazette, June 1977 and April 1978. A major uncertainty in these projections is the likely future level of female participation rates.
(1) For a discussion of experience in the earlier period see E. G. Whybrew, ‘Overtime and the reduction of the working week; a comparison of British and Dutch experience’, British Journal of Industrial Relations, July 1964.
(2) Whybrew, op. cit., page 154
(1) Edward F. Denison, ‘Some factors influencing pro ductivity growth’, in National Center for Productivity and Quality of Working Life, The future of productivity, Washington DC, Winter 1977.
(2) The estimates referred to are those in the Department of Employment Gazette, April 1978, and those of the Trade Union Research Unit, Ruskin College, Technical Note No. 43, May 1978. They indicate increases in employment ranging from 60-340,000 and decreases in unemployment of 40- 220,000.
(3) Trade Union Research Unit, Ruskin College, ‘Now is the time for the 35 hour week’, June 1977 mimeo.
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