OECD Economic Surveys : United Kingdom 1973.

96 Pages·8.503 MB·English

by  OECD

BASIC STATISTICS OF THE UNITED KINGDOM
THE LAND
a ('000 sq. km.) 244 Major cities (population in millions,
icultural area ('000 sq. km.) 194 1971 census):
Greater London 7.4
Birmingham 1.0
Glasgow 0.9
Liverpool 0.6
Manchester 0.5
THE PEOPLE
Population (mid-1971) 55668000 Total civilian employment,
No. inhabitants per sq. km. 228 June 1971 24329000
Net increase in population, 1966-71: ofwhich:
Annual average 223000 Agriculture 665000
Percentage change at annua) rates, Industry (incl. construction) 11 104000
1971/1966 0.39 Other activities 12560000
THE GOVERNMENT
Publiccurrent expenditure 1971 (per Composition ofHouse ofCommons
cent ofGNP) 18 (December 1972):
Public sector current receipts 1971 Conservatives 319
(per cent ofGNP) 44 Labour 274
National Debt 31st March 1971 Liberals 8
(ratio to General Government Other 29
revenue) 158 Lastgeneralelection: 18thJune 1970
FOREIGN TRADE
Exports: Imports:
Exports of goods and services as Imports ofgoods and services as
apercentage oftheGNP(1971) 22 a percentage oftheGNP(1971) 21
Main exports (percentage oftotal Main imports (percentage oftotal
exports in 1971): imports in 1971):
Machinery 28 Petroleumandpetroleumproducts 12
Transport equipment 14 Machinery 13
Chemicals 10 Non-ferrous metals 5
Textiles 5 Chemicals 6
Non-ferrous metals 3 Meat 5
Iron and steel 4 Fruit and vegetables 4
CURRENCY
Monetary unit: Pound sterling Currency unit per USS
February 1973 (averages ofdaily
figures)
Note An international comparison ofcertain basic statistics is given in an annex table.
OECD ECONOMIC SURVEYS
BUREAU OE.EUROEEAN AFFAIRS.
APR 31373
DEBARTMENXyOEiSTATE
UNITED KINGDOM
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
The Organisation for Economic Co-operation and
Development {OECD) was set up under a Convention signed
in Paris on 14th December, 1960, which provides that the
OECD shallpromote policies designed:
to achieve the highest sustainable economic growth
and employment and a rising standard of living in
Member countries, while maintaining financial sta¬
bility, and thus to contribute to the development of
the world economy;
to contribute to sound economic expansion in
Member as well as non-member countries in the
process of economic development;
to contribute to the expansion of world trade on a
multilateral, non-discriminatory basis in accord¬
ance with international obligations.
The Members of OECD are Australia, Austria,
Belgium, Canada, Denmark, Finland, France, the Federal
Republic ofGermany, Greece, Iceland, Ireland, Italy, Japan,
Luxembourg, the Netherlands, Norway, Portugal, Spain,
Sweden, Switzerland, Turkey, the United Kingdom and the
United States.
The Socialist Federal Republic of Yugoslavia is
associated in certain work of the OECD, particularly that
ofthe Economic andDevelopment Review Committee.
The annual review of the United Kingdom
bytheOECDEconomicandDevelopmentReviewCommittee
took place on 24th January 1973.
© Organisation for Economic Co-operation and Development, 1973.
Queries concerning permissions or translation rights sould be
addressed to:
Director of Information, OECD
2, rue André-Pascal, 75775 PARIS CEDEX 16, France
CONTENTS
Introduction 5
I Developments through 1972 5
The course of demand 5
The sterling float, trade and payments 12
Monetary developments and policy 15
Wage and price developments 18
II Prospects for 1973 22
m The labour market in the United Kingdom 23
Introductory remarks 23
Recent unemployment experience 24
Regional aspects 29
The regional policy background 37
The policy impact 43
Policy implications 48
IV Conclusions 50
Annexes
A A calendar of economic events in 1972 55
B Activity rate tables 73
C UK unemployment statistics 77
CONVENTIONAL SIGNS, ABBREVIATIONS, ETC.
$ US dollar
£ Pound sterling
Data not available
6
Nil or negligible
Billion Thousand million
I, II Calendar half years
Ql, Q2, etc. Calendar quarters
HMSO Her Majesty's Stationery Office
CSO Central Statistical Office
DTI Department of Trade and Industry
DE Department of Employment
NIESR National Institute of Economic and Social Research
CBI Confederation of British Industry
TUC Trade Union Congress or its representatives
Note All data used are seasonally adjusted unless the contrary is specified.
TEXT TABLES
1 Gross domestic product 7
2 Household incomes and expenditure 8
3 Gross fixed investment 9
4 Merchandise trade 13
5 Balance of payments 14
6 Quarterly review of wage settlements 19
7 Wage rates, earnings and prices 20
8 Employment behaviour in recessions 29
9 Indicators of regional labour market disparities 32
10 The transitory element in male unemployment in 1958-1967 34
11 Factional and structural unemployment in regional markets 35
12 A breakdown of unemployment rates in 1962 36
13 Principal UK regional measures up to 1970 38
1.4 Expenditure on regional policy 42
1.5 Present value of grants and tax-savings on a £ 1 000 investment
in new plant and machinery 44
TEXT DIAGRAMS
1 Output and unemployment 6
2 Stock changes and stock/output ratios 10
3 Labour market indicators 11
4 Short-term interest rates 17
5 Unemployment and vacancy rates 25
6 Labour hoarding and unemployment 28
7 The planning regions 30
8 Development assistance areas 41
9 IDC approvals, 1957-1970 43
10 Female activity rates, Great Britain 44
11 Movements in male unemployment rates 45
12 Manufacturing moves to peripheral areas 46
13 Actual and expected employment in manufacturing 47
STATISTICAL ANNEX
A Expenditure on GDP 83
B Consumption and investment 84
C Production and manpower 85
D Domestic finance 86
E Wages, prices and external position 87
F Analysis oftotal currency flow and official financing 88
INTRODUCTION
Stimulative demand management led to a revival of domestic demand
and output during 1972; by the second half of the year the recovery seemed
wellestablishedandunemploymenthadfallenwellbelowtheveryhighlevelsex-t
perienced earlier. The acute inflationary problem which had existed through
theprevioustwoyearspersisted into 1972. Policy effortshadreducedtherates
ofgrowthincostsandpricesinthecourse of1971, buttheeffectswerewearing
offin the first half of last year and there was evidence that the recovery
wouldbeaccompaniedbyanewtwist to the inflationary spiral. This danger,
and the threat it represented tothe alreadyweakening external positionprob¬
ably lay behind the speculative pressures on sterling which built up in June
andled the authorities to allowthe exchange rate temporarilyto float. Wide-
rangingdiscussions,onanumberofsubjects,including the restraint ofincomes
and prices, between the Government, employers and unions failed to reach
an agreement on methods of achieving the common objectives. Accord¬
ingly, topreventa newupsurge ofwagesand prices when a newround ofwage
bargaining was due to begin and the voluntary programmes ofprice restraint
were due to end, the Government imposed a temporary, statutory standstill
on incomes and prices pending adoption oflonger-term measures to combine
continued rapid growth and better price stability. Parts I and II of this
survey review recent economic trends and policy developments and prospects
through 1973.
Since coming into office in June 1970 the Government has embarked on
a programme oflonger-termreform oftheframework within which the United
Kingdom economy operates. Central to these policies has been the pursuit
ofentry into the European Economic Communities. Certain ofthe problems
of transition which will arise over the next twelve months are dealt with in
this survey but the much more important economic and political aspects of
membership are not treated. It may be recalled, however, that in last year's
OECD Survey it was suggested that EEC membership could facilitate changes
conducive to more rapid UK growth in the medium-term.
Longer-term measureshavealso been taken to alleviate some oftheimba¬
lances on the labour market. There has long been concern in the United
Kingdom, as in many other countries, with these regional and structural
imbalances, a themewhichis beingdiscussed in a number ofthis year's annual
economic surveys. Part III, accordingly, looks at this question in some
detail. Some conclusions on prospects and policy considerations are drawn
in Part IV.
I DEVELOPMENTS THROUGH 1972
The course of demand
The weakness of demand which has characterised the United Kingdom
economy since about 1969 continued into 1972. Demand and output picked
up somewhat in response to policy stimuli introduced in the March 1971
OECD Economic Surveys
budget and the "mini-budget" in the following July but the momentum was
not fully maintained; in the first quarter of 1972 output fell further below
potential and unemployment reached levels unprecedented in post-war exper¬
ience1. Accordingly, theMarch 1972budgetwasdesignedtoprovideafurther
sizeable short-term boost, the objectives being a 5 per cent annual rate ofreal
growthbetweenthesecondhalfof1971 andthefirsthalfof1973andareduction
in the level of unemployment. The estimated outturn for the second half
of 1972, with output growing at an annual rate ofabout 5 to 6 per cent and
unemployment falling, suggests that these aims could be achieved.
Diagram I Output and unemployment
1963 = 100
140
130
120 GDP*
110 ^^
PotentialGDP
x
100
^
90_
%
4
GDPgap
3
Unemployment.
2
1
0
-1 !b _L _1(cid:9)
1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972
Notes Thechart shows the actual courseofoutput (GDPat 1963marketprices) and
potentialoutput,expressedasindexnumberswithpotentialoutputin 1963=100,the"GDP
gap" (i.e. potential less actual GDP expressed as percentage of potential GDP) and the
numbersofwhollyunemployed,excludingschoolleaversandadultstudents,asapercentage
of the total number of employees. Potential GDP indicates levels of output consistent
withfull utilization ofavailable supplies ofcapital and labourafter allowingfor some fric-
tional unemployment. It has been calculated using an aggregate production function
which is basically Cobb-Douglas in form.
Sources: CSO, Economic Trends, HMSO, London, October 1972; OECD Secretariat
estimates.
1 The recorded figures were severely affected by a coal strike and associated power
cuts, but the underlying movement through the first half of the year still suggested some
weakening of demand and output.
United Kingdom
The most important budget measures in quantitative terms concentrated
on private consumption, principally through increased personal allowances
and purchase tax cuts1. Specific measures to stimulate private investment
were introduced and additional expenditure programmes, mainly concerned
with new regional measures and alleviation of unemployment, were adopted.
Shortly after the budget had been presented new rates of national insurance
benefits and contributions, effective in October 1972, were announced. The
Secretariat estimate of the effect of the budget changes was that they should
add \i to 2 percentage points to the rate of growth of real GDP between
the first halves of 1972 and 1973. The revisions to national insurance rates
raised this estimate a little, putting it more firmly in the 2 percentage point
range. These increases were in addition to a stimulus ofabout 1 percentage
point to come from earlier measures. The impact comes mainly from the
income and purchase tax cuts, thus primarily affecting private consumption.
The measures affecting the corporate sector are not likely to have a very
marked impact over thefirst year,but their effectscould buildupsubstantially
thereafter.
Table 1 Gross domestic product
Percentage volume changes,
annual rates
1971
£
billion 1972
1961- 1971 1972
1970
I II
Consumers' expenditure 34.5 2* 2i 6 51 61
Government current expenditure 10.3 2 3i 3i 31 3
Gross fixed investment 9.9 4 -* 2i 3* i
Final domestic demand 54.7 2Î 2* 41 41 5
Stockholding1 0 0 -1 0 -i 2
Foreign balance1 0.8 i 0 -U -3* -H
GDP, market prices 55.5 2* H 3 i 5i
1 Changesexpressedas apercentageofGDPinthe previousperiod.
Note Datauptothefirsthalfof1972arebasedonacompromisebetweenthethreeofficialestimatesof
GDP. Differencesbetweentheaverageestimateandtheexpenditurebasedestimateineachperiodhavebeen
added to the expenditure-based estimate ofstockbuilding.
Sources: CSO,Economic Trends,October1972,HMSO,London;OECDSecretariatestimatesfor 1972n.
The recovery of activity into the second half of 1972 has been led by
privateconsumption. Thebudgetboosttoreal disposableincomeswas supple¬
mented by some recovery in employment after the miners' strike, and real
private consumption increased by over 2_\ per cent in the second quarter, even
though personal savings rose to over 10 per cent of disposable incomes (a
historicallyhighlevelin the United Kingdom). Realincomeandconsumption
1 More detail of the budget measures is given in Annex A.
OECD Economic Surveys
probably continued to grow rapidly into the latter halfofthe year as employ¬
ment and hours worked increased and personal savings ratios fell somewhat.
Some further, though modest, stimulus probably came from the upward
revisions to National Insurance benefits and contributions. The budget
forecast ofpublic consumption suggests that it, too, may have grown quite
strongly in real terms through the second half of 1972.
Table 2 Household incomes and expenditure
Percentage changes
annual rates
1971
£
billion 1961 1972
1971 1972
1970 I n
Compensation of employees 33.5 71 10| 12 9 19
Total incomes 47.1 71 10 121 10 17
Tax payments1 9.3 1H 9 8 41 12
Disposable incomes 37.8 64 101 131 111 181
Savings ratio* 3.2» 8 81 91 9 101
Private consumption 34.5 6i 101 12 10 10}
Consumer price deflator 31 71 51 41 71
Private consumption, 1963 prices 2* 21 6 51 63
1 Income tax and National Insurance payment!.
2 Savings u a percentage ofdisposable incomes.
3 £ billion.
Sources: CSO,EconomicTrends,October1972,HMSO,London;OECDSecretariatestimatesfor1972II.
Through the year, grossfixed investment did not pick up as rapidly as
output. Public sector investment was a buoyant element, though the results
for the second quarter of 1972 suggest that the acceleration came later than
envisaged in the budget forecast. Since then, there has probably been a
strong acceleration, but the increase in the 1972/1973 financial year (running
to end March) may still fall short ofthe planned 6-7 per cent1. As in 1971,
private residential construction was the most buoyant sector ofprivate capital
formation, butthepeak oftheupswingwhichbeganin 1970may now be near.
The building societies' position became progressively tighter over the first
halfyear, with new mortgage commitments expanding (partly in association
withthe rapid riseinprivatehouseprices, whichroseby about40percentover
the two years to the second quarter of 1972) and net receipts declining as
competing interest rates rose. Nevertheless, despite some tightenning of
mortgage availability, private housebuilding continued at a high level in the
second halfof 1972. An easier trend in private sectorstartsearlyintheyear,
and some tightening of mortgage availability, suggest that private residential
investment may have decelerated over the second half of 1972.
Private industrial investment in the first three quarters of the year was
1 See Public Expenditure to 1975-76, Cmnd,4829, HMSO. London, November 1971.
8