^{note (1) page 4} The expenditure estimate is bedevilled by the need to make a special adjustment to the figure for stock-building on account of the dock strikes, and the income estimate by the adjustments to the figure for stock-appreciation made neces sary by devaluation. Whilst the output measure is not itself without (downward) bias on account of the dock strikes, it seems likely to be relatively more free from the arbitrary distortions to which the other two estimates are subject. (Economic Trends, April 1968, gives further detail on these problems.) It is worth noting that the expenditure estimate (which shows a fall in output between the third and fourth quarters of 1967) has, in general, over the whole of the two years 1966 and 1967, behaved rather differently from the income and output estimates, which have usually moved in sympathy with each other. The compromise measure of GDP (table 2) is normally constructed as an average of all three estimates, giving an equal weight to each. For the last quarter of 1967, however, the method of construction has been adjusted, giving further weight to the output estimate.

^{note (2) page 4} Disposable income plus net credit taken by the personal sector from banks and hire purchase companies, in 1958 prices. See table 6.

^{note (3) page 4} In his budget speech the Chancellor spoke of the necessity to budget ‘for a cutback of about 2 per cent a year in con sumption’. See House of Commons Debates, vol. 761, No. 84, col. 261.

^{note (4) page 4} National Institute Economic Review No. 43, February 1968, pages 17-19.

^{note (5) page 4} The effects of the change in Estate Duty provisions and certain other minor adjustments have been excluded from the table as negligible. The increase in rates of corporation tax has also been excluded; whilst this increase might in other circumstances have been expected to have some impact upon consumers' expenditure through higher prices, and perhaps through greater resistance to wage claims, in current con ditions these effects seem likely to be very small. Company savings will be boosted by the restraint on dividends under the incomes policy as well as by the expected increase in company profits generally.

^{note (1) page 6} National Institute Economic Review No. 36, May 1966, pages 17-18.

^{note (2) page 6} The action of the multiplier is heavily damped by high import and taxation leakages; the latter is particularly important to the extent that the initial, first round fall in consumption is concentrated on items which are highly taxed (tobacco and drink, for example). The factor cost of a unit of purchases of such items is accordingly disproportionately low, and a reduction of consumption of these goods leads to a relatively small reduction in real demand and disposable income on the ‘second round’. The techniques employed for measuring the total effect of the tax changes follow those set out by W. A. B. Hopkin and W. A. H. Godley in the National Institute Economic Review No. 32, May 1965, pages 33-42.

^{note (3) page 6} National Institute Economic Review No. 42, November 1967, page 5, table 1.

^{note (4) page 6} The area pattern of arrivals lends some support to this view.

^{note (5) page 6} As explained in the National Institute Economic Review No. 43, February 1968, page 14, the basic import relationship used in the forecasting process had already then been adjusted for the systematic under-estimates of 1967 imports. The first quarter figures at least serve to confirm this practice, the adjustment for the current forecast now being increased still further.

^{note (6) page 6} We have roughly lagged the volume responses suggested in the National Institute Economic Review No. 42, November 1967, page 5, table 1, by a quarter, although retaining a small response in the first quarter of 1968.

^{note (1) page 8} Its value, on the definitions employed in table 6, was 6.0 per cent in the first quarter of this year. This compares with an average value for 1967 of 7.1 per cent, and an average over the five years from 1962 to 1967 of 7.6 per cent.

^{note (2) page 8} We have taken the amount of consumption spending unexplained by our normal econometric methods as repre senting the amount of excess spending in the first quarter, admittedly a rough method. This yields an estimate of some £130 million (1958 prices) as a measure of the excess, about two thirds of which we have deducted from consumption in subsequent quarters, most of it in the second and third quarters of the year.

^{note (1) page 9} There is a necessary caveat here, as in the November 1967 and February 1968 forecasts, about the uncertain evidence in favour of some increase in the underlying growth of pro ductivity. (See National Institute Economic Reviews No. 42, November 1967, page 13, and No. 43, February 1968, pages 6-7.) If this evidence turns out to be well-founded, unemploy ment could well remain static or even rise given the forecast rate of output growth.

^{note (2) page 9} The figures used for the base period, the second half of 1967, are those appearing in the actual forecasts. The Treasury figures (but not those of the National Institute) for public authorities' current spending and for imports include the estimated amount due to purchases of United States military aircraft.

^{note (3) page 9} In the light of the increase in consumer spending which occurred in the first quarter, the validation of the Treasury forecast would require a very sharp fall, between the first and second quarters, of some 6 per cent or so. The fall assumed in our forecast between the two quarters is about 4 per cent.

^{note (1) page 10} And it certainly cannot be accounted for by any reason able estimate of the extra payments due on imports of military aircraft in the latter half of 1968 and the first half of 1969. A reasonable adjustment would still leave the gap between the two indices at 4 1/2-5 points.

^{note (1) page 12} Information on the known reserves, assets, credit facili ties, scheduled repayments and other liabilities is given in the Appendix on page 17.

^{note (1) page 14} Productivity, Prices and Incomes Policy in 1968 and 1969, Cmnd. 3590.

^{note (1) page 16} Since publication of the White Paper it has been announced that the 3 1/2 per cent ceiling will not be written into the forthcoming legislation on prices and incomes; but we have assumed that it will remain part of the policy.

^{note (2) page 16} There are two other instances in which a rise in basic rates exceeding 3 1/2 per cent could be compatible with the policy : increases for groups of workers whose pay scales have not been increased for more than a year (since the ceiling is to apply at an annual rate), and increases involving groups of workers in which the lower paid may receive proportionately higher increases so long as the total settlement does not exceed the ceiling.