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United Kingdom General, 1971-77 (1)
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The original documents are located in Box B113, folder "United Kingdom General,
1971-77 (1)" of the Arthur Burns Papers at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald R. Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
Digitized from Box B113 of the Arthur Burns Papers at the Gerald R. Ford Presidential Library
NATIONAL ARCHIVES AND RECORDS SERVICE
WITHDRAWAL SHEET (PRESIDENTIAL LIBRARIES)
FORM OF
CORRESPONDENTS OR TITLE
DATE
RESTRICTION
DOCUMENT
1. memo case,, Siegman to Burns, 9/17/76
la. memo
Charles Siegman to Bunrs re United Kingdom and
9/17/76
C(A)
international monetary matters (1 p.)
lb. telegram
American Embassy London to Sec. of State,
9/9/76
A
London 14244, re United Kingdom and inter-
national monetary matters (9 pp.)
FILE LOCATION
Arthur Burns Papers
SR
Federal Reserve Board Subject File, Box B113
11/1/84
United Kingdom: General, 1971-Oct. 1976
RESTRICTION CODES
(A) Closed by Executive Order 12065 governing access to national security information.
(B) Closed by statute or by the agency which originated the document.
(C) Closed in accordance with restrictions contained in the donor's deed of gift.
GENERAL SERVICES ADMINISTRATION
GSA FORM 7122 (REV. 1-81)
CHAIRMAN BURNS
For Information Only
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Division of International Finance
July 22, 1971
To:
Board of Governors (through Mr. R. Solomon)
From:
Martin J. Kohn
Subject: Conservative Government Acts to Stimulate U.K. Economy
Britain's Conservative Government moved to stimulate the
economy on Monday by lowering indirect taxes, eliminating regulations
governing the terms of installment credit purchases, and liberalizing
depreciation allowances. The previous week, the Government had
announced plans to spend £100 million over the next two years on
construction projects in areas of particularly high unemployment.
These expansionary measures will be accompanied by the introduction
of at least a partial incomes policy whose goal is to limit price
rises to 5 per cent a year.
The decision to take reflationary action comes in the
wake of the findings of the Government's mid-year review that gross
national product in the first half of 1971 was slightly more than
one per cent below the level forecast when the budget for fiscal
1971-72 -- which began April 1 -- was presented to Parliament at
the end of March. At that time, the Government announced several
tax reductions designed to bring about growth in real GNP of 3.1
- 2 -
per cent from the first half of 1971 to the first half of 1972. On
Monday, in disclosing the new stimulative measures to Parliament,
Chancellor Barber laid down a new goal of a 4-1/2 per cent increase
in real GNP between these two periods. In view of the gap of at
least one per cent between planned and actual GNP in January-June,
achievement of this objective would do little more than raise GNP
in the first half of 1972 to a level no higher than .3 per cent
above the target put forward in March.
The prime reason the Chancellor gave for seeking to boost
aggregate demand at this time is the unacceptably high level of
unemployment. Without further action to supplement expansionary
measures taken earlier, the Chancellor said, there was little chance
that joblessness would be reduced through the first half of 1972.
Seasonally adjusted unemployment has risen steadily since last October,
and in June the rate of unemployment was 3.2 per cent, exceptionally
high by British standards. In October, it had been 2.6 per cent,
itself an extremely high figure, at least by the yardstick of the
post-war period through 1966.
Lowering unemployment, or at least dramatizing its commitment
to do so, is of critical concern to the Conservative Government at
the moment in the light of the scheduled October vote by Parliament
on Britain's entry into the Common Market. In all likelihood, the
October vote will go in favor of entry even though recent public
opinion polls show that about two-thirds of the people are opposed
- 3 -
to it. The Conservative Party at present enjoys a Parliamentary
majority of 27 seats. If, as is expected, the Labor Party officially
opposes entry and if strict party discipline is applied by both
Labor and the Tories in the showdown vote, the MP's who break ranks
will probably number no less than 30 in the Labor party, no more
than 30 in the Conservative party. Thus the size of the margin in
favor of Britain's joining the EC will probably be at least 25 to 30.
However, the Conservatives, on a matter of such great
importance, no doubt want a much larger majority (and of course wish
to minimize the risk, however slight, of losing or winning by so
small a majority that entry becomes unacceptable). Their chances
of expanding the margin of victory well beyond 30 votes will be
significantly enhanced if the proportion of the public backing
entry rises, particularly since lack of public support has been
a strong incentive to the Labor party, which favored EC membership
when in power, to oppose it now. The Labor party apparently reasons
that opposing an at least temporarily unpopular government on an
unpopular issue will work to their advantage, despite their vulnerability
to charges of opportunism. But if the Conservatives are to increase
popular support for entry, as they are now trying to do by vigorously
proclaiming the benefits to be gained from membership, they must
vastly improve their standing with voters. Largely because of rising
unemployment and continuing inflation, public confidence in the
Heath Government, as evidenced by public opinion polls and the
GERAL.
- 4 -
results of recent by-elections, is now conspicuously absent. A
necessary condition for boosting confidence, the Government has
apparently decided, is the adoption of measures to improve the
employment situation.-
The Government's preoccupation with influencing the public's
attitude toward the Common Market was demonstrated by the authorization
last week of £100 million for public works construction in what are
known as "development" and "intermediate" areas. For reasons not
entirely clear, there has been widespread fear that Britain's joining
the Common Market will lead to neglect of regional development plans.
Last week's move was intended to assuage such anxiety. The £100
million will be spent over the next two years in Scotland, Wales
and Northern England all areas suffering from high unemployment.
The immediate reflationary effect will be small, with most projects
not to begin until after 1972.
1/ The vulnerability of the Conservatives on the domestic economic
issue was illustrated last week when a prominent Labor politician
thought to have been a staunch pro-marketeer, Denis Healey, indicated
that he would oppose entry. The former secretary of defense, now
shadow foreign secretary, maintained that continuation of the present
"appalling" economic conditions, which he blamed on the Conservatives,
would prevent him from voting in favor of joining the EC. The
logic of why the present state of the economy should cause renunciation
of support for entry is not clear, but the switch in Healey's position
illustrates the difficulties faced by Labor MP's with pro-market
leanings in backing the governing Tory party, on behalf of an unpopular
cause, when that party is apparently in political trouble in any event.
- 5 -
The principal aim of the measures instituted by the Heath
Government on Monday is to provide an immediate stimulus to personal
consumption. The main action was an across-the-board cut of 18 per
cent in the Purchase tax, to which consumer goods accounting for
perhaps half of total consumer goods expenditures are subject.
Instituted in 1940, the purchase tax, which is levied at the wholesale
level, is due to be abolished altogether in 1973, when the U.K.
introduces a value added tax (VAT). There are four separate purchase
tax rates, applied to different groups of goods. From March 1969
until Monday the rates were 55, 36-2/3, 22, and 13-3/4 per cent.
They are now 45, 30, 18 and 11-1/4 per cent. The Government estimates
that the reduction in revenue resulting from the low rates will be
about £110 million for the balance of the current fiscal year. On
a full-year basis, the reduction is estimated at £235 million.
The Government also abolished all restrictions on installment
purchases of consumer goods Monday. Since November 1968, the length
of installment loans on a wide variety of consumer durables, most
notably automobiles, had been limited to two years, and minimum
downpayment requirements, ranging from 20 to 40 per cent, had also
been in force. The 40 per cent requirment was applicable to car
sales. The Government did not estimate how great an increase in
consumer expenditures it expected the removal of installment buying
regulations to produce.
- 6 -
The choice of reflationary measures comes as no surprise.
The Government has made clear since March that, if the easing of
fiscal and monetary policy in the budget for fiscal 1971-72 furnished
insufficient stimulus to meet the Government's growth targets, it
would lower indirect taxes and relax or remove installment buying
restrictions. Getting rid of the latter is in line with the recom-
mendation of the Crowther Committee Report on consumer credit published
in March. The Committee, set up in 1968, urged that controlling the
terms of installment buying be dispensed with altogether, maintaining
that it created inequities and was an inefficient tool of demand
management in any event. (However, Chancellor Barber predicted
Monday that the termination of administrative restraints on installment
buying would "add substantially to demand.") Finally, in June several
finance houses unilaterally declared that they would no longer abide
by an understanding with the Government not to extend personal loans
for installment purchases on terms more favorable than those permitted
by hire purchase regulations. The fact that the Government did not
protest was interpreted as a certain indication that installment
buying would shortly be freed of all official restraint.
What did come as something of a surprise Monday was the
magnitude of the stimulus applied. It had been assumed that if
the government lowered taxes, it would do so by invoking the so-
called regulator, which permits reduction in excise taxes and the
at 8 -
July 17, 1971 through July 31, 1973, to write off 80 per cent of such
expenditures in the first year. The purpose of limiting the period in
which higher depreciation rates are in effect is to spur immediate
investment, In addition, service industries in the development areas
will now enjoy the same right as other industries in these areas to
write off certain plant and equipment expenditures in the same year in
which they are made. The Government estimates that the taxes of the
companies benefiting from these new regulations will be reduced by
£40 million in fiscal 1972-73 and by £150 million in fiscal 1973-74.
In outlining the easier depreciation rules, the Chancellor
stressed the importance of encouraging private fixed non-residential
investment, which by all indications has been declining since the end
of last year. In the absence of new incentives, such investment would
probably continue to decline through next year. He also stressed,
however, that he expected the main stimulus to investment to come from
revived consumer demand.
The Chancellor estimated that the total reduction in taxes for
fiscal 1971-72 instituted by the Conservatives now exceeds £1 billion,
an amount equal to about 2 per cent of GNP at market prices. Earlier, tax
cuts were announced in November when the Heath Government presented its
plans for reducing the role of government in the economy, particularly
by decreasing payments of welfare benefits, and in the presentation of
the budget for 1971-72 in March. On a full-year basis, the various tax
reductions amount to over £1.4 billion. Tax relief has been provided
- 9 -
mainly through lowering personal and corporate income tax, cutting the
selective employment tax and, now, reducing indirect taxes.
The fiscal stimulus to the economy in the next few months
should be quite intense, since the tax reduction announced Monday will
supplement two major tax cuts which were announced in March but which
did not go into effect until early this month. These are the reduction
in the selective employment tax, (which was cut by 50 per cent and which
will be abolished entirely when VAT is introduced in 1973) and the decrease
in personal income taxes resulting from an increase in family allowances.
In addition, increases in social insurance payments will go into effect
in September. Though these will be largely paid for out of higher contri-
butions, the net effect is expected to be stimulative.
Though the reduction in purchase tax rates should have an
anti-inflationary impact by lowering prices, inflation remains a serious
problem. As already noted, prices continue to rise very rapidly. Although
there has been evidence of some slackening in the rate of increase in
recent months, wages also continue to advance at a swift pace. Wage
earnings in the first four months of 1971 were 12.4 per cent higher than
in the same period a year earlier. This is an improvement over the 13.9
per cent increase from the fourth quarter of 1969 to the fourth quarter of
1970, but it hardly reflects a rate of increase that can be considered
sufficiently low. Furthermore, the improvement may have resulted largely
from fewer settlements and a recession-induced reduction in overtime.
- 10 -
The Government is obviously concerned that the various
expansionary measures which will be making themselves felt in the
next several months may complicate its efforts to slow inflation.
This concern was evident in the eagerness with which the Chancellor
in his Monday speech embraced the initiative taken by the Confederation
of British Industry -- Britain's leading trade association, whose
membership accounts for about two-thirds of employment and production
in manufacturing -- to place a ceiling on price increases. Specifically,
the Chancellor warmly endorsed the CBI's plan to request its members to
do their "utmost" to avoid price increases in the next 12 months and to
limit increases deemed "unavoidable" to 5 per cent. In addition, he
expressed agreement with the CBI's contention that implementation of its
plan should be contingent on the nationalized industries' also promising
to limit price rises to 5 per cent. The Chancellor intimated that the
Government would see to it that the nationalized industries did so.
Earlier this year, in fact, -- in April, long before the CBI initiative --
the Government compelled the British Steel Corporation to reduce a planned
14 per cent price boost to 7 per cent.
Until now the Government has eschewed setting specific guidelines
or ceilings for limiting price and wage increases and, indeed, it can still
claim that it is remaining aloof from such activities since, in a formal
sense, the 5 per cent limit which will now serve as a quasi price ceiling
for a broad segment of British industry was set by a private organization.
However, it seems evident that the CBI initiative grew out of negotiations
- 11 -
involving labor, management and government earlier this month. It would
thus appear that, whether it admits it or not, the Government now favors
the establishment of explicit limits on price increases. It would seem
likely that the existence of such a ceiling will put great pressure on
labor to modify their wage demands, something the unions are more likely
to do now anyhow since this week's reflationary package may have somewhat
mitigated their hostility toward the Government.
In one respect, the Government has picked an ideal time to
introduce expansionary measures, since the balance of payments on current
account remains in substantial surplus -- £600 million (almost $1.5 billion)
at an annual rate in the first half. To demonstrate the strength of its
external financial condition, the British will next month repay the IMF
£256 million, thereby completing in advance repayment of its June 1968
drawings. Its outstanding debt to the Fund will thus be reduced to £417
million, the amount it drew in 1969-70.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Office Correspondence
Date July 22, 1971
To
Chairman Burns
Subject: CBI Price Ceiling and
(through Mr. R. Solomon)
From
Martin J. Kohn MJK
Labor Reaction
The Confederation of British Industry -- Britain's major
trade association, whose 11,500 members account for about two-thirds
of total manufacturing output -- called upon its members last week
to call a halt to price increases and, where this was not possible,
to limit "unavoidable" price increases to 5 per cent over the next year.
The CBI has indicated that it will ask its 200 largest
members -- who, a source at the British Embassy estimates, probably
account for 75 to 80 per cent of the total employment provided by
CBI members -- to sign a declaration in which they would commit them-
selves for the year beginning August 1, 1971, to "avoid raising prices
of products/services supplied in the United Kingdom; to limit any
unavoidable increase in any of our prices to 5 per cent and, if
possible, less; and, where larger increases are unavoidable, to limit
the weighted average of price changes in the relevant range of products
to 5 per cent or less." The interval between any price rises should
be at least a year.
The CBI intends to police the actions of firms that sign
the declaration. It will be understood that firms which subsequently
find that special circumstances make adherence to the declaration
untenable will take no action to raise prices without first consulting
with the CBI. The most serious problems are anticipated in the area
- 2 -
of food manufacturing and food retailing, whose input prices are
largely determined in world markets over which the U.K. of course
has no control.
The CBI initiative was clearly taken in cooperation with
the Government, which, it is certain, has promised to require the
nationalized industries to observe the 5 per cent price ceiling.
The Government's credibility on this point need not be doubted.
Despite its well-known aversion to direct interference in the price
and wage setting process, the Heath Government compelled the British
Steel Corporation to limit a price increase at the beginning of April
to 7 per cent. The BSC had sought to boost prices by 14 per cent.
The CBI's establishment of a specific limit on price increases
is certainly connected to the reflationary measures which were announced
Monday and of which the CBI obviously knew in advance. The CBI has for
some time been urging the Government to take expansionary action, and
the move to institute formal price restraints reflects at the least
an informal agreement that government moves to stimulate the economy
be accompanied by specific measures to counter the inflationary dangers
these moves entail.
Even if prices, on average, rise by 5 per cent a year, it
will still represent a significant de-escalation of price inflation.
From January-May 1970 to January-May 1971, retail prices rose by 9 per
cent. Wholesale prices of manufactured goods between the same two
periods rose by 8 per cent.
- 3 -
To date, the Trades Union Congress -- the counterpart in
labor of the CBI in industry -- has not issued an official statement
on either the CBI initiative or the Government's reflationary package,
but spokesmen for the British labor movement have generally expressed
at least qualified approval. However, they have given no indication
that labor will set wage ceilings or guidelines to parallel the 5 per
cent limit on price rises instituted by the CBI. Nor, according to
British press commentary and comments made to me by sources in the
British Embassy, is there any likelihood that it will do so in the
foreseeable future. One Embassy contact stated flatly that it was
in effect unthinkable that the labor movement would itself place an
explicit ceiling on wage increases under a Conservative Government.
However, even in the absence of a definite upper limit on
wages, the prospects for a slowing in wage increases appear bright.
With their demands for both reflationary action and price restraint
measures now met, the unions are under great pressure to moderate
their wage demands. Furthermore, union leaders are now in a position
where they can adopt a more temperate line in wage negotiations -- as
many of them doubtless wish to do, given the correlation between rising
unemployment and exorbitant wage increases -- without risking loss of
support by the rank and file.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Office Correspondence
OF GOVERNORS
OF THE
Date March 25, 1975
RESERVE SYSTEM
To
Chairman Burns (through Mr. Bryant)
1975 MAR 26 AM Subject: g: 45
Attempts to Allocate Credit
From Larry J. Promisel
in the United Kingdom
RECEIVED
OFFICE OF THE CHAIRMAN
In 1971, the Bank of England abandoned its system of
quantitative credit controls and adopted instead its new system of
"Competition and Credit Control." At the same time, the Bank reserved
the authority "... to provide the banks with such qualitative guidance
as may be appropriate" (see Bank of England Quarterly Bulletin, June
1971, P. 192).
"Qualitative guidance" was first provided under the new
system in August 1972. The volume of bank lending to the private
sector had been large and accelerating, contributing to an expansion
of the money stock (broadly defined) at an annual rate of about 30
per cent in previous months. A large part of the bank lending was
associated with property speculation and financial transactions, which
had undesirable consequences especially for land prices. Moreover, the
Bank of England was concerned that the banks would not be in a position
to meet industry's loan demand when the desired and expected increase
in industrial investment materialized. Consequently, the Bank sent
a letter to the banking system reminding the banks that industrial loan
demand was expected to rise and urging them to cut other lending so as
to be able to satisfy this demand. (see Attachment 1)
In the subsequent, year, the monetary aggregates generally
continued to grow too rapidly. Despite the Bank of England's letter,
FORD LIBRARY
- 2 -
bank lending to property and other financial companies had been growing
as well, partly because facilities arranged earlier were being drawn
on. In September 1973, the Bank sent a second letter to the banks
reinforcing the first letter. (see Attachment 2)¹.
Finally, in December 1973, the Bank of England introduced
its supplementary deposit scheme, in a more determined attempt to limit
the rate of growth of the money supply; the "qualitative guidance"
provided by the Bank of England remained in force (see Attachment 3).
The supplementary deposit scheme, which penalized banks whose interest-
bearing liabilities grew faster than an allowed rate, was suspended in
February 1974 because the banks' deposits were so far below their ceiling.
In addition to the attempts, just cited, to influence the
allocation of credit, a system has existed in Britain for many years
whereby credit for exports and for shipbuilding is offered on relatively
favorable terms.
To protect the Building and Loan Societies, banks were also asked
to pay no more than 9-1/2% on deposits of less than £10, 000.
Attachments 3.
cc: Mr. Bryant
Mr. Siegman
Mr. Dod
Mr. Coyne
ATTACHMENT 1
Bank lending
The text of a letter which the Governor of
There are now signs that demand from industry for bank
the Bank of England sent on 7th August
finance to sustain expanding activity is growing more broad-
1972 to the banking system
ly than in recent months.
I am sure banks appreciate the need to meet this demand
if the growth of the economy is to proceed soundly; and I
ask that they should as necessary make credit less readily
available to property companies and for financial transac-
tions not associated with the maintenance and expansion of
Industry. Indeed, I understand that the London clearing
banks are already taking steps in this direction.
Printed in Bank of England Quarterly Bulletin, September 1972.
327
Credit notice
Bank lending
Text of a letter which the Governor of the
After two years of active competition in the provision of credit,
Bank of England sent to the main banking
the greater part of the banking system is now much closer to
associations on 11th September 1973
being fully lent. In addition, the banks are now being asked
(below) to limit their bidding for small deposits. They will thus
find it more difficult to provide the resources to meet all their
customers' requirements. It is, however, clearly necessary, if the
growth of the economy is to proceed soundly, that the demand
for credit to finance a higher volume of exports and industrial
investment and for other essential purposes should be satisfied. In
order to ensure the availability of credit for such purposes it will
in my view be necessary further to limit lending in the less essen-
tial areas. Accordingly I have to ask that all banks should in their
lending policies adhere to this guidance on the direction of their
lending. This will involve significant restraint on the provision of
credit for persons (other than for house purchase) and further
restraint on lending for property development and financial trans-
actions.
Building societies
In the Bank's consultative document on competition and credit
control it was recognised that circumstances might arise in which
competition for individuals' savings might require to be restrained
in the interests of the finance of housing. Such circumstances at
present prevail and I have to ask that, with immediate effect,
banks shall now observe a limit of 9½% on the rate of interest
which they pay on deposits in amounts of under £10,000. The
technical details of this arrangement are set out in the enclosed
note [see below].
"Merry-go-round" or interest arbitrage activities
In view of the recent indications of the extent to which some
companies have been drawing on overdraft facilities, not for the
purposes for which the facilities were sought but to invest in
higher-yielding certificates of deposit or other money market
instruments, I have been pleased to learn that some banks have
recently been taking steps to curtail this practice. Such activities
operate to put unnecessary pressures on money markets and are
thus harmful. Accordingly I encourage all banks to be on the
watch for, and active in combatting, this misuse of their lending
facilities.
Notice to banks
The Bank of England have today requested all banks to pay no
more than 9½ on any deposit with them of less than £ 10,000.
This request applies with immediate effect and until further
notice. These deposits are defined as interest-earning balances of
less than £10,000 of whatever term to maturity. This limit will
not be applied to any existing deposits which have been placed up
to the close of business tonight at fixed rates for fixed or
minimum periods. It will apply, however, to any existing
deposits, as defined, which have been placed for fixed periods at
floating rates or which have no fixed maturity or which are
extended after the expiry of an initial minimum period.
Printed in Bank of England Quarterly Bulletin, December 1973.
445
APPENDIX
ATTACHMENT 3
Notice to, banks and deposit-taking finance houses issued by
the Bank of England on 17 December 1973
1 Supplementary scheme
2 Other matters
The Bank ask that banks and deposit-taking finance houses
Banks and finance houses are asked to reinforce strongly
should be prepared to place with the Bank non-interest-
their restraint on lending to persons generally, to property
bearing special deposits in relation to the growth in each
companies and for purely financial transactions.
institution's interest-bearing resources on the following basis:
In view of the introduction of the new arrangements and
taking account also of the immediate prospects for the
(i) interest-bearing resources to be defined as the interest-
reserve asset position of banks and deposit-taking finance
bearing element of each institution's eligible liabilities;
houses, the Bank have decided, with the approval of the
Chancellor of the Exchequer, to revoke the calls for special
(ii) the growth in each institution's interest-bearing
deposits, each of 1/2% of eligible liabilities, which were due to
resources as defined in (i) above to be measured from the
have been made on 27th December 1973 and 2nd January
average of the amounts outstanding on the three make-up
1974.
days preceding each activation of this scheme;
(iii) up to 50% of the growth in each institution's interest-
bearing resources, on a three months' moving average basis,
Note
over and above a rate to be specified, to be placed on
Since this notice was issued, the Bank have considered the
non-interest-bearing deposit with the Bank, subject to:
problems which the supplementary scheme posed for banks
(such as those newly established) with a very small base of
(iv) no deposit being required to be lodged within the first
interest-bearing resources. As a result, it has now been
six months of the initial activation of this scheme;
decided that banks should be exempt from the requirements
of the scheme until their interest-bearing eligible liabilities
(v) non-interest-bearing special deposits made to be
average £3 million or more for a period of three months.
repayable in full should the growth in an institution's
Thereafter, in the current period of operation, the rate of
interest-bearing resources fall back to the rate specified or in
growth of interest-bearing eligible liabilities permitted before
part if the amount of the excess should decline;
non-interest-bearing special deposits become payable will be
related to a base of £3 million. Banks to which this provision
(vi) the requirement to lodge non-interest-bearing special
deposits to be capable of variation or suspension at the
applies will continue to be subject without modification to
Bank's discretion.
the obligation to maintain the reserve asset ratio, and to
respond to general calls for special deposits. The exemption
The initial activation of the scheme will take place
will not apply to finance houses, which are not subject to the
immediately and will apply to all banks (except the Northern
arrangements for control of credit until their eligible liabili-
Ireland banks) and to deposit-taking finance houses. The base
ties reach £5 million.
level will therefore be the average of interest-bearing
resources at the make-up days for October, November and
December 1973. The rate of growth specified is 8% for the
first six months; the rate to be specified thereafter will be
notified in due course, but not later than the end of April
1974. The rate of deposit required will be progressive with
the excess rate of growth of each institution's interest-
bearing resources: in respect of an excess of 1% or less, the
rate will be 5%; in respect of an excess of over 1% but not
more than 3%, the rate will be 25%; thereafter the rate will
be 50%.
The effect of these arrangements is that, if the average of
an institution's interest-bearing resources on the make-up
Printed in Bank of England
days for April, May and June 1974 were to exceed the
Quarterly Bulletin, March 1974.
average amount outstanding on the make-up days in October,
November and December 1973 by more than 8%, a non-
interest-bearing special deposit on the scale specified above
would be required to be lodged during July 1974. Thereafter
the requirement to lodge non-interest-bearing special deposits
will be assessed monthly in relation to the rate of growth in
interest-bearing resources to be specified.
Banks and deposit-taking finance houses are not expected
to respond to the introduction of these arrangements with a
general rise in their lending rates
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Office Correspondence
Date September 4, 1975
To
Chairman Burns
Subject: Visit of Sir Douglas Wass
From
Larry Promisel
As background for your scheduled meeting with Sir Douglas Wass,
I am attaching a brief discussion, prepared for the August Greenbook,
of the Wilson Government's current anti-inflation policy. For your
information, the Trades Union Congress, at their annual convention
yesterday, endorsed by a margin of 2 to 1 the L6 per week limit on
wage increases.
A table showing recent economic indicators for the United
Kingdom is also attached.
Attachments
Anti-Inflation Policy in the United Kingdom. New anti-inflation
measures in Britain -- announced on July 11 -- became effe tive on
August 1. The goal -- to be achieved principally by limiting pay increases --
is to reduce the rate of price inflation from the current annual rate of
about 25 per cent to 10 per cent by the fourth quarter of 1976. For all
employees earning less than £8500 ($18,000) per year, pay increases will
be limited to a maximum of £6 per week (or slightly more than 10 per
cent on average) for the 12 months beginning August 1; the less-than-
one per cent of employees earning more than £8500 per year will receive
no pay increase at all. Only one pay settlement per year will be allowed.
Dividend increases will be limited to 10 per cent per year (instead of
the previous 12-1/2 per cent).
To make the pay limitations more palatable to workers, price
controls will be retained beyond the March 1976 scheduled expiration
date. The Government will try to ensure that prices for goods of
special importance in the family budget will not rise more than 10 per
cent. The previously scheduled phasing-out of food subsidies will be
delayed. Rent increases will be limited to the general rate of inflation.
This policy as it now stands is not statutory, although the
Government has prepared -- but hopes not to have to submit -- legislation
that would apply legal sanctions on employers, not on employees, if the
pay limits are exceeded. Yet even though the Government cannot now stop
excessive settlements from being granted, it does have existing powers
to ensure that the costs to the employer of such settlements cannot be
passed on. These powers are especially strong so far as public sector
settlements are concerned, In the nationalized industries, by controlling
subsidies, access to borrowing, and product and service prices, the
Government can ensure that excessive wage increases can be paid for only
by reducing employment. Similarly, the Government controls grants to,
and borrowing by, local authorities, although the latter can raise taxes.
Control over the private sector is less direct. Existing price controls
have been modified so that if pay increases exceed the £6 limit, no
part of the increase at all can be used to justify increasing product
prices. The higher wages can, however, be paid for by the private sector
out of profits or by reducing employment.
Beyond the controls just cited, the Government must rely on
the acceptance by the unions of the pay policy. There is some basis
for hoping that union leaders and membership have generally accepted
the necessity of this policy as an alternative to CUCS in public
expenditures. The announcements last week of a temporary subsidy to
employers in depressed regions who refrain from laying-off additional
workers, and of reduced lay-offs at British Steel, help to solidify
union support. Horeover, the high and rising level of unemployment makes
this a propitious time to introduce a policy of wage restraint. But,
clearly, moderation of wage demands, in particular of the more militant
unions, remains to be tested.
United Kingdom: Selected Economic Indicators
1974
1975
Q3
Q4
Q1
Q2
May
June
July
Production (percentage
change from preceding
period, SAAR)
a
GDP
7.1
-2.5
-1.8
-7.4
n.a.
n.a.
n.a.
Industrial production
2.7
-12.0
-3.0 -13.3
-15.3
-6.3
n.a.
Prices and Wages (percentage
change from same period
in previous year)
Retail prices
17.0
18.2
20.3
24.3
25.0
26.1
26.3
Wholesale prices
25.7
27.7
27.3
25.1
25.7
25.0
24.8
Average earnings (SA)
19.9
25.3
31.7
28.2(p)
28.4
25.4(p)
n.a.
Unemployment (Great Britain,
seasonally adjusted)
Average Level (thousands)
600
605b/
701
813
817
864
938
As per cent of employees
2.6
2.7
3.1
3.6
3.6
3.8
4.1
Money supply (percentage
change from preceding
period, SAAR)
5.6
12.9
24.3
c
M1
30
9.7
2.4
34.7
M3
16.6
8.2
10.8
9.2
19.4
-3.2
3.9
Estimate based on output data.
b/ Because of a labor dispute among civil servants, no December data were compiled.
Calculation based on average of October-November only.
c / Break in series in May 75. Q2 average estimated.
Preliminary.
- 2 -
1974
1975
Year
Q1
Q2
June
July
Current Account (£millions,
seasonally adjusted)
Balance of Merchandise Trade
-5259
-716
-450
-160
-294
of which:
Petroleum
-3446
-781
-662
-223
-234
Other
-1813
65
212
63
-60
Net services and transfers
1488
374
360
120
120
Current account balance
-3771
-342
-90
-40
-174
Official foreign reserves
($ millions)
Level at end of period
6789
7117
6198
6198
6259
Change during period
313
328
-919
-293
61
Public sector borrowing
2606
1115
369
261
69
1974
1975
3/29
6/28
9/27
12/31
3/27
6/30
9/3
Interest rates and equity
prices
3-month interbank
17.50
13.13
11.75
12.44
9.88
9.63
10.38
sterling
Yield on perpetuities
14.67
15.41
15.07
17.44
13.61
14.76
13.38
(3-1/2% War Loan)
(9/1)
Index of industrial
267.4
255.1
186.8
159.6
280.3
295.6
323.4
stock prices
(12/27)
(6/27)
(9/1)
(Financial Times
Industrial Ordinary)
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Office Correspondence
Date April 8, 1976
To
Chairman Burns
Subject: More on Congressman Stanton's
From
Charles J. Siegman JSS
Visit to London
Jim Ammerman called this morning and informed me that the
results of his efforts to arrange appointments for Congressman Stanton
for April 24 were "dreadful". The responses he received from those
to whom he spoke were basically negative.
The Treasury offered to have an official speak "by telephone"
to the Congressman. The private bankers questioned the need for Saturday
appointments and wondered why an Embassy briefing would not be sufficient.
The Bank of England did not think that it would be feasible to have someone
available on Saturday. John Kerbyshire, however, graciously offered to
host a dinner for the Congressman for Friday evening, if Congressman Stanton's
schedule would enable him to arrive in London by Friday afternoon or SO.
Kerbyshire would invite an official from the Treasury and perhaps others
for the dinner.
In view of the difficulty of scheduling appointments on Saturday,
it would seem that the Kerbyshire offer is the best solution for
Congressman Stanton if he could make it to London by Friday afternoon.
But I do not know the Congressman's itinerary to assess whether this is
feasible.
Please let me know how to proceed. Jim Ammerman would like to
inform Kerbyshire whether or not the Friday dinner is on or off. Also,
Ammerman would like to know whether Congressman Stanton would be satisfied
-2-
with a briefing from the Embassy on Saturday if he does not succeed
in making other appointments.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Office Correspondence
Date April 14, 1976
To
Chairman Burns
Subject: Follow-up on Congressman Stanton's
From
Charles J. Siegman CJS
Visit to London
Attached is a copy of a telegram from London that confirms
the arrangements made by Jim Ammerman for Congressman Stanton's visit
to London.
At the suggestion of Mrs. Mallardi, I conveyed the information
contained in the telegram to Congressman Stanton's Administrative
Assistant, Mrs. Shirlee McGloon, and asked her to request the Congressman's
approval of the proposed arrangements. Mrs. McGloom called me this
morning, and informed me that Congressman Stanton is satisfied with the
arrangements, but that he is not able to make the suggested meeting with
two commercial bankers on Saturday morning at 11 a.m.
I informed Jim Ammerman that Congressman Stanton is pleased
with the dinner and meetings arranged for him, but that he regrets
that he is unable to meet with the commercial bankers. I also notified
Ammerman that Congressman and Mrs. Stanton have changed their flight
from Dublin and now are scheduled to arrive in London at 3:30 p.m. on
April 23. Finally since Congressman Stanton is leaving Washington on
April 19th, I requested Ammerman to inform the Embassy control officer
handling the Congressman's visit in London of the location and time of the
Kerbyshire dinner, and that the Congressman expects to receive this
information upon his arrival.
un
in
CTS
OF STATE
*
of STATE AMERICA UNITED
Department of State
TELEGRAM
II
CCD
UNCLASSIFIED 2431
PAGE 01 LONDON 05572 091654Z
22-12
ACTION FRB-01
ACTION COPY
INFO OCT-01 EUR-12 ISO-00 H-02 EB-07 TRSE-00 SS-15 NSC-05
1043 W
R 0916467 APR 9 76
130945
FM AMEMBASSY LONDON
TO SECSTATE WASHDC 0657
Please return
UNCLAS LONDON
95572
International Information to Conder
DEPARTMENT PASS CHARLES SEIGMUND, FEDERAL RESERVE BOARD
FROM AMMERMAN
E.O. 11652: N/A
TAGS: OVIP
SUBJECT: VISIT OF CONGRESSMAN AND MRS. J. WILLIAM STANTON
1. KIRBYSHIRE, BANK OF ENGLAND, CONFIRMS HE WILL BE
PLEASED TO HOST STAG WORKING DINNER FOR CONGRESSMAN
STANTON, FRIDAY EVENING APRIL 23. HE PLANS INVITE AN HM
TREASURY OFFICIAL AND, IN AMMERMAN'S ABSENCE, ASSISTANT
FINANCIAL ATTACHE SWOFFORD.
2. EMBASSY OFFICERS WIILL PROVIDE POLITICAL/ECONOMIC
BRIEFING FOR CONGRESSMAN AND MRS. STANTON SATURDAY MORN-
ING, APRIL 24,
3. MESSRS. FRANK GOODHUE, NATIONAL CITY BANK OF CLEVE-
LAND AND SAM MARSHALL, UNION COMMERCE BANK OF CLEVELAND,
HAVE VOLUNTEERED TO GIVE CONGRESSMAN BRIEFING ON SATURDAY
MORNING, APRIL 24. BOTH THESE MEN ARE HIGHLY RESPECTED
AND KNOWLEDGEABLE, FINANCIAL ATTACHE RECUMMENDS ACCEP-
TANCE ON CONGRESSMAN'S BEHALF. PLEASE ADVISE.
4, WE PLAN SCHEDULE SATURDAY MORNING APPOINTMENTS IN
PARA 2 AND 3 AT EMBASSY AT 10:00 A.M. AND 11:00 A.M.,
GERALD FORD LIBRARY
RESPECTIVELY. LOGISTICAL DETAILS FRIDAY
DINNER WILL BE CONFIRMED LATER.
ARMSTRONG
UNCLASSIFIED
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Office Correspondence
Date June 22, 1976
To Chairman Burns
Subject: U.K. Inflation and Public
From Charles J. Siegman CJS
Sector Borrowing Requirements
Attached as requested are two copies of a note, two tables
and one graph that presents basic data for the 1965-76 period on
inflation, earnings, exchange rates, and public sector borrowing
requirements for the United Kingdom. The material was prepared by
David Howard.
Attachments.
June 22, 1976
U.K. Inflation and the Public Sector Borrowing Requirement
Inflation
Table 1 presents the rates of inflation in retail prices,
wholesale prices, average earnings, and the rate of change in the
exchange rate for sterling against the dollar for 1965-1976. The
attached graph shows the rates of inflation in retail prices and
average earnings for the 1971-1976 period.
-- In the mid-1960's, U.K. wage and price inflation rates were relatively
moderate, but started to accelerate in the early 1970's.
-- U.K. inflation rates were high even before the oil price rise
at the end of 1973 but have increased significantly until recently.
-- A slowing in price inflation began around the third quarter of
1975, before the deceleration in wage inflation and at the
time the £6 limit to wage increases took effect.
-- It is not expected that the rate of price inflation will be reduced
below 10 per cent until at least mid-1977.
Public Sector Borrowing Requirement
Table 2 presents some data on the size of the public sector
borrowing requirement in relation to nominal gross domestic product,
total public expenditure, and total public sector revenue
for calendar years during the 1965-1975 period.
The public sector account includes central government, local
government, and nationalized industries. The public sector borrowing
requirement is the public sector financial deficit plus government
net lending to other sectors. Government net lending to other sectors
is forecast to be £1.4 billion in the current fiscal year.
Percentage Changes in Retail Prices and Average Earnings
(Three-Quarter Moving Average at Annual Rate)
Percentage
Change
40
40
Average
Earnings*
(s.a.)
30
30
20
20
Retail Prices
(excluding
seasonal food)
10
10
0
0
1971
1972
1973
1974
1975
#Note: The 1974:1 number for average earnings reflects the 3-day
work week.
GERALD
LIBRARY
- 2 -
-- The relative size of the public sector borrowing requirement
has grown during the 1970's, as has the relative size of the
public sector (as measured by total public expenditures, i.e.,
including capital expenditures for nationalized industries).
-- In 1973 and 1974, even though the unemployment rate had decreased
from its 1972 level, the relative size of the borrowing requirement
continued to increase.
-- The borrowing requirement for the current fiscal year that began
April 1 is expected to be about £12 billion, about 10 per cent
of nominal gross domestic product.
TABLE 1
United Kingdom: Price, Wage, and Exchange Rate Developments (1965-1976)
Average Earnings
Retail Prices
Wholesale Prices
in Great Britain (SA)
Dollar Price of Sterling
Percentage
Percentage
Percentage
Percentage
Index
Change
Change
Change
Change
(excluding
over Previous
over Previous
over Previous
over Previous
seasonal
Period
Period
Period
Period
food)
(annual rate)
Index
(annual rate)
Index
(annual rate)
Average
(annual rate)
1965
80.2
4.6
83.3
3.7
74.1
7.1
2.7959
0.1
1966
83.2
3.7
85.6
2.8
79.0
6.6
2.7930
-0.1
1967
85.2
2.4
86.5
1.1
81.8
3.6
2.7504
-1.5
1968
89.3
4.8
89.9
3.9
88.2
7.8
2.3935
-13.0
1969
93.9
5.2
93.4
3.9
95.2
7.8
2.3901
-0.1
1970
100.0
6.5
100.0
7.1
106.7
12.1
2.3959
0.2
1971
109.5
9.5
109.0
9.0
118.7
11.3
2.4442
2.0
1972
117.0
6.8
114.8
5.3
134.1
13.0
2.5008
2.3
1973
126.7
8.3
123.2
7.3
152.1
13.4
2.4510
-2.0
1974
147.0
16.0
152.0
23.4
178.8
17.5
2.3403
-4.5
1975
182.6
24.2
188.7
24.1
226.5
26.7
2.2216
-5.1
1971:
1
105.6
10.1
106.3
11.7
114.9
11.2
2.4142
4.2
2
109.0
13.5
108.7
9.3
117.1
7.9
2.4185
0.7
3
110.9
7.2
110.3
6.0
120.4
11.8
2.4413
3.8
4
112.3
5.1
110.8
1.8
122.5
7.2
2.5042
10.7
1972:
1
113.9
5.8
112.1
4.8
126.4
13.3
2.5979
15.8
2
115.9
7.2
113.5
5.1
130.5
13.6
2.5968
-0.2
3
117.8
6.7
115.6
7.6
135.0
14.5
2.4455
-21.3
4
120.7
10.2
118.0
8.6
141.8
21.7
2.3637
-12.7
1973:
1
122.2
5.1
119.5
5.2
144.0
6.4
2.4181
9.5
2
125.2
10.2
120.1
2.0
149.6
16.5
2.5302
19.9
3
127.7
8.2
124.2
14.4
154.7
14.3
2.4790
-7.9
4
131.8
13.5
129.1
16.7
159.8
13.9
2.3787
-15.2
1974:
1
137.2
17.4
138.3
31.7
159.1
-1.7
2.2792
-15.7
2
145.3
25.8
148.9
34.4
170.1
30.7
2.3977
22.5
3
149.4
11.8
156.1
20.8
185.5
41.4
2.3516
-7.5
4
156.1
19.2
164.9
25.5
200.3
35.9
2.3294
-3.7
1975:
1
165.6
26.7
176.0
29.8
209.6
19.9
2.3913
11.1
2
180.7
41.8
186.3
25.5
218.1
17.2
2.3246
-10.7
3
188.7
18.9
193.4
16.1
234.5
33.6
2.1283
-29.7
4
195.2
14.5
199.1
12.3
243.9
17.0
2.0419
-15.3
1976:
1
200.9
12.2
206.8
16.4
250.8
11.8
1.9961
-8.7
TABLE 2
United Kingdom: Public Sector Borrowing Requirement (PSBR) (1965-1975)
Memoranda
PSBR as a percentage of:
Total Public
Nominal
Expenditure as a
Calendar
GDP at
Total Public
Total Public
Percentage of GDP
Unemployment
Year
£ Million
Market Prices
Expenditure
Sector Revenue
at Market Prices
Rate
1965
1,205
3.4
8.5
9.3
39.7
1.4
1966
961
2.5
6.3
6.7
40.3
1.5
1967
1,862
4.6
10.6
11.9
43.7
2.3
1968
1,279
2.9
6.7
7.2
44.1
2.4
1969
-466
-1.0
-2.4
-2.3
42.7
2.4
1970
-18
-0.0
-0.1
-0.1
43.1
2.6
1971
1,371
2.4
5.6
6.0
43.0
3.4
1972
2,038
3.2
7.4
8.0
43.6
3.7
1973
4,176
5.8
13.0
15.0
44.9
2.6
1974
6,356
7.8
15.2
17.9
51.6
2.6
1975
10,464
10.3
19.4
24.0
53.1
4.0
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Office Correspondence
Date June 22, 1976
To Chairman Burns
Subject: U.K. Inflation and Public
From Charles J. Siegman CJS
Sector Borrowing Requirements
Attached as requested are two copies of a note, two tables
and one graph that presents basic data for the 1965-76 period on
inflation, earnings, exchange rates, and public sector borrowing
requirements for the United Kingdom. The material was prepared by
David Howard.
Attachments.
June 22, 1976
U.K. Inflation and the Public Sector Borrowing Requirement
Inflation
Table 1 presents the rates of inflation in retail prices,
wholesale prices, average earnings, and the rate of change in the
exchange rate for sterling against the dollar for 1965-1976. The
attached graph shows the rates of inflation in retail prices and
average earnings for the 1971-1976 period.
-- In the mid-1960's, U.K. wage and price inflation rates were relatively
moderate, but started to accelerate in the early 1970's.
-- U.K. inflation rates were high even before the oil price rise
at the end of 1973 but have increased significantly until recently.
-- A slowing in price inflation began around the third quarter of
1975, before the deceleration in wage inflation and at the
time the £6 limit to wage increases took effect.
-- It is not expected that the rate of price inflation will be reduced
below 10 per cent until at least mid-1977.
Public Sector Borrowing Requirement
Table 2 presents some data on the size of the public sector
borrowing requirement in relation to nominal gross domestic product,
total public expenditure, and total public sector revenue
for calendar years during the 1965-1975 period.
The public sector account includes central government, local
government, and nationalized industries. The public sector borrowing
requirement is the public sector financial deficit plus government
net lending to other sectors. Government net lending to other sectors
is forecast to be £1.4 billion in the current fiscal year.
- 2 -
-- The relative size of the public sector borrowing requirement
has grown during the 1970's, as has the relative size of the
public sector (as measured by total public expenditures, i.e.,
including capital expenditures for nationalized industries).
-- In 1973 and 1974, even though the unemployment rate had decreased
from its 1972 level, the relative size of the borrowing requirement
continued to increase.
-- The borrowing requirement for the current fiscal year that began
April 1 is expected to be about £12 billion, about 10 per cent
of nominal gross domestic product.
TABLE 1
United Kingdom: Price, Wage, and Exchange Rate Developments (1965-1976)
Average Earnings
Retail Prices
Wholesale Prices
in Great Britain (SA)
Dollar Price of Sterling
Percentage
Percentage
Percentage
Percentage
Index
Change
Change
Change
Change
(excluding
over Previous
over Previous
over Previous
over Previous
seasonal
Period
Period
Period
Period
food)
(annual rate)
Index
(annual rate)
Index
(annual rate)
Average
(annual rate)
1965
80.2
4.6
83.3
3.7
74.1
7.1
2.7959
0.1
1966
83.2
3.7
85.6
2.8
79.0
6.6
2.7930
-0.1
1967
85.2
2.4
86.5
1.1
81.8
3.6
2.7504
-1.5
1968
89.3
4.8
89.9
3.9
88.2
7.8
2.3935
-13.0
1969
93.9
5.2
93.4
3.9
95.2
7.8
2.3901
-0.1
1970
100.0
6.5
100.0
7.1
106.7
12.1
2.3959
0.2
1971
109.5
9.5
109.0
9.0
118.7
11.3
2.4442
2.0
1972
117.0
6.8
114.8
5.3
134.1
13.0
2.5008
2.3
1973
126.7
8.3
123.2
7.3
152.1
13.4
2.4510
-2.0
1974
147.0
16.0
152.0
23.4
178.8
17.5
2.3403
-4.5
1975
182.6
24.2
188.7
24.1
226.5
26.7
2.2216
-5.1
1971:
1
105.6
10.1
106.3
11.7
114.9
11.2
2.4142
4.2
2
109.0
13.5
108.7
9.3
117.1
7.9
2.4185
0.7
3
110.9
7.2
110.3
6.0
120.4
11.8
2.4413
3.8
4
112.3
5.1
110.8
1.8
122.5
7.2
2.5042
10.7
1972:
1
113.9
5.8
112.1
4.8
126.4
13.3
2.5979
15.8
2
115.9
7.2
113.5
5.1
130.5
13.6
2.5968
-0.2
3
117.8
6.7
115.6
7.6
135.0
14.5
2.4455
-21.3
4
120.7
10.2
118.0
8.6
141.8
21.7
2.3637
-12.7
1973:
1
122.2
5.1
119.5
5.2
144.0
6.4
2.4181
9.5
2
125.2
10.2
120.1
2.0
149.6
16.5
2.5302
19.9
3
127.7
8.2
124.2
14.4
154.7
14.3
2.4790
-7.9
4
131.8
13.5
129.1
16.7
159.8
13.9
2.3787
-15.2
1974:
1
137.2
17.4
138.3
31.7
159.1
-1.7
2.2792
-15.7
2
145.3
25.8
148.9
34.4
170.1
30.7
2.3977
22.5
3
149.4
11.8
156.1
20.8
185.5
41.4
2.3516
-7.5
4
156.1
19.2
164.9
25.5
200.3
35.9
2.3294
-3.7
1975:
1
165.6
26.7
176.0
29.8
209.6
19.9
2.3913
11.1
2
180.7
41.8
186.3
25.5
218.1
17.2
2.3246
-10.7
3
188.7
18.9
193.4
16.1
234.5
33.6
2.1283
-29.7
4
195.2
14.5
199.1
12.3
243.9
17.0
2.0419
-15.3
1976:
1
200.9
12.2
206.8
16.4
250.8
11.8
1.9961
-8.7
Percentage Changes in Retail Prices and Average Earnings
(Three-Quarter Moving Average at Annual Rate)
Percentage
Change
40
40
Average
Earnings*
(s.a.)
30
30
20
20
Retail Prices
(excluding
seasonal food)
10
10
0
0
1971
1972
1973
1974
1975
*Note: The 1974:1 number for average earnings reflects the 3-day
work week.
GERALD FORD LIBRARY
TABLE 2
United Kingdom: Public Sector Borrowing Requirement (PSBR) (1965-1975)
Memoranda
PSBR as a percentage of:
Total Public
Nominal
Expenditure as a
Calendar
GDP at
Total Public
Total Public
Percentage of GDP
Unemployment
Year
£ Million
Market Prices
Expenditure
Sector Revenue
at Market Prices
Rate
1965
1, 205
3.4
8.5
9.3
39.7
1.4
1966
961
2.5
6.3
6.7
40.3
1.5
1967
1,862
4.6
10.6
11.9
43.7
2.3
1968
1,279
2.9
6.7
7.2
44.1
2.4
1969
-466
-1.0
-2.4
-2.3
42.7
2.4
1970
-18
-0.0
-0.1
-0.1
43.1
2.6
1971
1,371
2.4
5.6
6.0
43.0
3.4
1972
2,038
3.2
7.4
8.0
43.6
3.7
1973
4,176
5.8
13.0
15.0
44.9
2.6
1974
6,356
7.8
15.2
17.9
51.6
2.6
1975
10,464
10.3
19.4
24.0
53.1
4.0
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Office Correspondence
Date June 24, 1976
To Chairman Burns
Subject:
From Charles J. Siegman CJS
Attached is the revision of the note, tables and graph
on U.K. inflation and government budget deficits.
Attachment.
U.K. Inflation and the Government Budget Deficit
Inflation
Table 1 presents the rates of inflation in retail prices,
wholesale prices, average earnings, and the rate of change in the
exchange rate for sterling against the dollar for 1965-1976. The
attached graph shows the rates of inflation in retail prices and
average earnings for the 1971-1976 period.
-- In the mid-1960's, U.K. wage and price inflation rates were
relatively moderate, but started to rise in the early 1970's.
-- U.K. inflation rates were high even before the oil price rise
at the end of 1973 but have increased significantly until
recently.
-- A slowing in price inflation began around the third quarter of
1975, before a decline in wage inflation and at the time a
limit on wage increases took effect.
-- It is not expected that the rate of price inflation will be
reduced below 10 per cent until at least mid-1977.
Government Budget Deficit -- Public Sector Borrowing Requirement
In the United Kingdom, the public sector includes central
government, local government, and nationalized industries. The deficit
of this sector is referred to as the public sector borrowing requirement.
Table 2 presents data on the size of the public sector borrowing
requirement in relation to nominal gross domestic product (roughly
equivalent to GNP), total public expenditure, and total public sector
revenue for calendar years during the 1965-1975 period.
- 2 -
-- The relative size of the public sector borrowing requirement
has grown during the 1970's, as has the relative size of the
public sector (as measured by total public expenditures, i.e.,
including capital expenditures for nationalized industries).
-- In 1973 and 1974, even though the unemployment rate had decreased
from its 1972 level, the relative size of the borrowing requirement
continued to increase.
-- The borrowing requirement for the current fiscal year that began
April 1 is expected to be about £12 billion, about 10 per cent
of nominal gross domestic product.
TABLE 1
United Kingdom: Price, Wage, and Exchange Rate Developments (1965-1976)
Average Earnings
Retail Prices
Wholesale Prices
in Great Britain (SA)
Dollar Price of Sterling
Percentage
Percentage
Percentage
Percentage
Index
Change
Change
Change
Change
(excluding
over Previous
over Previous
over Previous
over Previous
seasonal
Period
Period
Period
Period
food)
(annual rate)
Index
(annual rate)
Index
(annual rate)
Average
(annual rate)
1965
80.2
4.6
83.3
3.7
74.1
7.1
2.80
0.1
1966
83.2
3.7
85.6
2.8
79.0
6.6
2.79
-0.3
1967
85.2
2.4
86.5
1.1
81.8
3.6
2.75
-1.4
1968
89.3
4.8
89.9
3.9
88.2
7.8
2.39
-13.1
1969
93.9
5.2
93.4
3.9
95.2
7.8
2.39
0.0
1970
100.0
6.5
100.0
7.1
106.7
12.1
2.40
0.4
1971
109.5
9.5
109.0
9.0
118.7
11.3
2.44
1.7
1972
117.0
6.8
114.8
5.3
134.1
13.0
2.50
2.5
1973
126.7
8.3
123.2
7.3
152.1
13.4
2.45
-2.0
1974
147.0
16.0
152.0
23.4
178.8
17.5
2.34
-4.5
1975
182.6
24.2
188.7
24.1
226.5
26.7
2.22
-5.1
1972:
1
113.9
5.8
112.1
4.8
126.4
13.3
2.60
15.8
2
115.9
7.2
113.5
5.1
130.5
13.6
2.60
0.0
3
117.8
6.7
115.6
7.6
135.0
14.5
2.45
-21.2
4
120.7
10.2
118.0
8.6
141.8
21.7
2.36
-13.9
1973:
1
122.2
5.1
119.5
5.2
144.0
6.4
2.42
10.6
2
125.2
10.2
120.1
2.0
149.6
16.5
2.53
19.5
3
127.7
8.2
124.2
14.4
154.7
14.3
2.48
-7.7
4
131.8
13.5
129.1
16.7
159.8
13.9
2.38
-15.2
1974:
1
137.2
17.4
138.3
31.7
159.1
-1.71/
2.28
-15.8
2
145.3
25.8
148.9
34.4
170.1
30.7
2.40
22.8
3
149.4
11.8
156.1
20.8
185.5
41.4
2.35
-8.1
4
156.1
19.2
164.9
25.5
200.3
35.9
2.33
-3.4
1975: 1
165.6
26.7
176.0
29.8
209.6
19.9
2.39
10.7
2
180.7
41.8
186.3
25.5
218.1
17.2
2.32
-11.2
3
188.7
18.9
193.4
16.1
234.5
33.6
2.13
-28.9
4
195.2
14.5
199.1
12.3
243.9
17.0
2.04
-15.9
1976:
1
200.9
12.2
206.8
16.4
250.8
11.8
2.00
- 7.6
The decline in average earnings for the first quarter of 1974 reflects a three-day work week associated
with a miners' strike.
United Kingdom: Retail Prices and Average Earnings, 1971-1975
(Percentage change over preceding half-year at annual rate)
Percentage
Change
40
40
1
30
Earnings
30
20
20
Prices
10
10
O
O
1971
1972
1973
1974
1975
TABLE 2
United Kingdom: Public Sector Borrowing Requirement and Related Data (1965-1975)
Public Sector
Public Sector Borrowing Requirement
Borrowing
as a Percentage of:
Total Public
Calendar
Requirement
Nominal
Total Public
Total Public
Expenditure as a
Unemployment
Year
(£ Million)
GDP
Expenditure
Sector Revenue
Percentage of GDP
Rate
1965
1,205
3.4
8.5
9.3
39.7
1.4
1966
961
2.5
6.3
6.7
40.3
1.5
1967
1,862
4.6
10.6
11.9
43.7
2.3
1968
1,279
2.9
6.7
7.2
44.1
2.4
1969
-466
-1.0
-2.4
-2.3
42.7
2.4
1970
-18
-0.0
-0.1
-0.1
43.1
2.6
1971
1,371
2.4
5.6
6.0
43.0
3.4
1972
2,038
3.2
7.4
8.0
43.6
3.7
1973
4,176
5.8
13.0
15.0
44.9
2.6
1974
6,356
7.8
15.2
17.9
51.6
2.6
1975
10,464
10.3
19.4
24.0
53.1
4.0
Fiscal Years
(beginning
April 1)
1975/76
10,546
9.7e
1976/77
11,962e
9.5e
e = estimate.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Omce Correspondence
Date September 8, 1976
To
Chairman Burns
Subject: Labor Disputes in the
From
Charles J. Siegman CJS
United Kingdom
Attached as requested is a note prepared by David Howard
on the elements of contention in the current labor disputes in the
United Kingdom.
Attachment.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Office Correspondence
Date September 8, 1976
To
Mr. Siegman
Subject: Labor Disputes in the United
From David H. Howard
Kingdom
British Leyland
During the last several days, British Leyland -- the mostly
government-owned auto producer -- has suffered several strikes that have
hindered production. The strikes appear to be unrelated and mostly
consist of fairly small groups of workers walking out over some grievance
at various plants (see below for examples). However, the group's
absence disrupts production and leads to the company's laying-off all
or most of the rest of the workforce at the particular plant. Examples
of the reasons given for the strikes are: The dismissal of four
GERALDO
shop stewards for holding an unauthorized meeting; the geographic
location of a new paint shop; extra sickness benefits; and pay-demands
in excess of incomes-policy guidelines. The strikes have not been
authorized by union leaders. It is estimated that some 20, 000 workers
in all have been laid off due to the disputes.
Seamen's Union
The results of a ballot of the members of the U.K. seamen's
union were announced on September 6. The membership voted -- by a narrow
margin -- in favor of industrial action (including the possibility of
a strike) to support a wage claim that both the government and the Trades
Union Congress believe to be in violation of the guidelines established
in the U.K. incomes policy. On September 8, the executive council of
the seamen's union voted unanimously for a national strike to begin at
midnight on September 11. The strike, involving some 38, 000 seamen,
will probably halt British shipping.
GERALD R. FORD LIBRARY
This form marks the file location of item number
la-lb
I
as listed on the pink form (GSA Form 7122, Withdrawal Sheet)
at the front of the folder.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Office Correspondence
Date
October 22, 1976
To
Chairman Burns
Subject: Speeches by Governor Richardson and
From
Charles J. Siegman CJS
Chancellor Healey on the U.K. economic
situation
You may be interested to note the attached Reuters
reports on speeches by Governor Richardson and Chancellor Healey
on the U.K. economic situation and policy. Governor Richardson
calls for a lower British money supply target and suggests
consideration of a more rapid reduction in the public sector
borrowing requirement. He also suggests that the United Kingdom
should look at the experience of other countries especially that
of the United States, in formulating monetary targets.
Chancellor Healey rejected calls for a massive deflation
of the British economy, but indicated that the United Kingdom may
need to move more rapidly towards achieving a balanced economy.
He also ruled out the introduction of generalized import controls,
but added that the U.K. Government will be watching particular cases
where it may be necessary to control low cost imports.
Attachment
cc: Gov. Wallich
NNNN
2148 : RICHARDSON URGES LOWER BRITISH MONEY
SUPPLY TARGET:
LONDON, OCT 21 BANK OF ENGLAND GOVERNOR
GORDON RICHARDSON CALLED HERE FOR A REDUCTION
IN THE GOVERMENT'S CURRENT FISCAL YEAR
MONEY SUPPLY (M-3) TARGET OF 12 PCT DURING
THE NEXT FINANCIAL YEAR BEGINNING IN APRIL
1977.
IN A SPEECH AT THE LORD MAYOR'S
BANQUET FOR BANKERS AND MERCHANTS, RICHARDSON
ALSO SUGGESTED IT BE USEFUL TO ADOPT THE
US POLICY OF REDEFINING MONEY SUPPLY TARGETS
PERIODICALLY.
HE ALSO QUESTIONED WHETHER THE PUBLIC
SECTOR BORROWING REQUIREMENT SHOULD BE
REDUCED MORE RAPIDLY THAN CURRENCTLY
ANTICIPATED.
REUTER
2153 :RICHARDSON URGES 2 LONDON:
RICHARDSON SAID "WE LIVE AT A TIME OF ALL-
PERVASIVE INFLATIONARY DANGER. THAT BEING 50,
I THINK IT MUST BE RIGHT TO AIM PUBLICLY FOR A
GROWTH IN MONEY SUPPLY WHICH WILL ACCOMMODATE A
REALISTIC RATE OF ECONOMIC GROWTH BUT NOT
ACCOMMODATE, MORE THAN IN PART, THE RATE OF
INFLATION. II
THE TARGET FOR THE GROWTH OF M-3 IS
CURRENTLY 12 PCT, HE NOTED. "NEXT FINANCIAL YEAR
IT OUGHT TO BE LOWER THAN THAT.
"OVER THE PAST FEW WEEKS, BY RAISING
INTEREST RATES AND CALLING FOR SPECIAL DEPOSITS,
WE HAVE DEMONSTRATED OUR DETERMINATION TO
KEEP WITHIN THE LIMIT SET. il
MORE
GERALD FORD LIBRARY
NNNN
2206 RICHARDSON URGES 3 LONDON:
BRITAIN'S MINIMUM LENDING RATE WAS RAISED
TO 15 PCT FROM 13 PCT ON OCTOBER 7. AT THE
SAME TIME THE BANK OF ENGLAND MADE A SPECIAL
DEPOSITS CALL OF TWO PCT.
RICHARDSON POINTED OUT THAT ONE PURPOSE
OF THE MEASURES WAS TO SECURE ADEQUATE OFFICIAL
SALES OF PUBLIC SECTOR DEBT TO THE GENERAL PUBLIC
TO AS TO NEUTRALISE THE CREATION OF LIQUIDITY
ARISING FROM THE PUBLIC SECTOR DEFICIT AND
THEREBY ALSO MODERATE THE RATE OF MONETARY
EXPANSION.
"DURING THE LAST MONTH WE HAVE SOLD GILT-
EDGED STOCKS ON A MASSIVE SCALE, il HE TOLD
THE BANKERS.
MORE
NNNN
2208 RICHARDSON URGES 4 LONDON:
RICHARDSON NOTED THE FIXING OF MONETARY
TARGETS IS A NEW DEVELOPMENT IN BRITAIN
"50, WHEN FORMULATING OUR MONETARY AIMS FOR
THE FINANCIAL YEAR TO COME, IT WILL, I THINK,
BE DESIRABLE TO LOOK IN DETAILS AT THE METHODS
USED IN SOME OTHER COUNTRIES.
"IN PARTICULAR IT WOULD BE USEFUL TO
CONSIDER THE PRACTICE OF THE UNITED STATES
UNDER WHICH TARGETS ARE REDEFINED PERIODICALLY,
MORE ESPECIALLY IF THIS CAN BE DONE AT TIMES
WHEN WE ARE ABLE TO REVIEW THE WHOLE MIX OF
POLICY. =
GERALOR FORD LIBRARY
MONETARY, FISCAL AND INCOMES POLICY EACH
your THEID DODT TO PLAY DI AND SHOULD FORM R
NNNN
2210 : RICHARDSON URGES 5 LONDON:
"AT PRESENT THERE IS, UNDENIABLY, A GROWING
QUESTION OVER THE BALANCE BETWEEN OUR MONETARY
AND FISCAL STANCES, RICHARDSON SAID.
"THE RECORD LEVEL OF INTEREST RATES
REFLECTS IN LARGE PART THE DIFFICULTY OF
FINANCING, WITHOUT EXCESSIVE MONETARY EXPANSION,
THE PRESENT PUBLIC BORROWING REQUIREMENT.
"THE CURRENT STANCE OF MONETARY POLICY
WILL HAVE TO CONTINUE FOR THE TIME BEING.
BUT IT IS FAR FROM COSTLESS AND IF INTEREST
RATES REMAIN 50 HIGH FOR LONG THEY WILL BEGIN
TO BE A POWERFUL DETERRENT TO INVESTMENT, ONLY
NOW SHOWING SIGNS OF RECOVERY.
MORE
NNNN
2212 :RICHARDSON URGES 6 LONDON:
"IN THAT CASE, AS THE CHANCELLOR (OF THE
EXCHEQUER DENIS HEALEY) HAS POINTED OUT,
ONE WOULD HAVE TO ASK WHETHER THIS IMPACT ON
INDUSTRIAL REVIVAL WAS ACCEPTABLE OR WHETHER
PUBLIC SECTOR BORROWING SHOULD NOT BE REDUCED
MORE RAPIDLY 50 AS TO PROVIDE MORE SCOPE FOR
THE BORROWING OF INDUSTRY, RICHARDSON
CONTINUED.
BRITAIN'S BALANCE OF PAYMENTS IS AN
ADDITIONAL REASON FOR ASKING WHETHER A QUICKER
REDUCTION OF PUBLIC BORROWING WILL NOT BE NEEDED,
HE SAID.
"THE BALANCE OF PAYMENTS IS NO DOUBT SET
TO IMPROVE, MORE ESPECIALLY OVER H SPAN OF YEARS.
BUT WE NEED EARLY EVIDENCE OF SUCH IMPROVEMENT.
IF IT REQUIRES A FURTHER DEGREE OF AUSTERITY TO
FORD
GUARANTEE THIS, [ BELIEVE WE SHALL HAVE NO
CHOICE BUT TO ACCEPT IT, RICHARDSON ADDED.
GERALD
LIBRARY
REUTER
2103 HEALEY REJECTS CALLS FOR MASSIVE
DEFLATION:
LONDON, OCT 21 " UK CHANCELLOR OF THE
EXCHEQUER DENIS HEALEY REJECTED CALLS FOR A
MASSIVE DEFLATION OF THE BRITISH ECONOMY
WHILE STATING THAT THE GOVERNMENT NIGHT HAVE
TO INCREASE THE SPEED WITH WHICH IT NOVES
TOWARDS THE GOAL OF A BALANCED ECONOMY.
IN A SPEECH PREPARED FOR DELIVERY
TO BUSINESSMEN AND BANKERS GIVEN BY THE LORD
MAYOR OF. LONDON HE RULED OUT GENERALISED
IMPORT CONTROLS BUT WARNED THAT THE
GOVERNMENT WILL CONTINUE TO WATCH FOR CASES
WHERE FURTHER ACTION IS NEEDED TO CONTROL
LOW COST IMPORTS.
NNNN
2107 HEALEY REJECTS 2 LONDON:
THOSE SEEKING R FUNDAMENTAL CHANGE OF
DIRECTION IN GOVERNMENT ECONOMIC POLICY HAVE
FAILED TO THINK THROUGH THE CONSEQUENCES
OF WHAT THEY RECOMMEND, HE SAID.
THE OBJECTIVE OF GOVERNMENT POLICY MUST
BE THE SPEEDIEST RETURN TO FULL EMPLOYMENT,
BUT THIS CAN BE ACHIEVED AND SUSTAINED ONLY
IF INFLATION IS MASTERED AND MUST GO
HAND-IN-HAND WITH A RETURN TO EQUILIBRIUM
IN BRITAIN'S BALANCE OF PAYMENTS, HE SAID.
IN A SPEECH WHICH MADE NO REFERENCE TO
BRITAIN'S INTENTION TO BORROW 3.9 BILLION
DLRS FROM THE INTERNATIONAL MONETARY FUND,
HEALEY SAID "TO CUT THE BUDGET DEFICIT BY
FIVE BILLION STG FOR THE NEXT FINANCIAL YEAR
(AS SOME COMMENTATORS HAVE SUGGESTED),
WOULD REQUIRE CUTS IN SOCIAL BENEFITS AND
SUBSIDIES AND R STUPENDOUS INCREASE IN
2117 HEALEY REJECTS 3 LONDON:
HEALEY CONTINUED IT IS NOT POSSIBLE
TO CUT EXPENDITURE ON GOODS AND SERVICES
BY 50 MUCH IN 50 SHORT A TIME.
THE EFFECT WOULD BE TO CUT THE STANDARD
OF LIVING BY SOME 10 PCT OR MORE LARGELY
THROUGH AN INCREASE IN RETAIL PRICES,
AND TO REDUCE OUR NATIONAL OUTPUT BY
SOME FIVE PCT COMPARED WITH WHAT IT MIGHT
FORD
HAVE BEEN.
THIS WOULD ULTIMATELY ADD PERHAPS
GERALD
LISTREY
ONE MILLION TO THE RANKS OF THE UNEMPLOYED,
HE SAID. IN SPTEMBER UK UNEMPLOYMENT
STOOD AT 1.46 MLN UNADJUSTED OR 6.2 PCT
OF THE WORKING POPULATION.
2130 :REPEAT - HEAL
JECTS 4 LONDON:
"THE SPONSORES OF THIS POLICY OBVIOUSLY
REGARD THAT AS A PRICE WORTH PAYING FOR WHAT
THEY SEE AS FISCAL RECTITUDE, II HEALEY SAID.
"BUT i WONDER HOW MANY HERE TONIGHT REALLY
BELIEVE THAT THIS COULD HAPPEN WITHOUT WIDE-
SPREAD INDUSTRIAL DISRUPTION, A WAGE EXPLOSION,
AND A COLLAPSE IN CONFIDENCE THROUGHOUT THE
ECONOMY JUST AT THE MOMENT IT IS BEGINNING
TO REVIVE. OUR PROBLEMS ARE SERIOUS ENOUGH
WITHOUT SUCH SELF-INFLICTED WOUNDS.
"WE MAY STILL HAVE TO INCREASE THE SPEED
WITH WHICH WE MOVE TOWARDS OUR GOAL (OF BALANCE
IN THE ECONOMY). BUT WE CANNOT HOPE TO MAKE THE
DIFFICULT ADJUSTMENTS THIS MAY REQUIRE UNLESS
WE CAN MAINTAIN THE SUPPORT AND UNDERSTANDING
OF THOSE WHO ACTUALLY PRODUCE OUR NATION'S
WEALTH, ii HERLEY SAID.
MORE
NNNN
2124 HEALEY REJECTS 5 LONDON:
THE GOVERNMENT IS READY TO MAKE WHATEVER
ADJUSTMENTS ARE NECESSARY TO ENSURE STEADY AND
SUTAINED PROGRESS TOWARDS THE BALANCE IT SEEKS,
HEALEY SAID.
HE POINTED OUT "THERE MUST BE FEW, IF ANY,
OTHER COUNTRIES WHICH ARE PLANNING NO INCREASE
IN THEIR PUBLIC EXPENDITURE OVER THE NEXT THO THREE
YEARS AND ARE ACTUALLY CUTTING IT IN REAL TERMS
NEXT YEAR.
"THE NEW TECHNIQUES WE HAVE ADOPTED FOR
(234)
ENSURING THAT EXPENDITURE STAYS WITHIN THE
LIMITS SET WILL, I BELIEVE, PROVE MORE EFFECT-
IVE THAN THIS COUNTRY HAS YET KNOWN. IT HAS
ALREADY HAD THE MOST DRAMATIC EFFECT ON LOCAL
FORD
AUTHORITY EXPENDITURE -- HITHERTO THE MOST
REFRACTORY OF ALL AREAS OF PUBLIC SPENDING. B
GERALD
LIBRARY
MORE
2128 : HEALEY REJECTS 6 LONDON:
BRITAIN CANNOT AFFORD TO BASE ITS ECONOMIC
GROWTH ON AN INCREASE IN DOMESTIC CONSUMPTION,
HEALEY SAID.
"WE MUST BASE IT ON EXPORTS, IMPORT
SUBSTITUTION AND INVESTMENT. UNTIL WE HAVE
ELIMINATED THE DEFICIT ON OUR BALANCE OF PAYMENTS
WE CAN AFFORD NO INCREASE IN PUBLIC OR PRIVATE
SPENDING.
"ON THE CONTRARY. LIVING STANDARDS WILL
HAVE TO SUFFER A FURTHER FALL BEFORE WE ARE
PAYING OUR WAY IN THE WORLD ONCE AGAIN, # HE SAID.
MORE
2144 : HEALEY REJECTS 7 LONDON:
WHILE THE GOVERNMENT WILL RESIST THE
TEMPTATION TO INTRODUCE GENERALISED IMPORT
CONTROLS, HEALEY POINTED OUT THAT IT HAS
NEGOTIATED VOLUNTARY RESTRAINTS ON LOW COST
IMPORTS WHICH THREATENED PARTICULAR
SECTORS OF BRITISH INDUSTRY AND, WHERE
NECESSARY, HAS IMPOSED TEMPORARY SELECTIVE
IMPORT CONTROLS.
"WE SHALL CONTINUE TO WATCH FOR CASES
WHERE FURTHER ACTION IS NEEDED AND WILL NOW
BENEFIT FROM CLOSER CONTACT WITH BOTH
SIDES OF INDUSTRY IN THIS TASK, # THE
CHANCELLOR SAID.
REUTER.
LIBRATA GERALD FORD