Country Studies / economy

economy AND industry

Britain's economy is based primarily on private enterprise, which accounts for 75 per cent of output and nearly 70 per cent of employment.

Just over 2 per cent of the British workforce is en­gaged in agriculture, a lower proportion than in any other leading industrialised country. Services con­tribute a growing proportion of production, 65 per cent, while manufacturing accounts for 21 per cent.

By successfully exploiting oil and natural gas from the North Sea, Britain has become self-sufficient in energy and expects to remain so for some years. Exports, mainly to other EC countries, are equivalent to over half of domestic oil production.

International trade plays a vital role in Britain's economy. Exports of goods and services make up around 25 per cent of national output, compared with 20 per cent in the early 1960s.

economic performance

From 1981 to 1989 the economy experienced eight years of sustained growth. In 1990, with the onset of recession in Britain and other major industrialised nations, growth slowed to about 1 per cent. In 1991 output fell by nearly 2.5 per cent and by 1 per cent in 1992. The rate of inflation declined sharply in the early 1980s before rising again in 1988. By December 1992, it had dropped to 2.6 per cent.

The number of people in employment increased by 3.3 million in the seven years to mid-1990. It has subsequently declined, to 25 million. From 1979 to 1990 self employment rose every year, but in 1991 and 1992 it fell, reaching 3 million by September 1992. There has been a growth in unemployment since early 1990. By late 1992 it had climbed to 2.9 million, about 10 per cent of the workforce.

Growth in manufacturing productivity in Britain in the 1980s was faster than in all other leading industrialised countries, increasing by an average of 4.7 per cent a year. Productivity in the economy as a whole rose only slowly in 1991 and 1992.

economic strategy

The Government's economic strategy is centred on keeping the rate of inflation down, within a range of 1 to 4 per cent. As part of this stategy, public spending and borrowing are tightly controlled. At the same time government policy seeks to improve the working of markets and promote enter­prise and efficiency.

A substantial amount of activity has been transferred from the public to the private sector through privatisation and contracting out. Since 1979, 46 major businesses have been privatised, including British Gas, British Telecom and British Steel. -Legislation is being introduced for the privatisation of British Coal and to enable the private sector to operate rail services. The remaining major nationalised industries arc-British Coal, British Rail, the Post Office and London Transport. These are expected to act as commercial enterprises and achieve a required rate of return on new investment.

Direct controls on pay, prices, foreign exchange, dividend payments and commercial credit have been abolished. The Government has acted to improve work incentives by reducing corporate and personal income tax rates, and by increasing share ownership among employees. Industrial relations have been put on a more secure legal footing and training opportunities have been expanded.

government AND industry

The Department of Trade and Industry has specified its objectives for industrial policy as:

• working for trade liberalisation;

• promoting British exports;

• stimulating innovation;

• improving the flow of information to business;

• encouraging competition;

• working towards a light but effective framework of market regulation;

• reducing administrative burdens on business;

• consulting business and consumers when developing policy; and

• helping the less well-off regions.

Small Firms

Small businesses employ more than a third of the private sector workforce and are responsible for one-sixth of total turnover. The Government provides financial assistance and guidance to help with problems affecting small companies.

Regulation of Markets While preferring to let markets operate as freely as possible, the Government recognises that inter­vention is sometimes needed. Hence, it regulates monopolies, mergers, anti-conipetitive practices, restrictive trade practices, and resale price main­tenance. In 1991 six monopoly situations were reported on and 185 mergers qualified for investigation. Education and Training The Government takes steps to see that education and training are broadly based and that people of all ages can acquire relevant knowledge and skills. Industrial and commercial matters are being given a more prominent place in school and post-school curricula, and business people are playing a bigger role in the management of educational institutions.

The Government has established a network of business-led local bodies to supervise training, education and enterprise programmes on its behalf.

public finance

Central government raises money from individuals and companies through direct and indirect taxation. It spends money on goods and services, such as health and defence, and as payments to people, for instance, social security.

The main sources of revenue are personal income tax, corporation tax, petroleum revenue tax, inheritance tax, capital gains tax, valued added tax (VAT), and customs and excise duties.

Other sources include National Insurance contributions, vehicle excise duty and local taxes on people and businesses

industrial sectors

In some sectors of the economy, a small number of large companies are responsible for a sizeable percentage of total production, notably in the vehicle, aerospace and transport equipment indus­tries. Private business concerns account for the greater part of activity in agriculture, manu­facturing, construction, distribution, and financial and miscellaneous service sectors. Over half of companies' funds for investment are internally generated. Banks are the chief source of external finance, although firms are turning increasingly to equity finance.

Around 250 British industrial companies each have an annual turnover of more than £500 million. British Petroleum (BP) is the eleventh largest industrial grouping in the world and the second largest in Europe. Five British firms are among the leading 25 European Community companies.

The ten largest manufacturing concerns are BAT Industries (tobacco products, food, etc), Imperial Chemical Industries (ICI), Grand Metropolitan (food, drink, etc), British Aerospace, Unilever (chemicals), Hanson Trust (various). Ford, General Electric Company (GEC - electronics), British Steel, and SmithKline Beecham (pharmaceuticals).

In 1991 the largest output within manufac­turing was in electrical and instrument engineering (£13,700 million); followed by food, drink and tobacco (£13,600 million); mechanical engineering (£12,600 million); paper, printing and publishing (£11,600 million); and chemicals and synthetic fibres (£10,800 million).

The average manufacturing company is fairly small. Four-fifths employ fewer than 20 people These make up 10 per cent of the manufacturing workforce. Businesses employing more than 1,000 people, 0.4 per cent of all businesses, account for 55 per cent of employees.

Power Generation

Britain has the largest energy resources of any EC country. Almost all the country's energy is provided by oil, natural gas and coal. The electricity supply and gas industries have been privatised, with gas increasingly used to produce electricity in combined cycle gas turbine power stations. Around 20 per cent of electricity is supplied by nuclear power stations.

British companies sell a vast range of plant and equipment to the energy industries.

Offshore Industries

Britain is the world's ninth largest oil producer and the fifth largest gas producer. Developing North Sea oil and gas has created a huge support industry offering equipment and services to oil and gas companies at home and abroad.

The two leading British oil companies are BP and Shell (the latter is part Dutch). The offshore services industry recorded orders for development work worth £6,000 million in 1991, nearly 80 per cent of which went to British firms.