Economy of United Kingdom

By | May 25, 2022

According to cheeroutdoor, Great Britain is one of the largest economically developed countries in the world. In 2000, the GDP was £859.1 billion. (in prices and PPP 1995), 5th in the world after the USA, Japan, Germany and France. UK share of world GDP 3.0% (2002). In the same year, its GDP per capita was £14,000. The share of the country in international trade in recent years is 4.5 – 5%. According to this indicator, it occupies the 4th-5th place. The UK is in 2nd place after the USA in terms of accumulated foreign direct investments, in 3rd place – after the USA and Japan – in terms of the number of companies in the list of the 500 largest TNCs in the world and the market capitalization of shares. In terms of financial transactions, London is second only to New York. The capital of Great Britain ranks first in the world in terms of the number of foreign banks operating here. London is home to the world’s third largest stock exchange (after Tokyo and New York) in terms of operations. Unlike the stock markets of other European countries, which are mainly nationally oriented, securities of St. 500 TNCs – more than half of the world trade in foreign shares. London is the largest foreign exchange market, with approx. 1/3 of foreign exchange transactions in the world. London’s closest competitors – New York, Tokyo and Singapore – collectively have the same share.

Through London passes the largest volume of insurance operations and international reinsurance operations. The lion’s share of the world exchange market of metals, oil and other strategic goods is concentrated in the capital of Great Britain. For a long time, the British currency – the pound sterling – dominated the world monetary system; using the leading role of the pound in international settlements, Great Britain covered the balance of payments deficit with the national currency. Then, for a number of decades, the pound shared with the dollar the position of one of the two key currencies of the world. Having lost the position of the country that operated the key reserve currency, Great Britain for a long time claimed a special place in international monetary and credit relations. This was partly reflected in London’s reluctance to enter the con. 1990s enter the eurozone and abandon the pound in favor of the euro.

Until con. 1980s The UK economy developed more slowly than its main competitors. In the 1990s the situation has improved. In 2002, the country’s economy continued to rise, which began in 1993. In the 1990s – early. 2000s employment grew; by 2002, unemployment had fallen to 5.2% of the economically active population (the lowest since 1980). Despite the recovery in the economy and the reduction in unemployment, inflation remained low. In 2002, the consumer price index increased by only 2.1% – inflation was at its lowest level since 1976. At the turn of the century, due to the general deterioration in the world economic situation, the intensity of the rise decreased: in 2002, GDP growth was only 1.6%.

Noticeable changes are taking place in the sectoral structure of the British economy. The importance of the service sector is growing. In 2001, its share in GDP was 71.4%, in employment 75.5%. The share of the manufacturing industry is decreasing: in 2001 it accounted for 17.5% of GDP and 14.5% of the total number of employees. In the extractive industry, the importance of the coal industry has significantly decreased and that of the oil and gas industry has increased. Construction was developing at a pace below the average for the economy as a whole: in 2001 its contribution to GDP was 5.4%. In the 1990s the role of transport and communications increased markedly: in 2001 their share reached 8% of GDP. The share of agriculture and fisheries in GDP fell sharply – from 2.9% in 1973 to 0.9% in 2001.

In the structure of the manufacturing industry, the paper and printing industries (13.9%), food and tobacco (13.8%), mechanical engineering (35.5%), in which the electrical engineering industry and optical instrument making (12.9%) stand out, have the largest share. ) and the production of vehicles, as well as the chemical industry (10.7%) and metalworking (10.4%). Major shifts are taking place in the industry. The role of new science-intensive industries of chemical (primarily low-tonnage chemistry), electrical engineering and electronics, especially office equipment and computers, as well as communications, aerospace industry (production of civil and military aircraft, helicopters and equipment for space exploration), equipment for offshore oil production is growing.. British pharmaceutical industry is world famous. In terms of the level of development of biotechnology, the UK is second only to the United States. At the same time, the importance of traditional manufacturing industries, which determined the country’s industrial image in the beginning, sharply decreased. 20th century: textile, primarily cotton, steel industry (in 2001 only 12.5 million tons of steel were smelted in the country), civil shipbuilding. The fate of the coal industry is indicative. In 1913, approx. 1.1 million people, and coal production reached 287 million tons. In 2001, the corresponding figures were only 11 thousand people. and 32 million tons. In the 1970s. large deposits of oil and gas have been discovered in the North Sea. In 2001, the production of oil and liquefied gas amounted to 2.4 million barrels per day (about 320 thousand tons). According to this indicator, the UK ranked 10th in the world. The transformation of the UK into a major producer of oil and gas has dramatically changed the energy mix – they account for 72% of energy consumption. The use of natural gas is growing rapidly, accounting for 37% of electricity generation. Nuclear power plants produce 22% of electricity. However, 33% of electricity is still generated at coal-fired stations.

Agriculture in the UK is highly mechanized and efficient, covering 63% of the country’s food needs. OK. 40% of 386,000 farms are predominantly occupied with animal husbandry—cattle, sheep, pigs, and chickens. In 2001, animal husbandry suffered great damage due to livestock diseases – first spongiform encephalopathy (“mad cow disease”), and then foot and mouth disease. Wheat, barley, and oats are especially common among grain crops. In addition, rapeseed, flaxseed, and potatoes are grown. There are many orchards in the country. Agriculture enjoys great state support and receives subsidies from the EU budget.

The territory of Great Britain is covered by a dense network of roads and railways and is well served by maritime transport through many ports. The dominant role in domestic transportation is occupied by road transport – 85% of passenger traffic and 81% of freight traffic. In 2001, there were 23.9 million cars in personal use. The length of paved roads is 406.4 thousand km. The railway network is being reduced, its length is 16.9 thousand km, of which 4.9 thousand km have been electrified. The government is implementing various organizational measures to modernize this mode of transport. The importance of river transport is declining. The length of waterways is 3.2 thousand km. Air transport is developing rapidly. Since the 1980s air transportation of passengers and cargo has more than tripled. British Airways is a leading international airline. The country has approx. 450 civil airports – the largest of them is Heathrow. From Ser. 1970s the tonnage of the sea fleet has sharply decreased. On horseback In 2001, the British merchant marine fleet consisted of 594 ships, including 140 tankers and 454 bulk carriers, 37 passenger ships. Maritime transport accounts for approx. 95% of the country’s foreign trade transportation. In the UK ca. 70 ports of commercial importance. The largest of them: Grimsby and Immingham, Tees and Hartlepool, London, Fort, Southampton, Milford Haven, Salo Voy, Liverpool, Dover, Felixstowe. The pipeline transport network is rapidly expanding; it is connected to gas pipelines coming from the fields of the North Sea; the total length of pipelines is 3.9 thousand km.

Communications is one of the fastest growing sectors of the economy. The country is almost completely telephoned; 97% of families have apartment phones, another 4% prefer mobile phones. Total per horse. In 2001, there were 44.9 million mobile phones in the country. 34.3 million users are connected to the Internet. 38% of firms have their own WEB-site, 48% carry out e-commerce. There is an intensive process of computerization of everyday life of the population, education, business. 11.7 million homes are connected to the Internet, 90% of medium-sized and approx. 1/4 primary schools, half of all companies.

Trade in recent years has been growing faster than the economy as a whole. In 2001, the share of wholesale and retail trade in GDP was 12.2%. There are 107 wholesale trade enterprises in the country, employing 1.18 million people. The number of retail trade enterprises exceeds 192 thousand. They employ 2.87 million people. (11% of all employed in the country). The turnover of large trading companies with a wide network of shops and supermarkets is growing at the highest rate. The importance of trade, in which orders are made by mail and via the Internet, is increasing.

Financial, information and business services are developing at the highest rates. The financial sector accounts for 5% of GDP and employs more than 1 million people. The UK banking system is one of the most developed in the world. Financial institutions of the country provide a wide range of services – consulting, legal, accounting, management. Deregulation has strengthened the trend towards diversification of financial services provided by banks, universalization of their activities. Thus, commercial banks provide services that were previously provided by commercial banks, invade the insurance industry, and join companies specializing in issuing consumer loans. They actively compete with building companies in the mortgage loan market and have subsidiaries involved in leasing and factoring operations. In order to attract funds from depositors, banks diversify their services, in fact, turn into financial supermarkets. Recently, the importance of the activities of such non-banking financial institutions as building societies, insurance and financial companies, and investment funds has increased. The activities of computer companies providing a variety of services are rapidly expanding. Among them, in the first place is consulting in the field of information technology. Business services include market research, management services, and advertising.

The UK has a developed tourism industry. It employs 2.1 million people. 8% of small companies work in this area. In 2001, 22.8 million foreigners visited V. Its share in world tourism is 3.4%. According to this indicator, it is in 7th place in the world. The largest number of visitors from the USA, France, Germany, the Republic of Ireland, the Netherlands.

Over the past decades, various options for regulating socio-economic policy have been tested in the UK. From con. 1940s it consisted in managing aggregate demand and ensuring full employment, primarily through expanding the role of the state in the socio-economic field. From con. In the 1970s, after the Conservative government came to power, the market began to be seen as the most efficient mechanism for organizing economic activity. The UK has pioneered large-scale privatization in the West. Many traditional values ​​and institutions have undergone significant erosion. The model of the socio-economic mechanism and the political structure of society has undergone significant changes. The state has begun reforming property relations,

The social and economic policy of the Laborites who came to power in 1997, on the one hand, is purely pragmatic and continues the course of its predecessors in a number of areas, on the other hand, it reflects the principles of new laborism: a combination of the social values of old laborism with the development of a market economy. On the whole, after the sharp demarcation of the two main parties along almost polar lines—Thatcherism and state socialism—the parties increasingly drew closer together, but not so much on the social reformist basis that prevailed after World War II, but on the social liberal one. For Labour, it is softer, more regulated liberalism combined with unconventional market-oriented social reformism.

According to Labor leaders, the “old” Labor proclaimed its goal to ensure equality of income, the “new” – equality of opportunity: more and more Britons should join the middle class. The point of social reform is to turn the “welfare state” into a “social investment state”: less public funds should be spent on social assistance and more on general and vocational education, advanced training and retraining, especially for young people. In its former meaning, the welfare state is preserved only for those who are unable to provide for themselves. An essential place in the activity of the Laborites is occupied by the creation of incentives for work. An indispensable condition for the effectiveness of this system is the development of medical care and other measures designed to ensure the physical and moral health of the nation. The Laborites for the first time determined the size of the minimum wage, introduced a tax credit for the lowest paid part of the population, and repealed some anti-union laws of the Conservatives.

From con. 1970s the mechanism of economic management has undergone significant changes. First of all, there was its significant decentralization. In con. 1990s Labor delegated a number of economic management functions to regional authorities. Market principles are being actively introduced into the activities of the public sector, privatization of public works and services is being carried out, and the participation of the private sector in solving social problems is expanding.

By 2000, approx. 100 state companies. As a result, its public sector shrank by 2/3. For 1979-2000, the proceeds from the sale of assets of state-owned enterprises amounted to approx. £80bn Art. Having privatized most utilities, the government continues to control their activities. The policy of denationalization has become a way to finance the budget deficit, allowing less borrowing. In addition, privatization was aimed at creating competing private firms in place of state monopolies.

The sale of state property – demunicipalization – has become widespread. In an effort to involve the main categories of the working class and the “new middle strata” in the widely publicized “democracy of owners”, the government carried out a sale for private use of municipal housing stock, and at preferential prices sanctioned from the center. An important direction in the introduction of market principles in the activities of the public sector has become contracting. The government and local authorities were instructed to place tenders for cleaning of the territory and premises, construction and repair work, restructuring of houses, and services of specialists. Since 1992, a program called “private financial initiative” has been implemented. The government invites private firms to participate on a competitive basis in projects previously carried out by the state itself. In 1997-2000, the cost of projects exceeded 22 billion pounds. The enterprises that remain state-owned (the largest of them are the Post Office and the Civil Aviation Administration) operate as commercial enterprises. The emphasis has been shifted from industry policy to technology policy, from old to new industries; the criteria for granting financial assistance have been tightened. Finally, there has been a move away from direct subsidizing of business in favor of expanding its awareness of innovations in the field of engineering and technology.

An important direction of economic policy was the deregulation of the economy. In the 1980s-90s. many administrative and legal restrictions on business activities were lifted; simplified regulatory procedures. Controls over wages, prices and dividends have been abolished; the labor market has undergone significant deregulation. This policy covered the banking, credit and currency spheres. In 1979, currency controls were abolished, which held back the movement of capital between Great Britain and other countries. In 1980, the “corset” was abolished – a scheme of additional special deposits at the Bank of England, which provided for the placement of excess bank liquidity in interest-free accounts to limit credit expansion. In October 1986, the reorganization of the London Stock Exchange was carried out, called the “big bang” in the economic literature: minimum fixed commissions have been abolished, banks and foreign institutions have been admitted to the exchange, exchange members are allowed to combine the functions of a broker and a jobber (principal). As a result, the UK economy has become one of the most deregulated in the world. According to such an indicator as the “index of economic freedom”, it is in 6th place out of 102 countries, behind only Singapore, New Zealand, the USA, Switzerland and Malaysia. However, deregulation does not mean that the government has given up control of the markets. The country has very strict laws that regulate many aspects of private business, primarily the behavior of economic entities in the market.  They are aimed at preventing excessive concentration of economic power in individual companies, preserving and stimulating competition.

Based on the fact that economic growth is constrained by high inflation, the Conservatives have developed a medium-term financial strategy for 3-4 years, and the Labor Party is also implementing it. The goal is to limit the rate of price growth. The strategy consists of two components – monetary and budgetary. In the 1980s its main instrument was monetary regulation; financial policy was assigned a passive role of ensuring its effectiveness. However, with con. 1980s and especially during the current cycle, the government is actively resorting to budgetary measures of regulation.

In monetary policy, the emphasis was initially placed on targeting (i.e., setting targets) indicators of the money supply. However, by the beginning 1990s the government found it extremely difficult to control its growth. The pound exchange rate, which was pegged to a stable German mark, was chosen as an instrument to fight inflation. This policy continued until September 1992, when the UK withdrew from the EMS exchange rate mechanism.

Since then, a key element of anti-inflationary policy has been a change in short-term interest rates. In 1993, the Bank of England was given the opportunity to independently set the time for the introduction of new rates, and in May 1997, the Labor Party gave it even greater independence – the Bank has the right to make decisions on changing interest rates. Since the UK is not a member of the euro area, the Bank of England is not included in the European System of Central Banks, continues to be an issuing center, and carries out its own monetary policy.

Under the Banking Act 1987, no lending institution is authorized to accept deposits without an appropriate license from the Bank of England. The Bank of England is not responsible for the consequences of bank failures and does not guarantee depositors full compensation for losses. At the same time, the Deposit Protection Fund was established, formed from the contributions of banks in proportion to the amount of their total deposits. Part of these losses is compensated at the expense of the Fund’s resources in case of bank failures. In recent years, the government has seriously reformed and simplified the system of supervision over the activities of financial institutions and the regulation of the securities market. In 1997, the Financial Services Authority was created. He was given the powers of the central bank in the field of supervision over the activities of commercial banks.

The most important task of budget policy is to reduce the absolute and relative size of government spending with a parallel reduction in the deficit of the public sector of the economy, or the state’s need for loans. Particular attention is paid to the more efficient use of public funds both by the central government – 3/4 of all expenditures, and by local authorities – 1/4 of expenditures. The priorities are health care, education, and transport. Ministries and departments are invited to strictly adhere to the maximum level (ceiling) of expenditures set by the government for a three-year period.

Tax policy occupies a special place in the arsenal of means of state regulation of the economy. In order to stimulate economic growth, direct tax rates are being reduced, while the tax base is being expanded by reducing benefits. The most important part of the measures to encourage initiative and entrepreneurship was a significant reduction in the base income tax rate – from 33% in 1979 to 25% in 1995, 24% in 1996 and 22% in 2002. Since April 1999, a special rate of 10% has been applied, at which the first 1 £9k Art. income.

One of the main activities of the state remains the tax incentives for savings of the population as an important source of financing capital investments. Various preferential savings schemes have been developed and introduced, under which investments, primarily by small investors, are fully or partially exempt from taxes.

At the same time, the reduction in direct income tax rates was accompanied by an increase in indirect taxation. The standard value added tax rate was raised and in 2002 was 17.5%. The share of revenues from indirect taxes increased substantially, from 43% in the 1978/79 financial year to 54% in the 1997/98 financial year. The increase in indirect taxes was intended to compensate to some extent for the reduction in direct tax revenues and to promote the redistribution of resources in favor of investment.

A large place in government policy is occupied by tax incentives for private investment. During their reign, the Conservatives reduced the corporate tax rate from 50% to 33%. In July 1997, Labor reduced it to 30%. Particular attention is paid to the tax incentives for small businesses – the tax rate for small companies (with an annual profit of up to 300 thousand pounds. St.) was reduced by the Conservatives from 50 to 23%. In 1997, Labor reduced it to 21%, in April 2002 the rate was reduced to 19%. Small companies (with an annual profit of up to £10,000) are exempt from income tax.

To increase the revenue base of the budget, Labor introduced a tax on the windfall profits of public utilities. The reduction in the corporate income tax rate is expected to be financed by eliminating offset tax credits. Such a measure should increase the rate of return and increase the UK’s attractiveness for long-term investment.

As a result of the government’s financial policy, the share of its spending in GDP fell from 49.0% to 37.4% in the financial year 1975/76 and rose again to 39.0% in 2000/01. The budget has been in surplus since 1998/99, although it declined significantly in 2001/02, primarily due to lower corporate income tax revenues. Net public debt in relation to GDP in 1996/97 was 43.7%, in 2000/01 – 30.4% – the lowest level among the G7 countries.

The British model of socio-economic development differs markedly from the European continental one. Its structure is largely reminiscent of the American one (the similarity of the institutional environment, investment behavior of companies, forms of corporate governance, the nature of the labor market, etc.). In the economic literature, the Anglo-American model has been called “shareholder capitalism” in contrast to the continental model of “stakeholder capitalism”.

The main goal of management activity in the British model is to maximize the income of shareholders. Representatives of labor (trade unions) and the state play a much smaller role in solving the most important issues of the management activities of firms than on the continent. Hence the orientation towards short-term development goals of firms (short-termism). This model is characterized by a much greater dispersion of shareholding than in other European countries. Here, its concentration in the hands of the largest owners is significantly lower. Corporate control is exercised to a large extent through the securities market. In the UK, the stock market is more developed, the capitalization of securities is much higher. Financial institutions and non-financial companies play a much smaller role in equity ownership here than on the European continent.

At the same time, the economic mechanism and socio-economic policy of the UK are increasingly transforming and changing in the direction of the requirements of EU membership. EU laws and directives in areas such as agricultural and regional policy, energy, finance and insurance, competition and consumer protection are of growing importance in the regulation of the economy. In June 1997 the UK signed the EU Social Charter. And although it was not included in the first group of eurozone countries, in recent years London has been actively implementing the measures necessary to introduce a single currency. We are talking about reducing the budget deficit and public debt, lowering interest rates and inflation.

In recent decades, the increase in the standard of living of the population was due to the growth of nominal and real incomes of the population. The average weekly wage in April 2001 was £356, and for full-time men it was £444. Art. The average hourly wage for men was £11.97, for women it was £9.76. Art. In April 1999, a minimum wage was established by law. Since October 2002 it has been £4.20. Art. for employees aged 22 years and over and 3.60l. Art. – for workers and employees aged 18-22 years. In the spring of 2002, the average working week for full-time employees at their main place of work was 38 hours (40 hours for men and 34 hours for women). The UK has adopted an EU directive regulating working hours. It entered into force in 1998: the maximum working week is 48 hours, the minimum paid vacation is 4 weeks, etc. Old-age pensions are paid to women from the age of 60, to men from the age of 65. In April 2002, the basic pension for a single pensioner was £75.50. Art. per week, couples £120.70 Art. In the 1990s – early 2000s growth in nominal incomes of the population significantly exceeded the rate of inflation. As a result, real incomes increased: in 1991-2001 their average annual growth was 3.1%.

With the growth of household expenditures (they account for approximately 2/3 of GDP), their structure changes. The fastest growing consumer spending on durable goods, communications, leisure, clothing and footwear. The largest expenditure items for the population are housing (17.7% in 2001), transport (14.1%), and recreation. St. 2/3 of British families own their own home. There are 34.3 million Internet users in the country. 86% of families have current bank accounts, 25% have stocks, 15 million families have building society savings accounts. In recent years, savings are at a low level: 2001 – 6.2% of disposable income.

With a general increase in the living standards of the population, a significant polarization of income and wealth is observed in the country. The real incomes of the 20% of the richest families are 4 times higher than the incomes of the 20% of the poorest families. In 2000, 1/10 of the population owned 54% of the national wealth. The national minorities have a significantly lower standard of living compared to the indigenous population. Among them is the highest percentage of unemployed. Long-standing health problems such as long queues at hospitals and shortages of junior medical staff continue to persist and even worsen. Classes in many schools are still overcrowded, the level of teacher training is insufficient, and the difference in the technical equipment of public and private schools is almost not decreasing.

Great Britain is deeply integrated into the world economy, the importance of foreign economic relations is constantly growing. In 2001, 27% of goods and services produced in the country were exported; exports of goods amounted to 191.6 billion pounds. Art., services – 225.2 billion pounds. Art. Export per capita in the UK is greater than in the US and Japan. In 2001 imports of goods amounted to 225.2 billion pounds. Art., services – 65.7 billion pounds. Art. The UK tends to have a deficit in trade in goods and a surplus in trade in services. In 2001, investment income abroad exceeded UK foreign investment by £9.0bn. Art. The result was a current account deficit of £20.5 billion. Art. Much attention in the country is paid to attracting foreign capital; it is seen as a means of increasing labor productivity. In 2001, the inflow of foreign direct investment in the UK amounted to 43.8 billion pounds. Art. At the same time, direct investment exports amounted to 23.7 billion pounds. Art., which is significantly lower than the previous year, when it reached a record level of 168.6 billion pounds. Art., – a consequence of the high activity of British firms in the international market of mergers and acquisitions. Total per horse. 2001 UK assets abroad were £3,176 billion. Art., including direct investment – 645.2 billion. Foreign assets in this country – 3216 billion pounds. Art., incl. direct investment £347.5 billion Art.

Economy of United Kingdom