Professional Documents
Culture Documents
Chapter 5 - Reading Excerpt (UK)
Chapter 5 - Reading Excerpt (UK)
Chapter 5 - Reading Excerpt (UK)
The economy
construction and services. However, austerity targets had not been fully met
and cuts in public services, social welfare and spending continued. The poorest
sectors of society suffered, the middle classes were squeezed economically, and
the gap between rich and poor grew. The 2007–10 financial crisis, recession
and recovery were the deepest economic problems since the Second World
War (1939–45). In early 2015, Britain’s trade deficit in goods and services with
the rest of the world widened, economic growth was faltering and the pound
was affected by volatility in the currency markets. But the economy ranked
fifth in the world in 2019, measured by GDP, after the USA, China, Japan and
Germany.
Britain’s decision in a 2016 referendum to leave the European Union (EU)
seemed initially to have little economic impact. Although sterling slumped,
GDP growth in the second half of 2016 was faster than in the first and unem-
ployment fell rather than grew. Yet the view that the economy would escape
serious economic consequences from Brexit were contradicted by events during
2018–19. Signs of economic and political uncertainty appeared and the future
was unclear.
Britain was a largely rural country until the end of the eighteenth century and
its economy was based on products generated by successive revolutions in agri-
culture since Neolithic times. There had also been some industrial and manu-
facturing developments over the centuries, which were located mainly in the
larger towns. Financial and commercial institutions, such as banks, insurance
houses and trading companies, were gradually founded in the City of London
and throughout the country to finance and service the expanding and increas-
ingly diversified economy.
The growth of a colonial empire from the sixteenth century contributed
to national wealth as Britain capitalized on its worldwide trading connections.
Colonies supplied cheap raw materials, which were converted into manufac-
tured goods in Britain and exported. Overseas trade and markets grew quickly
because merchants and traders were protected at home and abroad. They
exploited the colonial markets and controlled foreign competition. By the nine-
teenth century, Britain had become a dominant military and economic power.
Its wealth was based on international trade and the payments it received for its
exported products. Governments believed that a country increased its wealth if
exports exceeded imports.
This trading system and its financial institutions assisted industrial revo-
lutions, which began in the late eighteenth century. Manufacturing inven-
tions, aided by a rich supply of domestic materials and energy sources such as
coal, steel, iron, steam power and water, stimulated mass production and the
222 The e cono my
PLATE 8.1 This bridge across the river Severn at Ironbridge, Shropshire, England, was part
of the industrial revolution. It was the first major iron bridge in the world, represented the use
of iron in industrial architecture, and was built by Abraham Darby in 1779. © David Cole/
Shutterstock
nineteenth century for many people. Manufacturing output became the chief
generator of wealth; production methods and technology advanced; and domes-
tic competition improved the quality of goods and services.
Yet British dominance of world trade did not last. It declined relatively
by the end of the nineteenth century as countries such as Germany and the
USA rapidly developed their industrial bases and became more competitive.
However, British expertise continued to be influential in global financial and
commercial dealings.
Economic policies
Although British governments have historically tended to be laissez-faire (let-
ting things take their own course) in economic matters, they became more
involved in economic planning from the 1940s and the performance of the
economy has been increasingly tied to their fiscal, monetary and political poli-
cies. All British governments thereafter have variously intervened in economic
life in attempts to manage the economy and stimulate demand and growth,
particularly as global competition has grown and domestic needs have become
more complex.
Conservative governments historically advocated minimum interference in
the economy and favoured the workings of the free market, yet they have often
intervened out of necessity or changing ideology. Labour governments initially
argued that the economy must be centrally planned and its essential sectors
should be owned and managed by the state. But they have also changed their
policies, which have become generally more neoliberal and market-oriented.
Labour governments from 1945 nationalized (transferred to public own-
ership) railways, road transport, water, gas, electricity, shipbuilding, coalmin-
ing, the iron and steel industries, airlines, the health service, the Post Office
and telecommunications. These industries and services were run by the state
through government-appointed boards. They were responsible to Parliament
224 The e cono my
and financed by taxation for the benefit of all, rather than for private owners
or shareholders. But governments were expected to rescue any which had eco-
nomic problems.
This policy was gradually reversed by the Conservatives. They argued that
public industries and services were too expensive and inefficient; had outdated
technology and bad industrial relations; suffered from lack of investment in new
equipment; depended upon financing from taxes; and were run as state services
with too little attention paid to profit-making, consumer demand or market
forces. They denationalized some state industries and returned them to private
ownership.
Conservative denationalization was from 1979 called ‘privatization’. Own-
ership of industries such as British Telecom, British Airways, British Petroleum,
British Gas, water and electricity supplies, British Coal and British Rail was
transferred from the state to private owners mainly through the sale of shares.
These companies/industries are run as profit-making concerns and are regulated
in the public interest by independent regulators. The aim was also to liberalize
the economy so that restrictions on businesses were removed to allow them
to operate freely and competitively. For example, the stock market and public
transport were deregulated, resulting in greater diversity in the City of London
and private and public bus companies (subsidized by local government) com-
peting with each other.
Conservatives believe that privatization improves efficiency, reduces gov-
ernment spending, increases economic freedom and encourages share owner-
ship. The public bought shares in the new private companies and share-owning
by individuals and financial institutions increased, but there was also concern
about privatization as private industries became virtual monopolies. There is
a lack of competition in some private sectors, and there are doubts about the
independent regulators’ abilities to supervise them in the public and consumer
interest. There are complaints by the public and politicians about the sector’s
alleged inadequate services, inflated prices and inferior products. Although
some initial problems have been solved, businesses, such as the railways, energy
and water systems, are still heavily criticized for their policies and performances.
Other privatized concerns, such as railway companies, have failed and been
renationalized.
The Labour government effectively accepted more privatization in 1997
(having dropped full nationalization from its party manifesto in 1995); has
part-privatized concerns such as National Air Traffic Services and introduced
the private sector into public services such as transport, education and health.
There are now fewer state-owned public concerns and more privatized
businesses. Both Labour and Conservative governments since the 1990s have
also introduced mixed public/private arrangements, such as Private Finance Ini-
tiatives (PFI) and Public Private Partnerships (PPP). The private sector builds
and invests in large capital building projects and services such as schools and
The ec o nomy 225
hospitals, which are then leased to the public sector, which pays for their use.
This was intended to save public money, encourage cooperation on resources
and, for some critics, to expand the privatization programme. However, PFI
projects can be expensive or inadequate and may collapse. The state has to sup-
port huge loans, and PFI schemes have weakened sectors such as the NHS with
some hospital trusts facing debt.
Policies such as privatization and PFI are criticized by those people who
support public sector services and ownership. Respondents to polls doubt that
allowing private sector companies and managers to build or run public services
results in big improvements or that using private companies to provide public
services will improve them. Many consider schools, hospitals, trains, public util-
ities (water) and energy (gas and electricity) should be provided and managed
by the public sector. Some private companies have found that joint building
and management schemes do not generate the expected profits and withdraw.
While private and public cooperation appears to have worked for the com-
pleted London Tube modernization, the ongoing London Crossrail transport
project and the HS2 train scheme to the north of England have planning and
cost problems. The privatized East Coast railway line from London to Scot-
land failed and was returned to public ownership as LNER (London and North
England Railway) in 2018.
Economic models, such as nationalization, privatization and public/private
schemes, are criticized with claims that they do not work adequately. Despite
such views, the political parties have generally accepted a closer relationship
between the public and private sectors, deregulation and a mobile workforce.
The problem is how to manage a liberal economy effectively, while satisfy-
ing demands for public services, such as the National Health Service and state
school education, to be funded and organized from public taxation. Follow-
ing the credit crunch and bank collapses in 2007–10, there were demands for
stronger regulation of financial institutions by the left. Yet this is opposed by
Conservatives for its alleged interference with economic freedom. The British
economy is consequently a mixture of different ideologies, which do not always
jell effectively or operate efficiently.
Economic structure
The mixed economy comprises public and private sectors. The public sector
includes the remaining state-run industries and services which amount to under
one-third of the economy. The other two-thirds are in the private sector and
this percentage will increase with further privatization (e.g. of the Royal Mail
in 2014).
Unlike public-sector concerns which are owned by the state, the private
sector belongs to people who have a financial stake in a company. It consists
of small businesses owned by individuals, companies whose shares are sold to
226 The e cono my
PLATE 8.2 The once-flourishing British car industry is now much reduced, with British com-
pany collapses. But the Mini production line at BMW, Cowley, Oxford continues to produce
new models which sell well worldwide and other foreign-owned car companies have success-
fully opened in the north-east and the Midlands. © Ins News/Shutterstock
the public through the Stock Exchange and larger companies whose shares
are not offered for sale to the public. Most companies are private and small
or medium-sized. They are crucial to the economy and generate some 50 per
cent of new jobs. About 10 per cent of the economy is controlled by foreign
corporations, which employ 10 per cent of the workforce. Britain (even out-
side the European common currency, the euro) has been seen as an attractive
low-cost country for foreign investment in many areas such as electronic and
high-technology equipment, leisure facilities, hotels, finance and cars, although
British-owned production of the latter has decreased from its high point in the
mid-twentieth century. Whether the UK will continue to attract foreign busi-
ness after Brexit remains an open question.
The shareholders are the real owners of those companies in which they
invest their money. However, the daily organization of the business is left to
a board of directors under a chairperson or managing director. In practice,
most shareholders are more interested in receiving profit dividends on their
shares from a successful business than in being concerned with its running.
Yet shareholder power is occasionally mobilized if the company is perform-
ing badly.
The ec o nomy 227
PLATE 8.3 Bombardier is the last remaining major train maker in the UK. Its production plant
is based in Derby and it won a big contract to provide trains for the London west–east Cross-
rail tube service (under construction). © Joanne Roberts/Alamy Stock Photo
PLATE 8.4 Rolls-Royce originated as a luxury car manufacturer and is now the world’s second
largest maker of aircraft engines for major airlines. Its production plant is still based in Derby
and it also works in the marine propulsion and energy sectors. © Tim Graham/Getty Images
0
2014 2016 2018 2019
The ten years following the Great Recession was a period of shifting eco-
nomic extremes. In October 2014, the International Monetary Fund (IMF)
reported that Britain would grow faster than any G7 nation, expanding by 3.2
per cent in 2014 and 2.7 per cent in 2015 and employment was high. However,
Britain in 2015 faced the threat of deflation (reduced prices for goods) for the
first time since 1960 after inflation (rising prices for goods) had fallen to 0.5
per cent, the equal-lowest rate in 26 years. Productivity and wage growth were
also weak.
But Britain was the world’s fifth or ninth largest economy in 2019 (depend-
ing on measurement criteria) and is still a significant industrial and manufac-
turing country and exporter of goods and services, despite its reduced share of
the global market and manufacturing decline since the 1980s. Its GDP in 2019
was 2,622.43 trillion US$. GDP comprises the purchasing power of goods, ser-
vices, capital and income which the country produces. GDP in 2017 comprised
70.07 per cent from services and 18.57 per cent from construction, manufac-
turing and industry, while agriculture had 0.52 per cent. These figures illustrate
the importance of the service sector and the decline of traditional sources of
national wealth such as industry, manufacturing and agriculture.
Britain’s trading patterns have also changed. The CIA World Fact Book in
2016 ranked it as the world’s tenth largest exporter and fifth largest importer.
Its main export partners were the USA (14.6 per cent), Germany (10.1), Swit-
zerland (7.0 per cent), China (6.0), France (5.9), the Netherlands (5.8) and
the Republic of Ireland (5.5). Its main import partners were Germany (14.8
per cent), China (9.8), the USA (9.2), the Netherlands (7.5), France (5.8)
and Belgium (5.0). Its chief exports are manufactured goods, fuels, chemicals,
food, beverages and tobacco, and its main imports are manufactured products,
machinery, fuels and foodstuffs.
It has had a periodic balance-of-payments problem and a trade deficit
with the EU and non-EU countries. A trade deficit results when exports do
not exceed imports. ‘Invisible exports’, such as financial, aviation and insurance
services, contribute significantly to the economy and help to balance deficits.
Britain has tried to rebalance its economy towards exports and to cut down on
over-spending by reducing imports and consumer spending. Yet trade deficits
between the UK and EU and non-EU countries do occur on a monthly basis
and suggest slowing growth.
Although the EU is generally considered as the UK’s single largest trad-
ing partner, a House of Commons Briefing Paper in July 2018 reported that
UK exports of goods and services to the rest of the world collectively were
higher than UK exports to the EU for the ninth year running. In 2017, UK
exports to non-EU countries were £342 billion, showing that there was still
a worldwide demand for British goods and services. Exports to EU countries
were £274 billion (45 per cent of all UK exports) and UK imports from the EU
were £341 billion (55 per cent of all imports). This meant that the UK had an
The ec o nomy 233
overall trade deficit of £67 billion with the EU in 2017. A surplus of £28 bil-
lion on trade in services was outweighed by a deficit of £95 billion on trade in
goods. These figures illustrate the importance of services in UK trading patterns
and their continuance after Brexit. The 2018 figures showed that the UK was
exporting more services to non-EU countries than to the EU. This suggested to
some critics that the EU was losing its British export role and that the UK could
capitalize on its world exports after a potential Brexit in 2019.
The economy has also been affected historically by fluctuations in the
value of the pound. Devaluation (reducing the pound’s exchange value) was
used earlier by governments as an economic weapon. This boosted exports
by making them cheaper on the world market, but raised the cost of imports
and dissuaded people from buying foreign goods. Devaluation has not been
used recently. Instead, the pound was allowed to ‘float’ from 1972 and find its
own market value in competition with other currencies. Although Britain did
not join the European common currency (euro), the pound had performed
relatively successfully outside the Eurozone (consisting of those EU countries
which have adopted the euro). However, the pound’s performance and value
are variable, as political uncertainty can spark volatility in the currency markets
and swings in sterling may produce declines against the dollar and the euro.
Social class
Class in Britain has been defined by factors such as wealth; ownership of land
and property; control of the means of production as against the sellers of labour;
education; job or professional status; accent and dialect; and birth and breeding.
Over time, a class system evolved which divided the population into upper,
middle and working classes. In earlier centuries hierarchies were based on
wealth, the ownership of property, aristocratic privilege and political power, but
a middle class of traders, merchants and skilled craftspeople later made inroads
into this system. Industrialization in the nineteenth century further fragmented
class divisions. The working class divided into skilled and unskilled workers,
while the middle class split into lower, middle and upper sections, depending
on job classification or wealth. The upper class was still largely defined by birth,
property and inherited money.
It is argued that the spread of education and expansion of wealth to include
greater numbers of people in the twentieth century allowed greater social
mobility. For example, the working class was more upwardly mobile. But there
were also downward movements and the upper class gradually merged more
with the middle class. It was felt that the old system was breaking down as
the number of people in the various social and economic levels changed. Over
234 The e cono my
It was suggested that there were two main occupational groupings in Britain:
a ‘middle class’ made up of classes 1, 2, 3 and possibly 4 and a ‘working class’
consisting of classes 5, 6, 7 and 8. Accordingly, the population largely consisted
of a middle class (60 per cent) and a working class (40 per cent). The working
class had shrunk historically and there was more upward mobility, with peo-
ple advancing socially due to changes in occupational structures and economic
progress. Yet such movement could be halted and redefined by economic fac-
tors and decline, which pushed, for example, some of the established ‘middle
class’ into the working class.
Nevertheless, later polls increasingly suggested that the British in fact felt that
they were becoming more middle class and it was argued that many people had
the sort of lifestyle, jobs and income which would be traditionally identified as
middle class. It also seemed that class identification was as much a matter of dif-
ferent social habits and attitudes as it was of occupation and money. The old gaps
between the classes have lessened and class today is a more finely graded hierarchy
dependent upon a range of characteristics. Yet inequalities of wealth, difficulties of
social mobility for the poorest in society, relative poverty, professional differences
and questions of prestige remain. Surveys suggest that Britain’s rate of upward
social mobility is the lowest in Europe and levels of inequality are high.
A Great British Class Survey by the BBC and Mike Savage (2013) devised
a new way of measuring class, not only by reference to occupation or job, but
also by the ‘capitals’ that people possess. These were economic capital (income,
property values and savings), cultural capital (cultural interests and activities)
and social capital (the number and status of people they know). The model
comprised seven classes based on the relationship between the capitals and
reflects a more complex, but arguably more accurate, class system. The seven
classes (in descending order) are elite, established middle class, technical middle
class, new affluent workers, traditional working class, emergent service workers
and the precariat (unpredictable social existence or identification).
The ec o nomy 235
are still employed by an organization. This may be a small private firm, a large
private-sector company, a public sector industry or service, or a multinational
corporation. Most people are employees who sell their labour in a market
dominated by businesses which own and control production and services. The
class-defining boundaries of employees and employers have remained constant,
although self-employment has increased. In 2014–16 the ONS reported that
the wealth held by the top 10 per cent of British households was five times
greater than the wealth of the bottom half of all households combined. These
figures suggest a considerable inequality of wealth in Britain, with the least
wealthy half of households owning only some 9 per cent of total aggregate
household wealth.
The contemporary deregulated and mobile economy has created more and
different work patterns than traditional models. Manufacturing and industrial
jobs have declined; service trades have increased; self-employment (4.79 m or
14.8 per cent of workers in 2018) has grown considerably; managerial and pro-
fessional fields have expanded; and there are more part-time workers (with
women in the large majority in 2018), job-sharing and temporary jobs or unpaid
interns. Manual jobs have decreased; non-manual occupations have increased;
the wage-earning working class has been eroded by salaried jobs; and the work-
force has become more mobile and ‘white-collar’. Job losses and redundancies
were high between 2007 and 2014, and the worst employment prospects are
still (2019) among young job seekers.
ONS figures showed that in March–May 2018, there were a record num-
ber of 14.4 million working-age women in the British workforce, compared
with 18 million for men, above the average in major industrialized nations.
It represented a large increase since 2010 and many of the new jobs were in
skilled occupations. The numbers of women with jobs in agriculture, manufac-
turing and construction had increased faster than the number of men in those
sectors. However, these rises in female employment have also coincided with
an increase in the gender pay gap as median wages for women fell while those
for men increased or remained stable. The increase has also occurred because
upward changes to the State Pension age has resulted in fewer women now
retiring between the ages of 60 and 65 years.
In early 2018, 5.36 million people were employed in the public sector
and 27.04 million in the private sector. This meant that only 16.5 per cent of
all people worked in the public sector and 83.5 per cent in the private sector.
Although women amount to 45 per cent of the total private and public labour
force, many, like men, have recently found it difficult to find jobs at a time when
job creation has stalled. Women are the principal breadwinners in 30 per cent
of households, whether by choice or necessity, but many female workers are
still low-paid, part-time, unable to find full-time jobs and often unprotected by
trade unions or the law. Nevertheless, new businesses are increasingly started by
women, particularly in the service sector and in 2014 women made up nearly
The ec o nomy 237
10
0
1971 1983 1985 2007 2018
Although the British workforce is now more mobile and flexible, many
vacant jobs are low-paid, part-time, unpaid internships or have ‘zero hours’
(minimum or no contract) work. In an attempt to get more people into work
at an acceptable level of payment, Britain has a statutory minimum wage and a
non-statutory living wage (see section on trade unions). Other jobs are in tech-
nical and skilled areas, for which the educational systems have not adequately
provided. The number of traditional apprenticeships has been greatly reduced,
and technical or vocational education suffers from a lack of investment and
facilities. Despite the success of some programmes, Britain lacks adequate voca-
tional education and training schemes for the unemployed and young people in
those technical areas which are essential for a modern industrial state. Reports
on global competitiveness from bodies such as the World Economic Forum do
not rank Britain highly for the quality of its employee training. Yet firms are
experiencing serious skills shortages, with many having unfilled vacancies. It
is now recognized that training and education must fit the realistic require-
ments of the workforce and be something more than disguised unemployment.
Attempts are being made to increase the number of apprenticeships and to
provide a vocational provision in state school education. In 2018, it seemed that
some young people were increasingly choosing an apprenticeship (if available
and suitable) over a university education.
Traditional manufacturing industry has been progressively reduced in
Britain. Yet an industrial infrastructure will continue to be important and is
increasingly emphasized by politicians and the business world, accompanied by
manufacturing expansion in some areas such as the East Midlands. It will not be
as labour-intensive as in the past, because of technical advances. The high-tech
industry and service trades are set to expand with new start-up businesses. It is
also likely that opportunities for professional and skilled workers in managerial,
supervisory, personal and financial services will increase. However, maintain-
ing employment levels and a trained workforce will still be problems in this
post-industrial society and will require revisions of the work ethic and concepts
The ec o nomy 239
Financial institutions
Financial institutions play a central role in the economy. In the 1980s, they
responded to the deregulated and freer framework created by Conservative
governments. Banks, building societies, insurance firms, money markets and the
London Stock Exchange expanded, merged and diversified. They entered new
fields and reorganized traditional areas of expertise as competition between
institutions increased. Economic ideologies became more flexible and adapted
to the practical realities of business life and liberal capitalism.
However, the institutions also experienced problems as the economy
fluctuated in the late 1980s, the early 1990s, the early 2000s and the deep
recession of 2007–10. There was unemployment in financial businesses,
fluctuations on the stock market and increased European and international
competition. The credit crisis in 2007–10 forced a government rescue of
private banks with taxpayers’ money; raised questions about the future of
the financial system; led to demands for stricter regulation of the finance
markets; and resulted in criticism of the working practices of bankers, insur-
ers and financial traders. The activities of some financial institutions, such as
the rigging of the Libor lending rates, credit loan and currency manipulation
have resulted in public anger and a demand for stricter regulation as the
reputations of banks and insurance companies have fallen heavily. Never-
theless, London has retained its status as a global finance centre, although its
future after Brexit remains uncertain and there are concerns that a banking
and financial exodus from London may follow any collapse of negotiations
to leave the EU.
Many major financial institutions have their headquarters in London, with
branches throughout Britain. The square mile of the City of London, with its
banks, insurance houses, legal firms and financial dealers has always been a cen-
tre of British and world finance. Its resources have financed royal wars, military
and colonial exploration and trading companies. Today it provides financial and
investment services for commercial interests in Britain and overseas. Many City
institutions were founded in the seventeenth and eighteenth centuries, as Brit-
ain’s prosperity, overseas trade and financial institutions grew, such as the insur-
ance firm Lloyd’s (1680s), the London Stock Exchange (1773) and the Bank
of England (1694). The City is now being challenged in financial dealings and
240 The e cono my
PLATE 8.7 The Canary Wharf area is part of the Docklands redevelopment programme in
south-east London, offering a mixture of financial companies, commercial services, hotels and
residential housing. The pointed Canary Wharf Tower (top right) is 800 feet (244 metres)
high with 50 floors. © Jonathan Player/Shutterstock
between their savings and loan interest rates, treatment of customers’ com-
plaints and their management of small business clients. Banks are again making
large profits after the recession, are involved in international finance and have
expanded their traditional activities. Building societies, many of which have
become banks, offer mortgages (loans), banking facilities and Internet banking
and provide serious competition to the high street banks. The 2007–10 banking
crash and public anger with the banks forced the creation of a bankers’ char-
ter in an attempt to control their dealings and appease customers. But most
high street banks have closed many branches, allegedly because they no longer
attract physical customers and prefer to operate online, much to the disapproval
of many people.
In addition to these banks, there are the long-established merchant banks,
which are mainly located in London. They give advice and finance to com-
mercial and industrial businesses in Britain and overseas; advise companies on
takeovers and mergers; provide financial assistance for foreign transactions; and
organize a range of financial services for individuals and corporations.
The London Stock Exchange is a market for the buying and selling of quoted
(listed) stocks and shares in British public companies and a few overseas. Deal-
ings on the Stock Exchange reflect the current market trends and prices for a
range of securities, which may go up as well as down. In recent years, the per-
formance of the stock market has fluctuated under domestic and international
pressures.
The Stock Exchange was revolutionized in 1986 by developments, known
popularly as the ‘Big Bang’. Financial markets were deregulated, which enabled
more freedom of operation. New members were admitted, financial dealers
were given greater powers and competition increased. However, some com-
panies were too ambitious, over-expanded and suffered from the effects of
the world stock market crash of 1987. Since 1997, financial transactions have
been organized directly from computer screens in corporate offices by an order-
driven system which automates the trading process, rather than through the
previous dealing on the floor of the Exchange.
The Foreign Exchange Market is also based in London. Brokers in corporate
or bank offices deal in the buying and selling of foreign currencies. The London
market is the largest in the world in terms of average daily turnover of com-
pleted transactions. Other money markets arrange deals on the Euromarkets in
foreign currencies; trade on financial futures (speculation on future prices of
commodities); arrange gold dealings on the London Gold Market; and transact
global deals in the commodity, shipping and freight markets.
Lloyd’s of London is a famous name in the insurance market and has long
been active in shipping and maritime insurance. However, it has now diversified
and insures in many areas. It operates as a market (association), where indi-
vidual underwriters (insurers) carry on their business. Underwriters normally
form groups to provide greater security because they have to bear any insurance
242 The e cono my
losses that may occur, but some in recent years have suffered due to heavy
insurance losses.
In addition to the Lloyd’s market, there are many individual insurance
companies with headquarters in London and branches throughout the country.
They have international connections and huge assets. They play an important
role in British financial life because they are the largest investors of capital.
Their main activity has traditionally been in life insurance, though many have
now diversified into other associated fields, such as pensions and property
loans. However, their handling of customers’ investments (particularly pension
miss-selling and handling of insurance, which have been afflicted by problems
and mismanagement of savings schemes) has been heavily criticized. Investors
have lost money and some insurance companies have virtually collapsed.
British financial institutions have traditionally been respected for their hon-
esty and integrity, but, as the money markets have expanded and become freer
there have been fraud cases, collapses of financial organizations and scandals,
such as insider dealing. These give the City a bad image and have forced it to
institute self-regulatory provisions in order to tighten the controls on financial
dealings. But consumer confidence and trust in the financial institutions con-
tinue to decline.
Some critics have argued for stronger independent supervision and reg-
ulation of the City’s business practices. The Labour government created a
watchdog, the Financial Services Authority or FSA in 2000 and a Financial
Ombudsman in 2001 to oversee all financial dealings. However, these institu-
tions have been criticized for their lack of adequate control, particularly after
the 2007–10 credit crunch and recession. The coalition government (2010–15)
broke up the FSA by handing its regulatory duties to the Bank of England and
created a new banking commission to overhaul the City and consider whether
the City and banks should be more closely supervised and restricted. A Finan-
cial Policy Committee under the Bank of England (2013) now has powers to
oversee the stability of the financial system. The Office for Budget Respon-
sibility (OBR) is an advisory non-departmental public body established on a
statutory basis by the government in 2010 to provide independent economic
forecasts and analysis of the public finances as background to the UK budget.
It is an official independent fiscal watchdog which produces forecasts to judge
the government’s performances against its targets and seems to have achieved a
respectable reputation for its work.
Bankers and financiers were not popular with the general public after the
credit crisis. They continue to receive large bonuses despite frequent losses by
their organizations, and the public feel that they appear to have little apprecia-
tion of taxpayer anger. Their attempts to put their houses in order have not been
well received and they may face greater government control and regulation.
The composition of those who create and control wealth in Britain has
changed since the Second World War. Bankers, aristocrats, landowners and
The ec o nomy 243
industrialists were the richest people in the nineteenth and early twentieth
centuries. Today the most affluent are entrepreneurs, technology research-
ers, social media and set-up developers, and online retailers who service the
consumer society, although holders of inherited wealth are still numerous.
Many millionaires are self-made, from lower-middle-class and working-class
backgrounds.
There are great inequalities of income and wealth in Britain and many dif-
ferent opinions about what constitutes riches. Profit and money generation are
seen by some as worthy goals. However, many people are satisfied with their
income and others think that the issue is dependent on varying values and fac-
tors. Talking about what one earns and about money generally has often been
regarded as unseemly in Britain and too much involved with crude survival.
However, this mentality has changed since the expansion of business and money
markets and ostentatious behaviour and lifestyles are now more common.
and in their political orientation, which ranges from the left to the right of the
political spectrum.
Some unions admit as members only those people who work in a specific
job, such as miners or teachers, while others include workers employed in dif-
ferent areas of industry or commerce. Some unions have joined with others in
similar fields to form new unions, such as Unison (public service workers with
1.3 million members). The largest in Britain at present is Unite with 1.5 mil-
lion members, formed in 2007 and which includes the powerful Transport and
General Workers’ Union (T&G). Workers may choose, without victimization,
whether they want to belong to a particular union or none at all.
Some 58 trade unions are affiliated to the Trades Union Congress (TUC)
in England and Wales, which was founded in 1867, serves as an umbrella
organization to coordinate trade-union interests and tries to promote worker
cooperation. It is able to exert some pressure on government (although this
has now decreased) and seeks to extend its contacts in industry and commerce,
with employers as well as workers. The Scottish Trade Union Congress (STUC)
and the Irish Congress of Trade Unions (ICTU) perform a similar job for their
members.
The influence of the TUC and trade unions, along with their membership,
has declined. This is due to unemployment, changing attitudes to trade unions
by workers, the reduction and restructuring of industry, a deregulated economy,
a more mobile workforce, and Conservative legislation under Margaret Thatcher.
Laws were passed to enforce secret voting by union members before strikes can be
legally called and for the election of union officials. The number of pickets (union
strikers) allowed outside business premises has been reduced, secondary (or sym-
pathy) action by other unionists is banned, and unions may be fined by the courts
if they defy legislation. Such Conservative laws (which the Labour government
accepted) and the economic climate have forced trade unions to be more realis-
tic in their wage demands. However, pay claims are escalating again and there is
increasing militancy among some union leaders. There are also arrangements for
legal recognition of unions in those workplaces where a majority of workers want
them and for consultation with workers in matters such as redundancy.
Legislation has controlled extreme union practices and introduced more
democratic procedures into union activities. The grassroots membership has
become more independent of union bosses and activists, is more determined to
represent its own wishes, and is concerned to reform the labour movement. The
initiative in industry has shifted to employers and moderate unions, who have
been moving away from the traditional ‘class war’ image of unionism and are
accepting new technology and working patterns in an attempt to improve com-
petitiveness and productivity. However, there are still unions who will strike in
support of pay demands and conditions of work.
Public opinion polls in the past found that, while a large majority of respon-
dents believed that unions are essential to protect workers’ interests, a sizeable
The ec o nomy 245
number felt that unions had too much power in Britain and were dominated
by militants. Half of trade unionists themselves agreed with this latter point of
view and half disagreed. The concern over trade unions and their close relation-
ship with Labour governments declined after the ‘New’ Labour election victory
in 1997, but may increase again if the Labour Party again form a government.
Union strike action can be damaging to the national economy and is used as
an economic and political weapon. In some cases, strikes are seen as legitimate
and find public support. But others, which are politically motivated, are often
unpopular and are rejected. Britain historically seemed to be prone to industrial
disputes, with large numbers of strikes in the 1980s, such as the Miners’ Strike
in 1984. However, fewer working days are now lost in Britain each year than in
other industrial nations, although the number has increased recently, particu-
larly in 2014 among low-paid public sector workers. On average, however, over
the past 40 years most manufacturing plants and businesses have been free of
strikes, and media coverage can be responsible for giving a distorted picture of
industrial relations.
Industrial problems should be placed in the context of financial rewards.
Britain has a low-wage economy, compared with major European countries and
has a complicated payment system to assist the low paid. The National Mini-
mum Wage (NMW) is the minimum pay per hour most workers under the age
of 25 are entitled to by law. The government’s National Living Wage (NLW)
is the minimum pay per hour most workers aged 25 and over are entitled to
receive. The relevant rates (which change every year) will depend on a worker’s
age and if they are an apprentice. Employers may be prosecuted if they do not
pay the correct wage, which may range (2018) from £3.70 per hour for appren-
tices to £7.83 for those aged 25 and over. The ONS reported that the average
gross annual wage of workers in the UK in 2017 was £28,600 per year, with
the average for men being £592 per week and women £494. Many workers
(particularly women) receive less than these figures. Depending on personal
allowances and other deductions, personal annual income for 2017–18 is taxed
at 20 per cent up to £46,350, 40 per cent above this figure and 45 per cent on
earnings over £150,000.
Direct income tax may have to increase in order to pay for public services
(such as health and social care), future state pension provision and the budget
deficit following the 2007–10 recession. In addition, governments have also
raised indirect or ‘stealth’ taxes after 1997, such as increased National Insur-
ance contributions for workers and employers, as well as initiating a general
rescheduling of taxes.
Employers’ organizations
There are some 101 employers’ and managers’ associations in Britain of various
sizes and significance, which are mainly associated with companies in the private
246 The e cono my
sector. They aim to promote good industrial relations between businesses and
their workforces, try to settle disputes, and offer legal and professional advice.
Most are members of the Confederation of British Industry (CBI). This
umbrella body represents its members nationally; negotiates on their behalf
with government and the TUC; campaigns for greater investment and innova-
tion in industry and technology; and is often more sympathetic to Conservative
governments than to Labour ones. However, it can be very critical of some
Conservative policies. It also acts as a public-relations organization, relays the
employers’ points of view to the public, and has considerable economic influ-
ence and authority.
Industrial relations
Complaints are often raised about the quality of industrial relations in Brit-
ain. Historically, this has tended to be confrontational rather than coopera-
tive and based on notions of ‘class-warfare’ and ‘us-and-them’ attitudes. Trade
union leaders can be very militant and stubborn in pursuing their members’
interests. But the performance of management and employers is also criticized.
Insensitive managers can be responsible for strikes arising in the first place, and
relations between management and workers still leave much to be desired,
although industrial unrest is not as common as it once was. Some opinion polls
have indicated that a majority of respondents believe that bad management is
often more to blame than the unions for poor industrial relations and Britain’s
economic problems.
been in the past, particularly in the cases of women, ethnic minorities and the
low-paid. However, there is still concern about the real effectiveness of such
legislation.
Consumer protection
The traditional rule in consumer and contract dealings was caveat emptor (buyer
beware). However, this was gradually relaxed and it was accepted that, in a
competitive market, consumers should have a choice of goods and services, the
necessary information to make choices and laws to safeguard their purchases.
Statutory protection for consumers has grown steadily in Britain, with the Con-
sumer Protection Act 1987 and the Supply of Goods and Services Act 1982.
The public can complain to tribunals and the courts about unfair trading prac-
tices, dangerous and unsafe goods, bad service, misrepresentation, misleading
advertising and personal injuries resulting from defective goods.
The responsibility for protecting consumer interests and overseeing the
behaviour of trade and industry in Britain lies with several different organiza-
tions, such as the Competition and Markets Authority (CMA) and the Financial
Conduct Authority (FCA). These bodies are independent of government, but
report to government bodies such as the Treasury and the Department for Busi-
ness, which may take further action. They promote fair trading, protect consum-
ers, suggest legislation to government and aim to improve consumer awareness.
They set codes of practice and regulation with industrial and commercial orga-
nizations, watch for breaches of the codes and publish their findings.
Non-profit organizations which provide free information and help on con-
sumer affairs at the local level are Citizens Advice Bureaux, Consumer Advice
Centres, and consumer protection departments of local councils, such as Trad-
ing Standards Services. Private consumer-protection groups, which investigate
complaints and advise consumers, may exist in some localities, such as those
organized by the not-for-profit Trading Standards Institute.
The independent Consumers’ Association was a well-known established
campaigner and pressure group for consumers’ rights. It has been rebranded as
an online service and is now known by its magazine name, Which? This pub-
lication champions the consumer and applies rigorous tests to anything from
television sets to insurance and estate agents. Which? is the ‘buyers’ bible’ and its
reports have raised the standards of commercial products and services in Britain.
Consumer protection at state and private levels has improved over the past
50 years. But much still needs to be done in this field to achieve minimum stan-
dards and adequate protection, such as dealing with unscrupulous builders and
trades people preying on gullible consumers, particularly the elderly; commercial
incompetence and miss-selling of products by financial organizations; bad service
in shops and retail outlets; and inferior products flooding a consumer society.
248 The e cono my
But there are signs that a British reticence to complain about goods and ser-
vices is breaking down as the amount of litigation and financial claims increase.
This is associated with a growing complaint and ‘compensation culture’ in Brit-
ain. However, some complaints are clearly frivolous and governments have tried
to curb the worst excesses by introducing new legislation. A further problem is
the confusing growth at official and independent levels of so many consumer
bodies, which tend to duplicate each other’s work and which can increase
bureaucracy.
Attitudes to the British economy have been influenced by a severe credit crisis
and recession since 2007. Attempts to reduce the resulting budget deficit by
austerity measures have continued, but difficulties remain.
A poll by The Economist/Ipsos MORI in September 2017 reported that in a
list of the ten most important issues/problems facing the country, the economy
and economic issues were in fifth place at 18 per cent, and poverty/equality was
eighth at 15 per cent.
Some critics compared these economic problems to developments in the
EU/UK Brexit negotiations 2017–19. But, according to an Ipsos MORI poll and
its Global Advisor Economic Pulse in June 2018, although the UK economy
was then growing at its slowest rate in over five years and despite commen-
tators’ predictions of further weak economic growth, the British public were
positive about the economy and 51 per cent of respondents rated Britain’s eco-
nomic situation as good.
However, The Economist magazine remarked in January 2018 that it was
assumed by most economists that the vote to leave the EU in 2016 would
bring disruption and another recession, similar to 2007–10 with falling house
prices, large rises in unemployment and a drop in economic growth. ONS
figures in February 2019 indicated for some critics that the economy had
already been badly affected by two years of Brexit negotiations. It was depen-
dent upon government and household spending, but growth was affected by
consumer confidence falling to a five-year low in December 2018 as man-
ufacturing, business investment and trade declined. Britain might also be
influenced by a potential global slowdown, illustrated by the Japanese Honda
car production company announcing in February 2019 that it was closing its
operations in Britain. The economy was not steady and it was suggested that
pessimism among households about Brexit matched the 2007 financial crisis.
It was argued that a ‘no deal Brexit’ (if Britain left the EU without a satisfac-
tory deal and had to depend on World Trade Organization terms) would be
disastrous for the British economy, as well as its social, welfare and political
structures.
The ec o nomy 249
Some critics felt that the situation could in fact be worse than the 2007
credit crisis and recession. The supposed economic recovery had been faltering
in early 2015, with slowing growth, uncertainty in financial markets, the insta-
bility of the pound, and many people were suffering economically and socially.
Britons still lived with the effects of the 2007 recession and partial recovery
by 2015 did not benefit everyone equally. A survey by the Chartered Institute
of Personnel and Development in February 2015 reported that while half of
workers had their pay frozen or cut in 2014, the other half saw their wages
increase by some 2 per cent. Public sector workers and other workers could
experience pay reductions, the job market was weak and cuts in public social
services continued.
Many critics also pointed out that a major concern of the slow, erratic recov-
ery from the 2007 credit collapse and later recession was that Britain had not
initially made great reductions in the budget deficit. Severe cuts and austerity
measures were still being made in social programmes in 2019. The government
admitted that earlier relief targets had not been met and stressed that further
action needed to be taken until after 2019.
Questions on how the credit deficit could be reduced had been raised in
the 2010 and 2015 general election campaigns. The Institute for Fiscal Studies
(IFS) had argued before the 2010 general election that in order to promote
recovery by reducing the budget deficit, the new government would need to
further cut public spending on services and welfare and probably raise taxes.
But prompt action and results were slow to arrive, and the debate continues.
The recession also prompted debates about where the blame for the credit
crisis lay. Some critics attacked the economic policies and spending programmes
of the Labour government (1997–2010). But criticism was also directed at Brit-
ish banks for their lending and credit practices, as well as over-borrowing by
customers. A YouGov/Compass survey in September 2009 found that 83 per
cent of respondents agreed (5 per cent disagreed) that excessive bonuses and
pay in the banking and finance sectors had also significantly contributed to the
risk element in credit spending and lending policies which resulted in recession.
According to the polls, bankers and banks are still very unpopular and it is felt
that their practices continue. Some critics blame the official regulators in the
financial markets for not adequately controlling the banks and insurance busi-
nesses sufficiently.
The credit crisis and subsequent cuts have generated debates about linked
areas, such as low wages, taxation, employment, pensions, poverty and inequal-
ity in Britain. A 2009 YouGov survey found that 78 per cent of respondents
agreed (and 6 per cent disagreed) that the growing gap between rich and poor
was bad for society. This gap is illustrated by high wages for some people, a
bonus culture for employees of banks, finance companies and privatized busi-
nesses, low wages for many workers and high youth unemployment. Sixty-three
per cent of respondents supported (14 per cent opposed) the establishment of
250 The e cono my
a new High Pay Commission to investigate the effects of high pay on the econ-
omy and society.
Mixed signals by respondents in identifying the big issues that affected the
country were reflected in an ICM poll for the think tank British Future. Its State
of the Nation survey (2013) assessed issues of national concern prior to the
2015 General Election and reported how these might influence how people
would vote. It found that 61 per cent of Conservative Party respondents placed
importance of the economy in first place, Liberal Democrats set it in second
place at 42 per cent, Labour respondents in fourth place at 41 per cent, and
UKIP respondents also placed it in fourth place at 39 per cent.
Optimism about economic issues was not shared equally across the coun-
try, reflecting a traditional north–south divide. Only 24 per cent of respondents
living in the northern areas of the UK were economically optimistic, compared
with 30 per cent in London and the Midlands, and 34 per cent in the south-east.
The survey revealed a divided society in which some were doing well, a major-
ity were struggling, and a few at the top doing very well. Problems of inequality,
relative poverty and low wages have continued. Questions about future pub-
lic spending cuts, taxation, pensions, growth, unemployment and productivity
have also recently been central to people’s concerns about possible economic
recovery. Business reports and ONS statistics in 2018 pointed to a mixture of
negative and positive prognoses for the UK. The deficit was shrinking slowly,
unemployment continued to fall, foreign direct investment was continuing and
the economy was running at near full capacity. It remains to be seen whether
the country copes well with a Brexit event, or whether it will be as disruptive
as the earlier credit crisis and recession.
Exercises
Briefly define and examine the following terms, commenting on their
significance in British life: