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Chapter 12 Domestic Economy

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Chapter 12 Domestic Economy Focal questions What are Britain s principal natural resources? (P204) Why is the City of London known as the world s leading ... – PowerPoint PPT presentation

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Title: Chapter 12 Domestic Economy


1
Chapter 12 Domestic Economy
2
Focal questions
  • What are Britains principal natural resources?
    (P204)
  • Why is the City of London known as the worlds
    leading international financial centre?(P204,
    Slides14-21)
  • Why do you think there have been different
    attitudes towards nationalisation and
    privatisation in Britains economy since the end
    of the Second World War? (PP206-7)
  • How do you understand the relationship between
    the British Government and Britains economy?
    (PP207-8)
  • How are consumers protected in the United
    Kingdom? (P210)

3
A1 Introduction
  • mixed economy
  • Privately owned (most) and state owned (major
    services such as health) enterprises
  • Government involvement social welfare policies
    laws to regulate industrial relations
  • Nationalisation privatisation

4
A 4 The Mixed Economy cont
  • Nationalization
  • the acquisition of private companies by the
    public sector
  • Privatization
  • the return of state enterprises to private
    ownership and control

5
Nationalisation privatisation (P206)
  • Why nationalise?
  • The public interest
  • Not profit-oriented
  • Government-appointed directors government
    involvement in long-term policy
  • Autonomous management of daily affairs

6
  • By the end of the 1970s
  • Margaret Thatcher
  • Primary objective to beat inflation
  • In politics if you want anything said, ask a
    man. If you want anything done, ask a woman

7
Nationalisation privatisation
  • Why privatise?
  • Efficiency
  • Profit-oriented
  • Decreasing government involvement
  • The free market consumers, goods, services,
    prices, manufacturers, providers of services

8
Inefficiency of nationalised industries
  • Proxy-owners in state-owned industries
    politicians affecting commercial decisions
  • Nationalized industries no need to succeed
    dependence on government, not market no
    incentive

9
Inefficiency of nationalised industries
  • Failure to harness self-interest
  • Incurment of losses on a grand scaletax raise
    83 top rate on earned income, 93, savings income

10
Privatisationadvantages
  • Efficiency lower prices, better services
  • Participation of ordinary people
  • Access to private capital markets
  • Less government intervention, less political
    pressure
  • More sources of capital
  • Competition incentive for better performance of
    state-owned industries

11
Privatisationdisadvantages
  • Good management of nationalised industries no
    need of privatisation (theoretically?)
  • Labor relations interest of workers
  • Co-ownership worker-shareholdershow much do
    they weigh?

12
Economic sectors
  • The Service industries (health care, hospitality,
    real estate and food chains)
  • Financial services (banking and insurance) big
    revenue earner London overseas branches of
    financial organizations
  • Industries a steady decline since the 1960s 20
  • Agriculture 60 of the total food demands of the
    nation
  • The Oil, coal and natural gas reserves
    considerably high 10 of the national GDP

13
A 2 Natural Resources Infrastructures (P204)
  • Highly developed efficient main road and rail
    network and airports-- excellent infrastructure
    pp 203-204
  • Natural resources
  • Principal resources at present -- oil and gas in
    the North Sea, on the coast of Scotland
  • Large amount of coal, but has been kept for
    future use
  • Manufacturing still important
  • Services, industries such as chemicals,
    electronics, etc important successful

14
A 3 Finance
  • The financial institutions
  • Banks
  • Building society
  • Insurance companies
  • Stock exchange

15
The Bank of England
  • Nationalised operated on behalf of the
    government
  • Controls the currency sets interest rate acts
    as banker both to the government and to the
    commercial banks
  • Monetary policy and financial policy
  • Integrity and value of the currency, stability of
    the financial system the effectiveness of the
    financial services sector

16
A 3 Finance
  • BANKING
  • London March 2002
  • 296 branches and subsidiaries of foreign banks
  • 1/3 from the Euro area
  • Foreign banks 50 of UK banking sector assets,
    3,500bn
  • The UK banking sector cross border bank lending
    - 19 of the world total

17
A 3 Finance
  • Insurance 2001
  • Largest in Europe
  • Third largest in the world
  • Net premium income of 157bn
  • Main skill centre for world insurance business
  • Global market leader in aviation and marine
    insurance combined market share 23

18
A 3 Finance
  • FOREIGN EXCHANGE
  • April 2001
  • Largest in the world
  • Daily turnover of 504bn, 31 of global turnover
  • gt New York Tokyo

19
A 3 Finance
  • FUND MANAGEMRNT
  • UK World's largest fund management centre
  • 2,460bn of institutional equity holdings in 1999
  • Assets managed on behalf of domestic and overseas
    clients 2,800bn in 2000
  • London leader in the management of overseas
    clients non-domestic portfolios

20
A 3 Finance
  • SECURITIES DEALING
  • Number of foreign companies listed on the London
    Stock Exchange second (No.1 NY)
  • In the first eight months of 2002, turnover in
    these companies booked in London 56 of all
    trading in foreign companies around the world
  • Turnover in Euro-area stocks 2/3 of all foreign
    equity trades booked in London
  • London major centre for the international bond
    market

21
Regional Household Income Comparison 2006
22
Beneficial ownership of UK shares end 2006
23
Private Enterprise
  • The single proprietorship
  • Easy to set up
  • Owner full control
  • limited amount of capital -- small businesses
  • All the legal and financial responsibilities

24
Private Enterprise
  • Partnerships
  • Larger amount of capital bigger
  • Each partner legally liable for all the debts of
    the firm, even if incurred by the activity of
    another partner

Such businesses can raise larger
25
Private Enterprise
  • Co-operatives
  • Mainly in the retail trade
  • Their customers who pay a minimum deposit on a
    share in the business
  • Vulnerable in the face of the intense competition

Such businesses operate mainly
26
Private Enterprise
  • Joint stock companies
  • Large amounts of capital
  • Transfer of ownership easy (shareholders selling
    shares to anyone else)
  • Risk Some unscrupulous company promoters may
    fraudulently try to raise funds for their own
    ends from the public. (Source An Introduction to
    the UK Economy by Harbury and Lipsey )

27
Limited Liability
  • Limited Liability
  • An investors liability to debt is limited to the
    extent of their shareholding
  • 100 1 shares bankruptcygreatest loss, 100

28
A 5 The Role of the Government
  • Growing government influence (P207)
  • The two World Wars the proportion of income from
    economic activity devoted to government
    expenditure -- sudden increases
  • Dropping after each war 46 in 1981 1982, 38
    in 1983, a slight rise in the early 1990s
    (economic downturn), 39 in 1998
  • To reduce the share of public expenditure of GDP

29
Taxation Government Expenditure
  • Where does the government get its money from?
  • Stock exchange
  • Taxation -- Direct and Indirect Taxes
  • Direct taxes national insurance contributions,
    income tax (a progressive taxation system),
    corporation tax (paid by companies)
  • http//www.statistics.gov.uk/CCI/nscl.asp?ID7363

30
Taxation Government Expenditure
  • Indirect taxes (P208)
  • VAT (VAT was introduced following Britains
    membership of the EEC a percentage of the money
    raised is contributed to the European Union
    budget.)
  • Duties on alcohol, tobacco, petrol, etc.

31
A 6 ConsumerStudents expenditure (P 210)
  • Around half of the expenditure essential items
  • Eg. accommodation, food, bills and household
    goods and course expenditure
  • A larger contribution to tuition course
    expenditure -- a higher percentage (the
    government)
  • Students who lived at home with their parents vs
    students living independently a quarter of the
    amount on housing

32
Outlook for the UK Economy
  • Treacherous times ahead
  • Profit warnings remain high.
  • Companies stop short.
  • Household goods, home construction, general
    retailers, personal goods, etc affected
  • The credit crunch

33
Real GDP quarterly growth
34
  • http//www.economywatch.com/world_economy/united-k
    ingdom/
  • http//www.statistics.gov.uk/cci/nugget.asp?id155
    2
  • http//www.statistics.gov.uk/cci/nugget.asp?id107
  • http//www.statistics.gov.uk/CCI/nugget.asp?ID192
    Pos6ColRank1Rank144
  • http//economicsguide.blogspot.com/
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