United Kingdom - Economic development

Like many other industrialized nations of the West, the United Kingdom has sought to combine steady economic growth with a high level of employment, increased productivity, and continuing improvement in living standards. Attainment of these basic objectives, however, has been hindered since World War II by recurrent deficits in the balance of payments and by severe inflationary pressures. As a result, economic policy has chiefly had to be directed toward correcting these two underlying weaknesses in the economy. When crises have arisen, emergency measures have often conflicted with long-term objectives. In 1967, for example, the government devalued the pound by 14% in order to improve the balance-of-payments position, but simultaneously increased taxes and reduced the growth rate of public expenditures in order to restrain home demand in both public and private sectors. Since the almost uninterrupted upward trend in prices resulted principally from the tendency for money income to rise faster than the volume of production, the government sought to institute a policy designed to align the rise in money income with increases in productivity.

Various bodies have been set up to foster economic development and improve industrial efficiency, notably the National Economic Development Council, established in 1962, which is responsible for the coordination of industry. Another important body, created in 1974, the National Enterprise Board, was set up to help plan industrial investment, particularly in manufacturing and export industries. Subsequently, the Labour government began to de-emphasize increased social services and government participation in the economy and to stress increased incentives for private investment. (A notable exception was in the exploitation of North Sea oil resources.) General investment incentives included tax allowances on new buildings, plants, and machinery. The Conservative government elected in 1979 sought to reduce the role of government in the economy by improving incentives, removing controls, reducing taxes, moderating the money supply, and privatizing several large state-owned companies. This policy was continued by succeeding Conservative governments into the 1990s. The election of a Labour government in 1997 did not reverse this trend. Indeed, privatization is now widely accepted by most of the Labour Party (with the exception of the dwindling numbers of the wing of the party with strong ties to trade unions).

The United Kingdom has long been a major source of both bilateral aid (direct loans and grants) and multilateral aid (contributions to international agencies) to developing countries. To coordinate the overall aid program and its proportions of bilateral and multilateral aid, capital aid, and technical assistance, the Ministry of Overseas Development was set up in 1962. Since 1958, the terms for development loans have progressively softened, and a policy of interest-free loans for the poorest developing countries was introduced in 1965. About 70% of the UK's direct, official bilateral development assistance goes to Commonwealth countries. In 2000, the United Kingdom donated approximately $4.5 billion in economic aid to developing countries. The United Kingdom made a commitment to increase its official development assistance (ODA) from 0.26% of GNP in 1997 to 0.33% in 2003–04 (the UN's target for donor countries' development aid is 0.7% of GNP).

The most important issue facing Britain in the early 2000s was membership in the European Monetary Union (EMU). Labour Prime Minister Tony Blair decided to opt out of EMU at its inception in 1998 and has promised a referendum on British membership. The opposition Conservatives oppose abandoning the pound and have the support of a majority of the British population on the issue. In June 2003, the chancellor of the exchequer stated that Britain was not yet ready to enter the euro zone, which made a referendum in the current parliament unlikely, at least until a new government would be seated in 2005. The government in 2003 devoted its attention on the domestic front to improving such public services as health, education, and transportation.