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ThisIsLondon.co.uk: Record £284bn profit for our booming businesses

Dail Mail photo of London Canary Wharf

04.04.07

British companies last year racked up their biggest profits since records began in 1965, official figures have revealed.

As evidence of a booming economy, businesses made £284billion, the Office for National Statistics reported – more than the gross domestic product of Belgium or Switzerland. That was up from £266billion in 2005.

The record returns were due to an explosion in revenues from financial services, rapid growth in high street spending and soaring sales generated by oil firms.

Among the biggest contributors were BP and Royal Dutch Shell, which each made more than £10billion last year because of a surge in energy prices. Royal Bank of Scotland, Barclays and Tesco also raked in record revenues and profits.

Excluding banks and insurers, companies earned net returns on their assets of 15.1 per cent – also the highest since 1965, the ONS reported. That is up from 14.3 per cent the previous year.

The figures suggest that UK plc is enjoying a golden era thanks to its ability to keep costs down while making customers pay more.

This demonstrates the continued health of the economy and provides a boost for Chancellor Gordon Brown, who depends on stronger profits to deliver a lift to the public finances.

However, such a jump in earnings will only add to fears that interest rates will have to rise beyond 5.25 per cent. The Bank of England is due to announce its latest rate decision tomorrow.

Adrian Cooper, economic adviser to the Ernst & Young ITEM Club said: “These numbers aren’t enough to push rates up, but if we continue to see strong demand and higher house prices, they would support higher interest rates.”

Economist Howard Archer of Global Insight said firms’ ability to bolster profits by lifting prices is “a development that the Bank of England is particularly concerned about at the moment”.

The profit figures also highlight the contrasting fortunes of businesses and families.

Individuals’ incomes are under huge pressure because of rising interest rates, taxes and a tight grip on wage demands. Incomes grew only 1.3 per cent last year – the slowest for nearly 25 years.

The figures also masked a poor performance by industry, which remains under pressure from lower-cost producers in China and India.

Last year manufacturers’ net returns slid to 8.5 per cent – the lowest since 1992. But service firms, which account for three-quarters of the economy, saw returns of a record 19.7 per cent.
Comment submitted for publication by John Donovan:

 

Huge profits but at what cost?


 Shell and BP both have atrocious safety records with scandalously high employee accident fatality statistics. Shell also has a terrible track record in respect of its activities in Nigeria, having conspired with successive Nigerian regimes to extract oil without regard for the health and prosperity of local populations who still live in abject poverty in a hellishly polluted environment. Shell has admitted that it has been responsible for fuelling violence and corruption in Nigeria.


 Turning to the high profits of banks, they have been engaged for years in applying unlawful penalties to their customers so that people who are in the most hard pressed financial circumstances are pushed to or over the brink. 


 Tesco is responsible for ruthlessly driving out small businesses all over the UK. 


 
  

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