The UK economy — what Britain actually earns from

Services dominate. Financial and insurance services, professional and business services, information and communication, health and social work, education, retail and hospitality together account for roughly four fifths of gross value added and a similar share of employment.

Financial services are the most internationally visible. London remains one of the two largest global financial centres alongside New York, with particular strength in foreign exchange, insurance and asset management. It is also politically awkward: the sector is a very large exporter and taxpayer, and also the reason the 2008 crisis hit Britain unusually hard.

The creative industries — film and television production, music, publishing, advertising, video games and design — are among the fastest-growing parts of the economy and a substantial export. British production studios have become a significant location for international film and television, supported by production tax reliefs.

Manufacturing has fallen to around 9 per cent of output from over 30 per cent in the 1970s. What remains is concentrated in high-value niches: aerospace, pharmaceuticals, automotive, food and drink, and specialist engineering. Britain remains a large aerospace and pharmaceutical producer despite the overall decline.

Agriculture is a small share of output, around 0.6 per cent, but occupies about 70 per cent of the land.

Output per head in London is substantially above the UK average, and several regions sit well below it. On most measures Britain has among the widest regional productivity gaps in western Europe.

The causes are contested. The usual candidates are the decline of heavy industry without adequate replacement, transport infrastructure that connects regional cities to London better than to each other, the concentration of government and corporate headquarters in one city, and skilled workers moving to where wages are highest.

Successive governments have tried to address it — regional development agencies, the Northern Powerhouse, city deals, levelling up, and English devolution to combined authorities. The gap has narrowed only marginally.

The practical consequence for individuals is that wages, house prices and living costs all vary far more between British regions than the country's small size suggests. A salary that is comfortable in Sheffield is not in Reading.

The three big revenue sources are income tax, National Insurance contributions and VAT, which together provide well over half of receipts. Corporation tax, fuel duty, council tax and business rates make up most of the rest.

Income tax is progressive, with a personal allowance below which no tax is paid and rates rising in bands. The personal allowance and higher-rate threshold have been frozen rather than uprated for several years, which raises revenue through fiscal drag as wages rise — an effect sometimes described as a stealth tax. Scotland sets its own rates and bands on earned income.

National Insurance is a separate charge on earnings, paid by both employees and employers, which builds entitlement to the state pension and some contributory benefits. Employer National Insurance is a significant cost of employment and was increased from April 2025.

VAT is charged at a standard rate of 20 per cent, with a reduced rate of 5 per cent on domestic energy and some other supplies, and a zero rate on most food, children's clothing, books and public transport. The zero rate is unusual internationally and is why grocery shopping carries no VAT.

Because rates and thresholds change every April, this page deliberately avoids quoting specific figures — check GOV.UK for current rates.

The Bank of England has been operationally independent since 1997, with a mandate to hit a 2 per cent CPI inflation target set by the Chancellor. Its Monetary Policy Committee sets Bank Rate, and it also runs quantitative easing and tightening.

The 2022–23 inflation episode, driven by energy prices and post-pandemic supply pressures, pushed CPI above 11 per cent and Bank Rate from near zero to its highest level in over a decade. The resulting rise in mortgage costs was the sharpest transmission of monetary policy into household budgets in a generation.

Britain's persistent structural issues are well documented and largely agreed on across the political spectrum, even where the remedies are not: weak productivity growth since the financial crisis, low business investment relative to comparable economies, a large current account deficit, high housing costs relative to income, and an ageing population increasing health and pension spending.

Leaving the European Union has changed the trading relationship substantially. The Office for Budget Responsibility's published assessment has consistently assumed a long-run reduction in UK productivity relative to remaining in the EU, alongside changes to trade volumes and migration patterns. The size of these effects remains politically contested, and the OBR's assumptions are the standard reference point rather than a settled measurement.