The balance of payments is made up of credits and debits on current account together with transfers on the capital and financial accounts, which are mainly made up of loans and currency transactions. (See also UK Balance of Payments(1): Goods and Services Trade, a post by S F Bush on 14th March 2013, and UK Balance of Payments (2): Investment Income and Transfers, 19th March 2013.)
1 Current account – in effect the country’s annual net income is made up of:
A payments for UK goods and services supplied to foreigners less payments made by UK residents for foreign goods and services
B income from investments abroad less income received by foreigners on their UK investments.
C transfers consisting of
(1) government transfers in respect of the EU, foreign aid and wars
(2) “other sectors” consisting of taxes paid to foreign governments, work remittances, etc.
|Income Category||Credits £Bn||Debits £Bn||Balance £Bn|
|of which: Vehicles||17||25||-8|
|TV and Radio||34||54||-20|
|of which: Transport & travel||12||35||15||53||-3||-18|
|A(3) Other business services||11||31||6||16||5||15|
|of which: Science & Engineering||4||10||2||4||2||6|
|Legal & Accounting||1.3||7||0.8||4||0.5||3|
|B: Income from Investments|
|B(1) Income from Direct Investments||21||80||11||35||10||45|
|B(2) Portfolio investment income by financial institutions||22||45||17||44||5||1|
|B(3) Bank deposits and loans||41||61||48||77||-7||-16|
|Total Investment income flows||84||186||76||156||8||30|
|of which C(1) Government||3||4||8||13||-5||-9|
|C(2) Other Sectors||–||12||–||15||–||-3|
Services typically consist of 11 components of which the City can be said to be responsible for contributions to two – A(21), A(22).
Commentators repeatedly attribute Direct Investment income B(1) to the City of London, whereas these flows actually arise from overseas investments like BP’s in the USA, China and Russia. These are nothing to do with the City and everything to do with BP’s technical and financial acumen.
Typically returns on investment from B(1) are three times those from portfolio investment B(2) which is attributable to the financial sector (but even this is not all attribable to the City since there are significant centres of financial activty in Edinburgh, Bristol ,Manchester.
Government transfers include some EU payments and foreign aid. Some EU payments, like customs duties, are included in “other sectors”.
Note: Statistical Office (NSO) presentation of data
The NSO always refers to the credits and debits in goods and services as “trade”, as does the financial press. The credits and debits are not trade in the barter sense but for finished goods more or less independent acts. Thus if we made no vehicles, the deficit on vehicles would not disappear, but simply increase to the total value of demand for vehicles as in Belgium or Switzerland. The same goes for every other form of finished product as well as oil and gas.