Interesting and accessible information, links, video and more for students, teachers and anyone looking for an understanding of economic issues.

Profit margins - who is making money and how much is too much?

There's a great deal of fuss in the papers about company profit margins.  Profit is the thing you make as a reward for running a business.  It also gives you the money you need if you want to invest in new products, machinery or buildings.

How much profit is too much?  Perhaps it depends on the industry and perhaps it depends on your political views.  However, when you see figures such as Tesco making £2,188,000,000 (just over £2 Billion), remember that it depends on how this relates to their total sales - in Tesco's case it is just £3.3% or £3.30 per £100 of stuff that they sell.

Below are some examples of Operating Profit Margins.  SSE, nPower and Centrica (British Gas) are all power companies - you will recognise the rest of them.

SSE 2.34%
nPower 7.57%
Centrica 10.96%
Tesco 3.30%
Next 19.51%
Wetherspoons 7.14%
Vodafone 10.64%
Apple 28.67%
HSBC 27.31%

Mr Cameron - the real problem of UK Competitiveness is NOT the EU

The UK Prime Minister, David Cameron spoke last week about a 'crisis of European Competitiveness' and he cited issues such as the rights of workers, including the Working Time Directive, as being a source of some of the problems. (More on the Working Time Directive here:

The evidence on this is mixed and it could be argued that the crisis in competitiveness is the fault of the UK itself and its own economic failures rather than anything 'European'.

Economic students will know that economic growth is largely dependent on a country's improvements in 'productive capacity' in terms of investment in technology, factories, infrastructure and people.  An economy needs to spend money on the future in order to ensure that it can increase production and remain competitive compared to its neighbours.  To what extent has the UK done this?

Labour productivity

The UK Office for National Statistics has looked at a range of data and the productivity figures are very interesting.

If you measure the amount of GDP per each hour worked by each worker in the economy, Germany is around 21% higher and France is around 23% higher.  (Gross Domestic Product is the total output of the economy in a year.)

If the UK were as productive as them then UK workers could work four days a week instead of five and still produce the same amount of output!

Why this is the case could be due to any number of reasons: lack of investment, poor UK management, inefficient and lazy UK workers, lack of training, a less educated workforce, poor use of technology, etc.  However, what is less likely to be the cause for this differential is European legislation because surely that would equally affect France and Germany?

Granted, there is a small case to be made when comparisons are made between Europe and the USA which has higher levels of productivity than all three countries mentioned here, but this could be due to a variety of factors including the economies of scale of the US being such a massive market.


Economists refer to Business Investment in factories and infrastructure as Gross Fixed Capital Formation.  On this basis the UK spends around 14% of GDP, Germany 18% and France 20% on Investment.

This has tended to be the case for a number of years, therefore every year our competitors are improving their productive capacity to a greater extent than the UK.


The UK has a competiveness problem but David Cameron's focus on elements such as the Working Time Directive and other similar points seem to be misguided - the argument for reducing the rights of workers is complicated, both economically and politically, moreover, they don't appear to be the main problem.

Before the UK looks to 'Europe' as the cause of the competitiveness issue we could do with learning some lessons from some of our continental cousins and then sort out our own shortcomings first.