4. Finance and banking

Public sector finance comprises the transactions of central government, local authorities and the public corporations. The major sources of central government revenue on current account are taxes on income and capital which yielded 41 per cent of revenue in 1978-1979 (£ 22.882 million); taxes on expenditure which yielded 33 per cent of revenue (£ 18.694 million); and national insurance contributions paid by employers and employees which yielded 16 per cent of revenue (£ 9.152 million).

For local authorities revenue derives mainly from Government grants, loans and "rates", local tax based on the valuation of property; in 1978-79 rates yielded £5.996 million. A large part of the public corporations' borrowing requirement is met by the central government but, in recent years, they have also borrowed directly themselves in foreign currencies.

Taxes on income comprise income tax and corporation tax. Taxes on individual incomes are progressive in that larger incomes bear a proportionately higher rate of tax. In general, income tax is charged on all income which has its origin in Britain and on all income arising abroad of people resident in Britain. Companies pay corporation tax at a single rate on all their profits, whether distributed or not; investment and other allowances reduce the tax burden considerably. Taxes on capital comprise capital gains tax, capital transfer tax and development land tax.

Expenditure taxes are largely excise duties on, for example, oil, tobacco and alcohol and a value added tax (VAT) levied on a wide range of goods and services. In the June 1979 Budget there was a shift from taxation on earnings to taxation on spending. Public expenditure in 1978-79, excluding the contingency reserve and debt interest, amounted to £ 63.000 million, of which 71 per cent was undertaken

by central government, 27 per cent by local authorities and the rest represented the capital expenditure of public corporations other than the nationalised industries.

The social services programme (education, the national health service, social security and personal welfare) accounted for nearly 51 per cent of the total programmes and defence expenditure for about 11 per cent.

The Bank of England is Britain's central bank. Its main functions are: to advise on the formulation of, and to execute, monetary and foreign exchange policy; to manage the domestic currency and - as agent for the Government - the foreign exchange reserves; and to supervise the banking system within Britain. The Bank acts as banker to the Government and commercial banks in Britain and to overseas central banks and international monetary institutions. Monetary policy is implemented by the Bank primarily through the money markets and the markets in British government gild-edged securities.

The principal deposit banks are the six London clearing banks; three Scottish clearing banks and two Northern Ireland banks. The Post Office National Girobank provides a low-cost current account banking and money transfer service; it is operated through most post offices in Britain.

Apart from banks and finance houses, the latter specialising in instalment credit for individuals and companies, the main groups of financial institutions are building societies which take deposits from the public and make loans to people who want to buy houses or flats, pension and life insurance funds, and investment trusts.

In addition there are various markets: the Stock Exchange, second only to the New York Stock Exchange in the value of securities quoted and their turnover; the commodity markets; the gold market; and the Baltic Exchange (for shipping and aviation) and Lloyd's (for insurance), both pre-eminent in their own fields.