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Last Updated: Monday, 1 November, 2004, 00:51 GMT
Profits fall 'threatens pensions'
BMW's Mini production line in Oxford
Soaring oil and metal prices have hit UK firms, the CBI has said.
A fall in profits made by UK firms could threaten pensions, schools and jobs, the Confederation of British Industry (CBI) has warned.

It says the amount companies earn as a share of the UK's gross domestic product (GDP) has seen a "marked and worrying" decline since 1997.

The CBI blamed the fall on soaring oil and metals prices and extra tax and regulation, among other factors.

It called on Gordon Brown not to do anything to raise business costs.

Other causes the CBI highlighted for the fall in profits were increased pensions contributions and competition from emerging markets such as China.

'Wider issue'

CBI director general Digby Jones said the economy had been doing well in general, but this "relatively new" lower profits development was worrying.

"We have been through a period of profitless prosperity with firms not making as much money as in previous economic upswings," he said.

"Ministers and voters alike must realise this is not merely a business issue.

"With a significant proportion of all corporate profits going to pension funds and insurance companies as shareholders, poor profits mean lower pensions, less tax and fewer schools and hospitals."

'Labour's responsibility'

In its submission to the chancellor's pre-Budget report, the CBI said profits could have been more than 25bn higher in the past year alone if they had risen in line with GDP, as expected on average over the economic cycle.

But during this cycle, profits look to have peaked at just over 22% of GDP because of rising costs and downward pressure on prices.

This compared with peaks of above 25% during the previous two profit cycles, which reached their high-points in early 1997 and 1985, the CBI said.

"Weak profitability is not all the government's fault," added Mr Jones.

"But it is certainly the government's responsibility to do nothing to add to business costs with more regulation or taxation."




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