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Globalisation and the UK – meeting the economic challenge

HM Treasury, London, December 2005

Download: Click here to download the paper from HM Treasury's website

This paper considers the drivers of globalisation and examines the implications for microeconomic policy in the UK. It finds that UK-based businesses are leading the response to globalisation, combining traditions of openness and trade with an evolving culture of entrepreneurship to seize the opportunities that new markets, new technologies and more intense competition offer. Businesses are in the front line in responding to changing markets and new  opportunities with changes to their strategies in a range of areas including investment, employment, training, research and development, product development, creativity and market strategy.

The paper considers a number of factors that impact on the UK’s response:

  • how macroeconomic stability and a flexible business environment provide the foundations necessary for a prosperous domestic economy, and how this is made more important by globalisation; and
  • the importance of comparative advantage and new economic geography theories in explaining how globalisation impacts on businesses’ location decisions.

In the light of this analysis, the paper identifies priorities for the policy response to enable the UK to respond successfully to the challenges of globalisation.  In particular, it draws out five policy areas in which the UK needs to make substantial further progress in order to benefit fully and secure the gains from globalisation:

  • the importance of meeting changing skills needs;
  • strengthening the capacity for science and innovation;
  • reducing regulatory burdens on business;
  • ensuring that the planning system is flexible and responsive to changing economic needs; and 
  • ensuring that the UK’s transport infrastructure supports a flexible and enterprising business sector.

Reducing administrative burdens: effective inspection and enforcement

The Hampton Review, March 2005

Download: Click here to download the report from HM Treasury's website

Philip Hampton's review considered how to reduce administrative burdens on business in the UK without compromising excellence in regulatory outcomes.  The final report was published with the 2005 Budget.

He finds that there is much good practice in UK regulation, but also that the system, as a whole, is complicated and good practice is not uniform. Overlaps in regulators’ activities mean there are too many forms, too many duplicate information requests and multiple inspections imposed on businesses.

The Review proposes entrenching the principle of risk assessment throughout the regulatory system, so that the burden of enforcement falls most on highest-risk businesses and least on those with the best records of compliance. At present, not only are unnecessary inspections carried out, but necessary inspections are not carried out. Under the proposals in the report, inspection rates would be reduced where risks are low, but enhanced where necessary.

The Review estimates, based on regulators’ past experience, that comprehensive risk assessment in a streamlined structure could:

  • reduce the need for inspections by up to a third, which means around one million fewer inspections; and
  • reduce the number of forms regulators send out by perhaps 25 per cent.

In addition, the review recommends:

  • making much more use of advice, again applying the principle of risk assessment;
  • substantially reducing the need for form-filling – in practice, most businesses’ most frequent and direct experience of regulatory enforcement – and other regulatory information requirements;
  • applying tougher and more consistent penalties where these are deserved;
  • reducing the number of regulators that businesses have to deal with, by merging 31 national regulators into 7;
  • entrenching reform by requiring all new policies and regulations to consider enforcement, and use existing structures wherever possible; and
  • creating a new business-led body at the centre of Government to drive implementation of the recommendations and challenge departments on their regulatory performance.

Creating an enterprise culture
HM Treasury, London, January 2004

Download: Click here to download this paper from HM Treasury's website

This discussion paper formed part of the background to the Chancellor's enterprise conference in London on 26 January 2004. 

The UK aims to be the best environment for business with ever more positive attitudes towards enterprise. However, levels of entrepreneurial activity still lag behind those of the US - this is the so-called 'enterprise gap'. This paper sets out:
• evidence about the UK’s entrepreneurial activity and attitudes to enterprise;
• the importance of an entrepreneurial mindset in creating a dynamic and prosperous society; and
• the challenge ahead: what actions should be taken to strengthen our enterprise culture?

Bridging the finance gap: improving access to growth capital for small businesses

HM Treasury, London, December 2003

Download: Click here to download this paper from HM Treasury's website

This document outlines the steps taken by the UK Government in 2004 to improve access to growth capital for small businesses. It outlines the Government's intention to take forward a range of measures to enhance both the investment in potentially high-growth SMEs affected by the finance gap, and to enhance SMEs' own knowledge and awareness of the finance options available to them.

It led to a number of reforms, including the launch of Enterprise Capital Funds, the creation of the Capital for Enterprise Board and subsequently Capital for Enterprise Limited, an arm's length body to manage the government portfolio of investments and supports for small businesses in the UK, and major revisions to the UK government's Small Firms Loan Guarantee - now supreceded by the Enterprise Finance Guarantee.

See the website of the Capital for Enterprise, the UK government-owned investment company set up to manage the government's portfolio of investment vehicles in small businesses, for more details:
Enterprise Capital Funds
Capital for Enterprise Limited
and the pages on loan guarantees:
Enterprise Finance Guarantee

Enterprise Britain: a modern approach to meeting the enterprise challenge
HM Treasury, London, November 2002

Enterprise Britain


Download: Click here to download this paper from HM Treasury's website

This paper explains why enterprise is central to the Government’s approach to economic policy and to rebuilding communities, and sets out the principles that underlie a modern approach to enterprise policy. It also outlines the steps the Government is taking to ensure that the UK realises its full entrepreneurial potential, by:

  • building a more enterprising society, in which all who have the initiative, skills and drive also have the opportunity to start and run a successful business;
  • creating the best environment in the world to start and grow a business;
  • tackling specific barriers that inhibit successful enterprise; and
  • raising levels of enterprise in the UK’s least prosperous communities, where these barriers are typically greatest.



An Empirical Study on Contractual Heterogeneity within the Firm: The "Vertical Integration - Incentive Contracts" Mix

Luisa Affuso, Department of Applied Economics, University of Cambridge, May 2002

The retail industry is characterised by a mixture of stores directly owned by parent companies ("vertically integrated") and franchise outlets.  This paper examines the motivation for decisions to use these different forms of contracting,  This paper suggests that the mix of contracts observed reflects a "separating equilibrium", in which the form of contract is chosen reflects uncertainty about the state of demand in the market and asymmetric information. 

Using a newly-created dataset based on a survey at firm- and outlet-level to develop a discrete choice model, the study shows that contract choices are an attempt to secure the best outcomes for the brand owner (principal) in the trade-off between incentives and risk sharing, overcoming moral hazard and adverse selection problems by getting agents to self-select.  This self selection mechanism is also optimal for outlet owners/managers, who are able to maximise their utility by picking the form of contract to which they are best suited.

Download: Click here to download from the Econometric Society website

Link:  A revised version of this paper was published in Applied Economics Volume 34 Number 8, May 2002. A more detailed description of the analysis can be found on the website of the  Econometric Society: meetings page


Intra-Firm Retail Contracting: Survey Evidence from the UK
Luisa Affuso, Department of Applied Economics, University of Cambridge, November 2000


This paper looks at intra-firm contractual practices in retailing. It examines existing explanations, illustrates some limitations, and proposes a new hypothesis to explain the adoption of both vertical integration and delegation within firms. This focuses on the human capital of potential retailers i.e., on the existence of a ‘workers’ selection mechanism’ to determine the (upstream and downstream) contract choice. This hypothesis is supported by evidence from a survey of UK companies conducted for the purpose of this study. Further hypotheses are tested by means of econometric analysis.

Download: Click here to download from the Department of Applied Economics website


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