Britain falling behind in Europe's profit rankings

Britain has become one of the least profitable countries to do business in Europe, according to a report published today.

On average, UK companies make an annual profit per customer of a little less than €76 (£52), less than businesses in Europe's other major economies - Germany, France, Italy and Spain.

Italian companies are on average the most profitable, reaping more than €104 a year from each of their clients.

The study, by a software company called Group 1, examined companies across five major sectors - banks, utilities, retailers, general insurers and mobile phone operators - with Britain emerging as the least profitable trading environment in three out of the five areas.

In the general insurance sector, British companies make just €51.40 per customer each year, compared with €78.60 in Germany and €83.60 in Spain. While British mobile phone companies also have relatively low margins, making just €57.70 per customer each year. French mobile phone companies squeeze more than 40 per cent more out of their clients.

Across the Continent, the report identifies the utility sector as the most profitable. However, in spite of heavy price rises over the last year, UK companies make much smaller profits in this sector than their continental European rivals. Group 1 says British utilities glean an average of €86.50 a year from their clients, while Italian companies in the same sector generate €137 - almost 60 per cent higher.

In the banking and retail sectors, Britain does not fare as badly. The report identifies Britain as the third most profitable environment for banks, behind Italy and Spain, but ahead of France and Germany. This may be about to change, with the Office of Fair Trading, headed by John Fingleton, drawing up plans to cap £25-plus bank charges for late payments at just £12.

The report also highlights the growing numbers of British banking customers defecting to other organisations. Last year, Group 1 claimed some 17.5 per cent of customers took their business elsewhere, compared with rates of less than 10 per cent in the 1990s and before. This increased competition has forced banks to price more competitively, slashing their margins.

The UK also comes third in the retail sector, beating Germany and Spain, but lagging behind France and Italy. Italian retailers prosper very well, making an average annual profits per customer of €111.30 - more than one-third more than second-placed France, and almost 50 per cent more than British retailers.

Group 1 attributes lower returns for British firms on intense competition in all sectors in the UK, helped by the Government's policy of facilitating and maintaining a free-market and deregulated economy.