Sectors of the Economy (SQA National 5 Business Management): Revision Note

Private sector

• Private sector firms are owned and controlled by other firms or private individuals (entrepreneurs and shareholders) and are usually funded by owners' capital, borrowing and retained profits

• Common forms of private sector ownership include

  • Sole traders, which are usually small businesses owned and run by one person

  • Partnerships, which are owned by between one and twenty people

  • Private limited companies, which are owned by a small number of shareholders

  • Public limited companies, which often have many thousands of shareholders and whose shares are listed on a stock exchange

• The objective of most private sector organisations is to make a profit by maximising revenue and minimising costs

• This often means the private sector is more efficient than the public sector with higher levels of productivity

Public sector

• Public sector firms are owned and controlled by the government and usually funded through taxation

• Their main goal is usually to provide a service

• Governments are likely to retain ownership of  organisations in the public sector for several reasons

  • They are strategically important to the country 

    • E.g. defence or justice systems

  • They provide essential services

    • E.g. water or electricity supply

  • They are merit goods that may not be provided in sufficient quantities by private businesses

    • E.g education or health services

The public sector in Scotland

• There are three different levels of government in Scotland, each of which provides a range of public services

1. The UK government

• Located in London, the UK government oversees a range of reserved matters that include

  • economic policy

  • defence

  • international relations

• The UK government is also responsible for certain bodies known as public corporations

  • These organisations are set up through Acts of Parliament and are usually funded by taxpayers

  • An example is the BBC, created under the 1922 Broadcasting Act. It receives its funding through the TV licence fee and is controlled by a board of trustees

2. The Scottish government

• The Scottish Government is based at Holyrood. It is responsible for devolved matters, which include

  • health

  • education

  • policing

  • transport

• The Scottish government also oversees some public corporations, such as Scottish Water, which provides water and waste-water services across the country

• The Scottish government has limited powers to raise income tax

  • Most of its money comes from a grant given by the UK Government

  • It uses this funding, alongside tax revenue, to set the budget for running Scotland

3. Local government

• Scottish local government is organised into 32 local authorities, more commonly known as councils

• Councils receive funding from the Scottish government but also raise money locally through council tax and various service charges

• These funds are used to provide a wide range of local services, such as

  • housing

  • social care

  • schools

  • road maintenance

Example of local government

• The Shetland Islands Council is the local authority for the Shetland Islands

• Based in Lerwick, it delivers a full range of local services to residents, including

  • Education

  • Housing

  • Roads and transport

  • Waste collection and recycling

  • Environmental health

  • Social work

  • Planning

• The council raises revenue through council tax, service charges, and grants, and its annual spending (in 2023/24) was around £161.8 million

Third sector

• Third sector organisations are voluntary, charitable and community-based organisations

• They are not owned by the government or by private individuals for profit

  • They are set up to meet social needs, support communities or promote causes

• They are usually funded through a mix of donations, fundraising, membership fees, grants and trading income

  • Some may also receive support from government contracts to deliver public services

• Common forms of third sector organisations include

  • Charities, which focus on helping particular groups in need (e.g., health, poverty, environment)

  • Voluntary organisations, which are run by volunteers for the benefit of a community

  • Social enterprises, which trade goods or services but reinvest their profits back into social or environmental causes

• The main objectives of third sector organisations are not to maximise profit but to:

  • provide services that benefit society

  • support vulnerable groups

  • campaign for social or environmental change