There is a well–identified empirical connection between the intensity of competition in product markets and better productivity performance (OECD, 2002a). In general, competitive pressures appear to be relatively strong in the United Kingdom but this does not mean that there is no room for improvement. The overhaul in competition legislation that occurred in recent years was long overdue and active enforcement along with the new market studies and market reference regimes of the competition enforcement agencies should help to ensure that markets are competitive. In service sectors the United Kingdom has experienced relatively strong labour productivity growth over the 1990s and a large part of this is due to the introduction of increased competition over this period. However, market power on the part of incumbent firms in some sectors remains a concern and current planning restrictions are inhibiting competition in the retail sector. While recent steps by the government overcome the most serious weaknesses of the privatised rail system, problems regarding incentives and clear lines of responsibility remain to be resolved...