08 Jul Inspired by Italian Style
The United Kingdom’s economic freedom score is 78.9, making its economy the 7th freest in the 2019 Index. Its overall score has increased by 0.9 point, with a big jump in fiscal health and higher scores for government integrity and government spending outweighing sharp drops in judicial effectiveness and monetary freedom. The U.K. is ranked 3rd among 44 countries in the Europe region, and its overall score is above the regional and world averages.
The U.K.’s 2019 departure from the European Union has prompted policymakers to address structural deficiencies such as lackluster productivity growth. The resilient economy’s recovery from the financial crisis was aided by effective rule of law, an open trade regime, and a well-developed financial sector. The already liberal labor market can be made more flexible after Brexit. The U.K. has one of the world’s most efficient business and investment environments and will soon be open to expanded global trade relationships.
Steady growth has made Britain’s economy, which has thrived ever since former Prime Minister Margaret Thatcher’s market reforms in the 1980s, the world’s fifth largest. In 2016, the U.K. voted in a popular referendum to leave the European Union. Current Conservative Party leader and Prime Minister Theresa May has been negotiating the terms of the March 2019 Brexit. The Tories, who ousted the Labour Party in 2010, lost their parliamentary majority in 2017 but retained power with the support of Northern Ireland’s Democratic Unionist Party. A series of high-profile, Brexit-related resignations in 2018 further weakened the May government. Services, particularly banking, insurance, and business services, are key drivers of GDP growth. Large oil and natural gas reserves are declining.
RULE OF LAW
Private property rights and contracts are very secure, although fees related to the enforcement of contracts were increased in 2018. The court system is efficient and independent. The rule of law is well established, and the World Economic Forum’s 2017–2018 Global Competitiveness Report ranked the U.K. 8th out of 137 countries. Isolated instances of bribery and corruption occur but are prosecuted vigorously.
The top personal income tax rate is 45 percent. The top corporate tax rate is 20 percent. Other taxes include value-added and environment taxes. The overall tax burden equals 33.2 percent of total domestic income. Over the past three years, government spending has amounted to 41.6 percent of the country’s output (GDP), and budget deficits have averaged 3.2 percent of GDP. Public debt is equivalent to 87.0 percent of GDP.
The regulatory environment is efficient and transparent. Starting a business takes less than a week. Bankruptcy proceedings are straightforward, and the labor market is relatively efficient. The government maintains a few price controls, such as regulated rates for most utilities and partial controls of prescription drug prices, and is likely to reform current agricultural subsidies after Brexit.
The combined value of exports and imports is equal to 62.5 percent of GDP. The average applied tariff rate is 2.0 percent. Some EU-directed nontariff trade barriers including technical and product-specific regulations, subsidies, and quotas may be adjusted or removed after Brexit. A well-developed financial sector continues to complement one of the world’s most efficient investment environments.