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Cover design: The Word Express Doing Business 2014 United Kingdom 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 5 Starting a business ..................................................................................................................... 14 Dealing with construction permits ........................................................................................... 23 Getting electricity ....................................................................................................................... 35 Registering property .................................................................................................................. 43 Getting credit .............................................................................................................................. 55 Protecting investors ................................................................................................................... 62 Paying taxes ................................................................................................................................ 71 Trading across borders .............................................................................................................. 78 Enforcing contracts .................................................................................................................... 86 Resolving insolvency .................................................................................................................. 95 Employing workers .................................................................................................................. 100 Data notes ................................................................................................................................. 107 Resources on the Doing Business website ............................................................................ 113 Doing Business 2014 United Kingdom 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is (except for the paying taxes indicators, which cover the for a local entrepreneur to open and run a small to period January–December 2012). medium-size business when complying with relevant The Doing Business methodology has limitations. Other regulations. It measures and tracks changes in areas important to business—such as an economy’s regulations affecting 11 areas in the life cycle of a proximity to large markets, the quality of its business: starting a business, dealing with construction infrastructure services (other than those related to permits, getting electricity, registering property, trading across borders and getting electricity), the getting credit, protecting investors, paying taxes, security of property from theft and looting, the trading across borders, enforcing contracts, resolving transparency of government procurement, insolvency and employing workers. macroeconomic conditions or the underlying strength In a series of annual reports Doing Business presents of institutions—are not directly studied by Doing quantitative indicators on business regulations and the Business. The indicators refer to a specific type of protection of property rights that can be compared business, generally a local limited liability company across 189 economies, from Afghanistan to Zimbabwe, operating in the largest business city. Because over time. The data set covers 47 economies in Sub- standard assumptions are used in the data collection, Saharan Africa, 33 in Latin America and the Caribbean, comparisons and benchmarks are valid across 25 in East Asia and the Pacific, 25 in Eastern Europe economies. The data not only highlight the extent of and Central Asia, 20 in the Middle East and North obstacles to doing business; they also help identify the Africa and 8 in South Asia, as well as 31 OECD high- source of those obstacles, supporting policy makers in income economies. The indicators are used to analyze designing regulatory reform. economic outcomes and identify what reforms have More information is available in the full report. Doing worked, where and why. Business 2014 presents the indicators, analyzes their This economy profile presents the Doing Business relationship with economic outcomes and presents indicators for United Kingdom. To allow useful business regulatory reforms. The data, along with comparison, it also provides data for other selected information on ordering Doing Business 2014, are economies (comparator economies) for each indicator. available on the Doing Business website at The data in this report are current as of June 1, 2013 http://www.doingbusiness.org. Doing Business 2014 United Kingdom 5 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s regulatory environment for business, a good place to ECONOMY OVERVIEW start is to find out how it compares with the regulatory environment in other economies. Doing Business provides an aggregate ranking on the ease of doing Region: OECD high income business based on indicator sets that measure and benchmark regulations applying to domestic small to Income category: High income medium-size businesses through their life cycle. Economies are ranked from 1 to 189 by the ease of Population: 63,227,526 doing business index. For each economy the index is calculated as the ranking on the simple average of its GNI per capita (US$): 38,250 percentile rankings on each of the 10 topics included in the index in Doing Business 2014: starting a business, DB2014 rank: 10 dealing with construction permits, getting electricity, registering property, getting credit, protecting DB2013 rank: 11* investors, paying taxes, trading across borders, Change in rank: 1 enforcing contracts and resolving insolvency. The ranking on each topic is the simple average of the DB 2014 DTF: 83.52 percentile rankings on its component indicators (see the data notes for more details). The employing workers DB 2013 DTF: 83.66 indicators are not included in this year’s aggregate ease of doing business ranking, but the data are presented Change in DTF: -0.18 in this year’s economy profile. The aggregate ranking on the ease of doing business * DB2013 ranking shown is not last year’s published benchmarks each economy’s performance on the ranking but a comparable ranking for DB2013 that indicators against that of all other economies in the captures the effects of such factors as data Doing Business sample (figure 1.1). While this ranking corrections and the addition of 4 economies (Libya, tells much about the business environment in an Myanmar, San Marino and South Sudan) to the economy, it does not tell the whole story. The ranking on sample this year. See the data notes for sources and the ease of doing business, and the underlying definitions. indicators, do not measure all aspects of the business environment that matter to firms and investors or that affect the competitiveness of the economy. Still, a high ranking does mean that the government has created a regulatory environment conducive to operating a business. Doing Business 2014 United Kingdom 6 THE BUSINESS ENVIRONMENT Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2014 United Kingdom 7 THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy relative to the regional average (figure 1.2). The stands in the aggregate ranking on the ease of economy’s rankings on the topics included in the doing business is useful. Also useful is to know how ease of doing business index provide another it ranks relative to comparator economies and perspective (figure 1.3). Figure 1.2 How United Kingdom and comparator economies rank on the ease of doing business Source: Doing Business database. Doing Business 2014 United Kingdom 8 THE BUSINESS ENVIRONMENT Figure 1.3 How United Kingdom ranks on Doing Business topics Source: Doing Business database. Doing Business 2014 United Kingdom 9 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing business Doing Business introduced the distance to frontier tells only part of the story, so do changes in that ranking. measure. This measure shows how far on average an Yearly movements in rankings can provide some indication economy is from the best performance achieved by any of changes in an economy’s regulatory environment for economy on each Doing Business indicator since 2005, firms, but they are always relative. except for the getting electricity indicators, which were introduced in 2009. Moreover, year-to-year changes in the overall rankings do not reflect how the business regulatory environment in an Comparing the measure for an economy at 2 points in economy has changed over time—or how it has changed time allows users to assess how much the economy’s in different areas. To aid in assessing such changes, regulatory environment as measured by Doing Business has changed over time—how far it has moved toward (or away from) the most efficient practices and strongest regulations in areas covered by Doing Business (figure 1.4). Figure 1.4 How far has United Kingdom come in the areas measured by Doing Business? Note: The distance to frontier measure shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator since 2005, except for the getting electricity indicators, which were introduced in 2009. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). The overall distance to frontier is the average of the distance to frontier in the first 9 indicator sets shown in the figure and does not include getting electricity. Data on the overall distance to frontier including getting electricity is available at http://www.doingbusiness.org/data/distance-to-frontier. See the data notes for more details on the distance to frontier measure. Source: Doing Business database. Doing Business 2014 United Kingdom 10 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part business regulation—such as a regulatory process that of the story (table 1.1). The indicators, on their own or can be completed with a small number of procedures in comparison with the indicators of a good practice in a few days and at a low cost. Comparison of the economy or those of comparator economies in the economy’s indicators today with those in the previous region, may reveal bottlenecks reflected in large year may show where substantial bottlenecks persist — numbers of procedures, long delays or high costs. Or and where they are diminishing. they may reveal unexpected strengths in an area of Table 1.1 Summary of Doing Business indicators for United Kingdom United Kingdom DB2014 United Kingdom DB2013 Best performer globally United States DB2014 Singapore DB2014 Germany DB2014 Ireland DB2014 Indicator France DB2014 Japan DB2014 DB2014 Starting a Business 28 18 41 111 12 120 3 20 New Zealand (1) (rank) Procedures (number) 6 6 5 9 4 8 3 6 New Zealand (1)* Time (days) 12.0 12.0 6.5 14.5 10.0 22.0 2.5 5.0 New Zealand (0.5) Cost (% of income per 0.3 0.7 0.9 4.7 0.3 7.5 0.6 1.5 Slovenia (0.0) capita) Paid-in Min. Capital (% 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 112 Economies (0.0)* of income per capita) Dealing with Hong Kong SAR, Construction Permits 27 26 92 12 115 91 3 34 China (1) (rank) Hong Kong SAR, Procedures (number) 12 12 9 9 12 14 11 16 China (6) Time (days) 88.0 88.0 184.0 97.0 156.0 193.0 26.0 91.0 Singapore (26.0) Doing Business 2014 United Kingdom 11 United Kingdom DB2014 United Kingdom DB2013 Best performer globally United States DB2014 Singapore DB2014 Germany DB2014 Ireland DB2014 Indicator France DB2014 Japan DB2014 DB2014 Cost (% of income per 66.0 62.4 244.4 46.7 446.3 28.1 15.7 16.7 Qatar (1.1) capita) Getting Electricity 74 64 42 3 100 26 6 13 Iceland (1) (rank) Procedures (number) 5 5 5 3 5 3 4 4 10 Economies (3)* Time (days) 126 105 79 17 205 105 36 60 Germany (17) Cost (% of income per 91.9 108.9 43.3 46.9 89.4 0.0 27.5 15.6 Japan (0.0) capita) Registering Property 68 71 149 81 57 66 28 25 Georgia (1) (rank) Procedures (number) 6 6 8 5 5 6 5 4 4 Economies (1)* Time (days) 21.5 28.5 49.0 40.0 37.0 13.0 5.5 12.0 New Zealand (1.0)* Cost (% of property 4.7 4.7 6.1 5.7 2.6 5.8 2.9 3.4 5 Economies (0.0)* value) Getting Credit (rank) 1 1 55 28 13 28 3 3 Malaysia (1)* Strength of legal rights 10 10 7 7 9 7 10 9 10 Economies (10)* index (0-10) Depth of credit 6 6 4 6 5 6 5 6 31 Economies (6)* information index (0-6) Public registry coverage 0.0 0.0 43.6 0.0 0.0 0.0 0.0 0.0 Portugal (100.0)* (% of adults) Private bureau 100.0 100.0 0.0 100.0 100.0 100.0 60.3 100.0 22 Economies (100.0)* coverage (% of adults) Protecting Investors 10 10 80 98 6 16 2 6 New Zealand (1) (rank) Extent of disclosure 10 10 10 5 10 7 10 7 10 Economies (10)* Doing Business 2014 United Kingdom 12 United Kingdom DB2014 United Kingdom DB2013 Best performer globally United States DB2014 Singapore DB2014 Germany DB2014 Ireland DB2014 Indicator France DB2014 Japan DB2014 DB2014 index (0-10) Extent of director 7 7 1 5 6 6 9 9 Cambodia (10) liability index (0-10) Ease of shareholder 7 7 5 5 9 8 9 9 3 Economies (10)* suits index (0-10) Strength of investor 8.0 8.0 5.3 5.0 8.3 7.0 9.3 8.3 New Zealand (9.7) protection index (0-10) United Arab Emirates Paying Taxes (rank) 14 17 52 89 6 140 5 64 (1) Payments (number per Hong Kong SAR, 8 8 7 9 9 14 5 11 year) China (3)* United Arab Emirates Time (hours per year) 110 110 132 218 80 330 82 175 (12) Trading Across Borders 16 16 36 14 20 23 1 22 Singapore (1) (rank) Documents to export 4 4 2 4 2 3 3 3 Ireland (2)* (number) Time to export (days) 8 8 10 9 8 11 6 6 5 Economies (6)* Cost to export (US$ per 1,005 1,000 1,335 905 1,160 890 460 1,090 Malaysia (450) container) Documents to import 4 4 2 4 2 5 3 5 Ireland (2)* (number) Time to import (days) 6 6 11 7 10 11 4 5 Singapore (4) Cost to import (US$ per 1,050 1,045 1,445 940 1,121 970 440 1,315 Singapore (440) container) Enforcing Contracts 56 57 7 5 62 36 12 11 Luxembourg (1) (rank) Doing Business 2014 United Kingdom 13 United Kingdom DB2014 United Kingdom DB2013 Best performer globally United States DB2014 Singapore DB2014 Germany DB2014 Ireland DB2014 Indicator France DB2014 Japan DB2014 DB2014 Time (days) 437 437 395 394 650 360 150 370 Singapore (150) Cost (% of claim) 39.9 39.9 17.4 14.4 26.9 32.2 25.8 18.4 Bhutan (0.1) Procedures (number) 28 28 29 30 21 31 21 32 Singapore (21)* Resolving Insolvency 7 8 46 13 8 1 4 17 Japan (1) (rank) Time (years) 1.0 1.0 1.9 1.2 0.4 0.6 0.8 1.5 Ireland (0.4) Cost (% of estate) 6 6 9 8 9 4 3 7 Norway (1) Outcome (0 as piecemeal sale and 1 as 1 1 0 1 1 1 1 1 going concern) Recovery rate (cents on 88.6 88.6 48.3 82.9 87.6 92.8 89.4 81.5 Japan (92.8) the dollar) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. For more information on “no practice” marks, see the data notes. * Two or more economies share the top ranking on this indicator. A number shown in place of an economy’s name indicates the number of economies that share the top ranking on the indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2014 United Kingdom 14 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for business owners and employees. Legal entities can INDICATORS MEASURE outlive their founders. Resources are pooled as several shareholders join forces to start a company. Procedures to legally start and operate a Formally registered companies have access to company (number) services and institutions from courts to banks as Preregistration (for example, name well as to new markets. And their employees can verification or reservation, notarization) benefit from protections provided by the law. An additional benefit comes with limited liability Registration in the economy’s largest companies. These limit the financial liability of business city company owners to their investments, so personal Postregistration (for example, social security assets of the owners are not put at risk. Where registration, company seal) governments make registration easy, more entrepreneurs start businesses in the formal sector, Time required to complete each procedure creating more good jobs and generating more (calendar days) revenue for the government. Does not include time spent gathering What do the indicators cover? information Doing Business measures the ease of starting a Each procedure starts on a separate day (2 business in an economy by recording all procedures cannot start on the same day). procedures officially required or commonly done in Procedures that can be fully completed practice by an entrepreneur to start up and online are an exception to this rule. formally operate an industrial or commercial Procedure completed once final document is business—as well as the time and cost required to received complete these procedures. It also records the paid-in minimum capital that companies must No prior contact with officials deposit before registration (or within 3 months). Cost required to complete each procedure The ranking on the ease of starting a business is (% of income per capita) the simple average of the percentile rankings on the 4 component indicators: procedures, time, cost Official costs only, no bribes and paid-in minimum capital requirement. No professional fees unless services required To make the data comparable across economies, by law Doing Business uses several assumptions about the Paid-in minimum capital (% of income business and the procedures. It assumes that all per capita) information is readily available to the entrepreneur and that there has been no prior contact with Deposited in a bank or with a notary before officials. It also assumes that the entrepreneur will registration (or within 3 months) pay no bribes. And it assumes that the business:  Has a start-up capital of 10 times income per  Is a limited liability company, located in the capita. largest business city and is 100% domestically  Has a turnover of at least 100 times income per owned. capita.  Has between 10 and 50 employees.  Does not qualify for any special benefits.  Conducts general commercial or industrial  Does not own real estate. activities. Doing Business 2014 United Kingdom 15 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in United procedures, takes 12.0 days, costs 0.3% of income per Kingdom? According to data collected by Doing capita and requires paid-in minimum capital of 0.0% of Business, starting a business there requires 6 income per capita (figure 2.1). Figure 2.1 What it takes to start a business in United Kingdom Paid-in minimum capital (% of income per capita): 0.0 Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the starting a business indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2014 United Kingdom 16 STARTING A BUSINESS Globally, United Kingdom stands at 28 in the ranking and the regional average ranking provide other useful of 189 economies on the ease of starting a business information for assessing how easy it is for an (figure 2.2). The rankings for comparator economies entrepreneur in United Kingdom to start a business. Figure 2.2 How United Kingdom and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2014 United Kingdom 17 STARTING A BUSINESS What are the changes over time? The benchmarks provided by the economies that over 2.3) can help show what is possible in making it easier time have had the best performance regionally or to start a business. And changes in regional averages globally on the procedures, time, cost or paid-in can show where United Kingdom is keeping up—and minimum capital required to start a business (figure where it is falling behind. Figure 2.3 Has starting a business become easier over time? Procedures (number) Time (days) Doing Business 2014 United Kingdom 18 STARTING A BUSINESS Cost (% of income per capita) Paid-in minimum capital (% of income per capita) Note: Ninety economies globally have no paid-in minimum capital requirement. DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 United Kingdom 19 STARTING A BUSINESS Economies around the world have taken steps making greater firm satisfaction and savings and more it easier to start a business—streamlining procedures registered businesses, financial resources and job by setting up a one-stop shop, making procedures opportunities. simpler or faster by introducing technology and What business registration reforms has Doing Business reducing or eliminating minimum capital requirements. recorded in United Kingdom (table 2.1)? Many have undertaken business registration reforms in stages—and they often are part of a larger regulatory reform program. Among the benefits have been Table 2.1 How has United Kingdom made starting a business easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. The United Kingdom made starting a business easier by DB2014 providing model articles for use in preparing memorandums and articles of association. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 United Kingdom 20 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY United Kingdom is a set of specific procedures— the bureaucratic and legal steps that an entrepreneur must complete to incorporate and City: London register a new firm. These are identified by Doing Business through collaboration with relevant local Legal Form: Private Limited Company (Ltd) professionals and the study of laws, regulations and Paid in Minimum Capital Requirement: None publicly available information on business entry in that economy. Following is a detailed summary of Start-up Capital: 10 times GNI per capita those procedures, along with the associated time and cost. These procedures are those that apply to a company matching the standard assumptions (the “standardized company”) used by Doing Business in collecting the data (see the section in this chapter on what the indicators measure). Summary of procedures for starting a business in United Kingdom—and the time and cost Time to No. Procedure Cost to complete complete Check name for uniqueness at the company names index database on the web This procedure can be done at Less than one day 1 no charge http://wck2.companieshouse.gov.uk/b2366611298171d46dc7fbf07eee4 (online procedure) e08/wcframe?name=accessCompanyInfo Procedure can be done online Prepare memorandum and articles of association; fill out and sign Form IN01 (application for registration). Forms are available free of charge from the Companies House website: www.companieshouse.gov.uk. The company limited by shares that has adopted model articles without modification does not need to deliver a copy for registration. Form IN01 must be signed by all the subscribers. In addition to the memorandum and articles of association an application to register a company must contain the following information included on the form IN01 which should be lodged with 1 day GBP 35 2 the relevant Registrar of Companies (i.e. for England and Wales (or Wales), Scotland or Northern Ireland): (i) Statement of compliance with all requirements of the Companies Act 2006; (ii) Application for registration of the company covering: - Proposed name (see section 3.6 for more detailed information on choosing a company name); - Country of registration office (e.g. England and Wales (or Wales), Scotland or Northern Ireland); - Whether the liability of the members is to be limited and if so whether by shares or guarantee; and; Doing Business 2014 United Kingdom 21 Time to No. Procedure Cost to complete complete - Whether public or private; (iii) If the application is delivered by agents acting on behalf of the subscribers, the agent’s name and address, as was the case under the Companies Act 1985. In addition, in the event that the application is delivered by an agent for the subscribers, they must also confirm that the requirements of the Companies Act 2006 relating to the registration have been complied with; (iv) In the case of a company with a share capital, the application must also include a statement of the capital and initial shareholdings, including the name and address of the subscriber. It is a director who can appoint a service address. This is provided for in section 242 Companies Act 2006; (v) A statement of the proposed officers, being the first director and company secretary (unless in the case of a private company there is no company secretary); (vi) A statement of the intended registered office address; and (vii) A copy of the proposed articles of association (unless the model articles are adopted in their entirety). Incorporation can be done electronically or by paper. A same-day service is available. File incorporation documents with the Registrar of Companies at Companies House Fees for filing incorporation documents vary. The standard registration fee is GBP 14 for software and GBP 40 for paper. Same-day incorporation fees are GBP 30 for software and GBP 100 for paper. Registration is either submitted online or at the office (There are computers with software at every branch of the Company registry). 1 day GBP 30 3 Web-filed incorporation costs now GBP 15. Same-day incorporation (what we take into account) fees are GBP 30 for software and GBP 100 for paper. A Copy of the fee schedule can also be found here: http://www.companieshouse.gov.uk/toolsToHelp/ourPrices.shtml Contact HMRC and register for VAT The company has to contact HMCR and register for corporate tax (tax Less than one day 4 on company profits). VAT registration may be carried out online at: no charge (online procedure) https://online.hmrc.gov.uk/registration Procedure can be done online Doing Business 2014 United Kingdom 22 Time to No. Procedure Cost to complete complete * Contact HMRC and register for PAYE The company must separately contact the Inland Revenue to set up a contribution scheme for national insurance and pay-as-you-earn (PAYE) tax, which deducts income tax from employee wages or salary). The company will be issued with activation PIN within around a week and will need to activate this within 28 days (or else request a new PIN). 8 days, Inland Revenue has been subsumed into HMRC. Companies need to simultaneous with 5 register and enroll online with activation code. For security reasons, a no charge previous check is run on the data provided and bona fide businesses sent an procedure activation pin within 7 working days. A small percentage of registrations who fail the security checks can take longer. Activation is done instantly online though the code expires after 28 days. Sign up for employer’s liability insurance The Employers’ Liability (Compulsory Insurance) Act 1969 requires all employers in the United Kingdom to maintain employers’ liability insurance from an approved insurance company. The minimum legal requirement for employers’ liability insurance is a limit of indemnity of GBP 5,000,000. 6 The Employers’ Liability (Compulsory Insurance) Act 1969 requires that 1 day no charge proof of insurance be posted at the workplace. Since 1 October 2008 it is possible to display this information electronically, although a company that wishes to do this will need to ensure that its employees know how and where to find the certificate and have reasonable access to it. * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2014 United Kingdom 23 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid PERMITS INDICATORS MEASURE excessive constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in Procedures to legally build a warehouse time and money, many builders opt out. They may (number) pay bribes to pass inspections or simply build Submitting all relevant documents and illegally, leading to hazardous construction that obtaining all necessary clearances, licenses, puts public safety at risk. Where compliance is permits and certificates simple, straightforward and inexpensive, everyone Submitting all required notifications and is better off. receiving all necessary inspections What do the indicators cover? Obtaining utility connections for water, Doing Business records the procedures, time and sewerage and a land telephone line cost for a business in the construction industry to Registering the warehouse after its obtain all the necessary approvals to build a completion (if required for use as collateral or warehouse in the economy’s largest business city, for transfer of the warehouse) connect it to basic utilities and register the Time required to complete each procedure property so that it can be used as collateral or (calendar days) transferred to another entity. Does not include time spent gathering The ranking on the ease of dealing with information construction permits is the simple average of the Each procedure starts on a separate day. percentile rankings on its component indicators: Procedures that can be fully completed online procedures, time and cost. are an exception to this rule. To make the data comparable across economies, Procedure considered completed once final Doing Business uses several assumptions about the document is received business and the warehouse, including the utility connections. No prior contact with officials The business: Cost required to complete each procedure (% of income per capita)  Is a limited liability company operating in Official costs only, no bribes the construction business and located in the largest business city.  Will be connected to water, sewerage (sewage system, septic tank or their  Is domestically owned and operated. equivalent) and a fixed telephone line. The  Has 60 builders and other employees. connection to each utility network will be 10 The warehouse: meters (32 feet, 10 inches) long.  Is a new construction (there was no  Will be used for general storage, such as of previous construction on the land). books or stationery (not for goods requiring special conditions).  Has complete architectural and technical plans prepared by a licensed architect or  Will take 30 weeks to construct (excluding all engineer. delays due to administrative and regulatory requirements). Doing Business 2014 United Kingdom 24 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to construction permits there requires 12 procedures, build a warehouse in United Kingdom? According to takes 88.0 days and costs 66.0% of income per capita data collected by Doing Business, dealing with (figure 3.1). Figure 3.1 What it takes to comply with formalities to build a warehouse in United Kingdom Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the dealing with construction permits indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2014 United Kingdom 25 DEALING WITH CONSTRUCTION PERMITS Globally, United Kingdom stands at 27 in the ranking ranking provide other useful information for assessing of 189 economies on the ease of dealing with how easy it is for an entrepreneur in United Kingdom construction permits (figure 3.2). The rankings for to legally build a warehouse. comparator economies and the regional average Figure 3.2 How United Kingdom and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2014 United Kingdom 26 DEALING WITH CONSTRUCTION PERMITS What are the changes over time? The benchmarks provided by the economies that over what is possible in making it easier to deal with time have had the best performance regionally or construction permits. And changes in regional globally on the procedures, time or cost required to averages can show where United Kingdom is keeping deal with construction permits (figure 3.3) help show up—and where it is falling behind. Figure 3.3 Has dealing with construction permits become easier over time? Procedures (number) Time (days) Doing Business 2014 United Kingdom 27 DEALING WITH CONSTRUCTION PERMITS Cost (% of income per capita) Note: DB2013 rankings shown are not last year’s published rankings b ut comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. For more information on “no practice” marks, see the data notes. Source: Doing Business database. Doing Business 2014 United Kingdom 28 DEALING WITH CONSTRUCTION PERMITS Smart regulation ensures that standards are met while building safety while keeping compliance costs making compliance easy and accessible to all. reasonable, governments around the world have Coherent and transparent rules, efficient processes and worked on consolidating permitting requirements. adequate allocation of resources are especially What construction permitting reforms has Doing important in sectors where safety is at stake. Business recorded in United Kingdom (table 3.1)? Construction is one of them. In an effort to ensure Table 3.1 How has United Kingdom made dealing with construction permits easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. The United Kingdom eased the process of dealing with construction permits with the wider use of Approved DB2010 Inspectors, resulting in a reduction of time and number of steps. DB2011 No reform as measured by Doing Business. The United Kingdom made dealing with construction permits DB2012 easier by increasing efficiency in the issuance of planning permits. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 United Kingdom 29 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for United Kingdom BUILDING A WAREHOUSE are based on a set of specific procedures—the steps that a company must complete to legally build a warehouse—identified by Doing Business City : London through information collected from experts in construction licensing, including architects, civil Estimated engineers, construction lawyers, construction firms, GBP 929,000 Warehouse Value : utility service providers and public officials who deal with building regulations. These procedures The procedures, along with the associated time and are those that apply to a company and structure cost, are summarized below. matching the standard assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). Summary of procedures for dealing with construction permits in United Kingdom —and the time and cost Time to No. Procedure Cost to complete complete Hire an Approved Inspector BuildCo enters into contract with an Approved Inspector. Approved Inspectors (AI) are companies or individuals authorized under the Building Act 1984 to carry out building control work in England and Wales. AI will take on responsibility for plan checking and inspection of the building work. Once the contract is signed and terms of reference are outlined, the builder and the approved inspector jointly notify the local authority of their intention to build, what is also called an initial notice. Once this notice has been accepted by the local authority the responsibility for plan checking and site inspection will be formally placed on the AI. An Approved Inspector will: • Advise BuildCo on how the Building Regulations apply to its work (to a degree) 1 day GBP 3,896 1 • Check plans for compliance with building regulations • Issue a plans certificate (if requested) • Inspect the work as it progresses • Issue a final completion certificate A list of approved inspectors can be viewed at the Construction Industry Council. The AIs are licensed by this independent board for every 5 years. They are also backed by insurance while the public building control authorities do not have that. AIs have become an important player in the market in the past few years. According to the study conducted by the Department for Communities and Local Government in February 2008, AIs have 64% of commercial market. By hiring AIs companies eliminate need of dealing with different external companies. It also eliminates need for companies deal with Building Control Department of Local Authority. However, the Local Doing Business 2014 United Kingdom 30 Time to No. Procedure Cost to complete complete Authority is still responsible for the enforcement of the Regulations. If the AI discovers contraventions of the Building Regulations, the project must revert to the Local Authority for the purposes of prosecuting any offence. Unsurprisingly, the number of contraventions notified to LABC by AI's is extremely low. Additionally, Local Authorities still have the power to cancel Initial Notices under certain circumstances e.g. the works have not commenced with the prescribed period (currently 3 years from the date of deposit). The building control process was deregulated under the Building Act 1984, and became an alternative to formal process of building control. Currently, there are 70 AIs that are recognized in England and Wales, accounting for about 20% of all building control work. The other decisive factor for a company is time. AIs would provide for more expeditious time-limits as a whole. Plan approval could be done by them in 2 -- 3 weeks, whereas the Local Authority would take 6 to 8 weeks, according to statutory time-limits. BuildCo would most likely choose the AI given that it is not a onetime project and would be commercially viable. In addition to that AI ensures timely advice upon the request of client. Approved Inspectors usually operate nationally and bring consistency of interpretation of the Building Regulations. AI can provide input on the design aspects of Building Regulations to BuildCo when it applies for the planning permission. The cost for the services of AI is comprised of the several elements and is mostly charge on hourly basis. The below estimate is a sample of what an average cost breakdown by an AI looks like: • Plan checking: GBP 1,280.00 • Inspections: (9 sessions x 2h x GBP 80.00) GBP 1,440.00 • Structural checking: GBP 160.00 • Consultations: GBP 40.00; Electronic/Internet drawings GBP 75.00 • Meetings: GBP 300.00 • Administrative: GBP 40.00 • Inspections petrol fee: (40 miles x GBP 3.60) GBP 144.00 • Contingency: GBP 417.00 Total: GBP 3,896.00. Obtain planning permission BuildCo needs to obtain planning permission from the local planning authority (in London, the decision-maker is the relevant London Borough where the site is located. There are 33 Boroughs in Greater London). 2 56 days GBP 6,676 The planning application must be accompanied by a plan of the site, drawings showing the proposed development, and any other information the local authority considers necessary. The local authority publishes a list with the information it considers necessary on its website, so that applicants know what is asked of them. The relevant legislative framework is theTown and Country Planning Act (1990). A Doing Business 2014 United Kingdom 31 Time to No. Procedure Cost to complete complete warehouse development of 1,300 sq m would be considered to be a 'major application' but due to the relatively small-scale nature of the development proposed, we estimate that it would take 8 weeks to determine the planning application. If BuildCo is submitting a paper application, it must also provide at least 3 copies of the accompanying documents. Alternatively, BuildCo can apply online via the Planning Portal, which accepts electronic planning applications on behalf of all London Boroughs, using a standard application form that was introduced across England in 2008. If it applies electronically, no further copies are requried. A fee is charged for the planning application, based on the amount of floorspace that would be created by the scheme. A warehouse development of 1,300 sq m would be considered to be a 'major application' but due to the relatively small-scale nature of the development proposed,it is estimated that it would take 8 weeks to determine the planning application. During this period, the local planning authority will publicize the application in the surrounding area, and consult a number of statutory consultees -- bodies with a specialist responsibility for e.g. nature conservation, heritage protection, highways -- who may wish to comment on the acceptability of the proposal from their perspective. The local authority takes these views, and the views of any local people who wish to comment on the application, this will be taken into account to grant or refuse permission. If no decision is made within 13 weeks, or if the authority decides to refuse permission, the applicant is entitled to appeal to the Secretary of State. Additionally, in April 2010, the Government introduced new 'permitted development' rights for businesses who want to extend their existing premises. This means that minor extensions, which would previously have required planning permission, may proceed without it, thereby saving time for the business owners and enabling local planning authority staff to concentrate on larger and more important projects. Approved Inspector file the Initial Notice to Local Authority Once the planning permission (consent) is obtained from Planning Department in Local Authority the Approved Inspector sends an Initial Notice on behalf of the owner to the local authority. This Initial Notice will inform the Local Council that the AI has been retained. However, 3 the local council has five days in which to accept or reject the Initial 5 days no charge Notice in writing (via email, fax or post). Acceptance is given by default if the local authority does not respond within the five day period. During that period of time, no work can be done. The owner must provide a written letter that the AI is acting on his/her behalf. Submit application to local Fire Safety Office and obtain approval Approved Inspector submits respective elements of the drawing and 21 days no charge 4 plans pertinent to fire safety to a local Fire Safety Office, as part of the formal plan vetting process in order that they can assure themselves that the building is compliant with the latest fire safety Legislation and Doing Business 2014 United Kingdom 32 Time to No. Procedure Cost to complete complete that the appropriate fire and life safety systems are in place. That can be sent in an envelope. The Fire Office responds by law within 15 business days (21 calendar days) and sends its comments and approval. This is done in the process of building regulation plan approval, and recorded as independent procedure since AI interacts with Fire Officer. Upon the completion of the building BuildCo before used to obtain a Fire Certificate from Fire Safety Office. The Fire Certificate is no longer required following the reforms in the Regulatory Reform (Fire Safety) Order 2005 (FSO 2005) which came into effect in October 2006, and replaced over 70 pieces of fire safety laws. The FSO applies to all non-domestic premises in England and Wales, including the common parts of blocks of flats and houses in multiple occupations (HMOs). The FSO 2005 is a tool for self-regulation of businesses for the fire risk of the premises. Under the FSO, the responsible person must carry out a fire safety risk assessment and implement and maintain a fire management plan. The companies have to carry out a risk assessment by completing a 5-step fire risk assessment survey online: (http://www.fire.gov.uk/Workplace+safety/WhatTheLawRequires/) According to this survey -- FSO 2005 the warehouse of BuildCo would be classified as medium risk object. Since there will be more than 5 people occupying/working in the building, BuildCo would need to file the copy of completed FSO 2005 to the local Fire Safety Office. BuildCo does not need to wait for the approval or any other consent before using the premises. This risk is with the building operators they are deemed liable for any problems. Fire Safety Office may conduct an inspection under risk based scheme: whether there was a similar track record of companies with fire, or neighbors complain, etc. Small scale and standard objects would be seldom inspected. Also, given that this would be a new building it would be assumed by the Fire Safety Office that the latest techniques of fire safety prevention would have been considered during the planning process. * Apply for water and sewage connection Submit an application for water and sewage connection to Thames 5 Water Utilities Ltd. A quotation will be sent it to the applicant within 21 1 day no charge days. * Apply for a land phone connection BuildCo must file a letter of intent and must buy all materials for the 6 connection itself. According to British Telecom the largest service 1 day no charge provider in the UK, a new line is normally installed within four working days if the object is in a digital exchange area. If it is in one of the few exchange areas which have not yet been fully upgraded, this may Doing Business 2014 United Kingdom 33 Time to No. Procedure Cost to complete complete extend to six working days. In practice, however the connection may take up to 2 months even for areas with existing telecom communications. * Receive inspection from the water and sewage provider On approval the engineer instructs Thames Water’s contractor to assess the physical work involved to make the connection. This includes a site survey, size of site gang/workforce, equipment and materials needed plus any involvement with the local highway department as to whether there is any significant impact on the public road network. This element 7 takes approximately 2-3 weeks. 1 day no charge The contractor will then send their report to the engineer with the scope of work, survey and technical proposal. The engineer will prepare and authorize the quote and send it out to BuildCo within 5 days of receipt of the contractor’s report. * Receive inspection from the telecom provider Register with Openreach and send a site location and site plans. Openreach is the company that installs the infrastructure for telephony; BT is the company that installs phone lines inside buildings. 8 Openreach will come inspect the site if the proposal to BuildCo is 1 day no charge accepted. Then BuildCo can do the works, and Openreach checks those works. * Obtaining water and sewerage connection BuildCo must file a letter of intent and must buy all materials for the 20 days GBP 5,321 9 connection itself. * Obtain phone connection Once the ground work from the switch to the premises is done, the client asks BT to install the phone line inside the building (BT does NOT 14 days GBP 99 10 do the outside works of laying out a phone cable). BT installs the phone line within 2 weeks of submission. * Request and receive Energy Performance Certificate from Accredited Energy Assessor Following the nationwide implementation of the "Energy Performance 11 of Buildings Directive" adopted, on December 16, 2002, as of October 1 day GBP 78 1st 2008, all commercial buildings whenever built, rented or sold require an Energy Performance Certificate. The certificate records how energy efficient a property is as a building and provides A_G ratings. It is the responsibility of the builder/constructor to give the Energy Doing Business 2014 United Kingdom 34 Time to No. Procedure Cost to complete complete Performance Certificate and Recommendations Report to the Purchaser on physical completion of the building and notify the local authority Building Control officers or approved inspectors, who will not issue a Certificate of Completion until the EPC is provided. They are produced using standard methods and assumptions about energy usage so that the energy efficiency of one building can easily be compared with another building of the same type. This allows prospective buyers, tenants, owners, occupiers and purchasers to see information on the energy efficiency and carbon emissions from their building so they can consider energy efficiency and fuel costs as part of their investment. An EPC is always accompanied by a recommendation report that lists cost effective and other measures (such as low and zero carbon generating systems) to improve the energy rating. A rating is also given showing what could be achieved if all the recommendations were implemented. The fee for producing an EPC is determined by the market and may vary between GBP 55 to GBP 500. File completion certificate to Building Control Department of Local Authority Once the building is completed BuildCo would notify AI about the 1 day no charge 12 completion. AI completes the final inspection within 24 hours and prepares the certificate of completion. * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2014 United Kingdom 35 GETTING ELECTRICITY Access to reliable and affordable electricity is vital WHAT THE GETTING ELECTRICITY for businesses. To counter weak electricity supply, many firms in developing economies have to rely INDICATORS MEASURE on self-supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the Procedures to obtain an electricity first step for a customer is always to gain access by connection (number) obtaining a connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for Completing all required notifications and a local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized warehouse, as well as the time and cost to Obtaining external installation works and complete them. These procedures include possibly purchasing material for these works applications and contracts with electricity utilities, Concluding any necessary supply contract and clearances from other agencies and the external obtaining final supply and final connection works. The ranking on the ease of getting electricity is the simple average of Time required to complete each procedure the percentile rankings on its component (calendar days) indicators: procedures, time and cost. To make the Is at least 1 calendar day data comparable across economies, several assumptions are used. Each procedure starts on a separate day The warehouse: Does not include time spent gathering information  Is located in the economy’s largest business city, in an area where other Reflects the time spent in practice, with little warehouses are located. follow-up and no prior contact with officials  Is not in a special economic zone where Cost required to complete each procedure the connection would be eligible for (% of income per capita) subsidization or faster service. Official costs only, no bribes  Has road access. The connection works Excludes value added tax involve the crossing of a road or roads but are carried out on public land.  Is to either the low-voltage or the medium-  Is a new construction being connected to voltage distribution network and either overhead electricity for the first time. or underground, whichever is more common in the economy and area where the warehouse is  Has 2 stories, both above ground, with a located. The length of any connection in the total surface of about 1,300.6 square customer’s private domain is negligible. meters (14,000 square feet), and is built on a plot of 929 square meters (10,000 square  Requires crossing of a 10-meter road but all the feet). works are carried out in a public land, so there is no crossing into other people's private property. The electricity connection:  Involves installing one electricity meter. The  Is 150 meters long and is a 3-phase, 4-wire Y, monthly electricity consumption will be 0.07 140-kilovolt-ampere (kVA) (subscribed gigawatt-hour (GWh). The internal electrical capacity) connection. wiring has been completed. Doing Business 2014 United Kingdom 36 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity requires 5 procedures, takes 126 days and costs 91.9% connection in United Kingdom? According to data of income per capita (figure 4.1). collected by Doing Business, getting electricity there Figure 4.1 What it takes to obtain an electricity connection in United Kingdom Note: Time shown in the figure above may not reflect simultaneity of procedures. For more information on the methodology of the getting electricity indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2014 United Kingdom 37 GETTING ELECTRICITY Globally, United Kingdom stands at 74 in the ranking perspective in assessing how easy it is for an of 189 economies on the ease of getting electricity entrepreneur in United Kingdom to connect a (figure 4.2). The rankings for comparator economies warehouse to electricity. and the regional average ranking provide another Figure 4.2 How United Kingdom and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2014 United Kingdom 38 GETTING ELECTRICITY Even more helpful than rankings on the ease of getting performers on these indicators may provide useful electricity may be the indicators underlying those benchmarks. rankings (table 4.1). And regional and global best Table 4.1 The ease of getting electricity in United Kingdom Best performer in United Kingdom United Kingdom Best performer Indicator OECD high income DB2014 DB2013 globally DB2014 DB2014 Rank 74 64 Iceland (1) Iceland (1) Procedures (number) 5 5 4 Economies* (3) 10 Economies* (3) Time (days) 126 105 Germany (17) Germany (17) Cost (% of income per capita) 91.9 108.9 Japan (0.0) Japan (0.0) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2 013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. * Two or more economies share the top ranking on this indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2014 United Kingdom 39 GETTING ELECTRICITY Obtaining an electricity connection is essential to safety in the connection process while keeping enable a business to conduct its most basic operations. connection costs reasonable, governments around the In many economies the connection process is world have worked to consolidate requirements for complicated by the multiple laws and regulations obtaining an electricity connection. What reforms in involved—covering service quality, general safety, getting electricity has Doing Business recorded in technical standards, procurement practices and United Kingdom (table 4.2)? internal wiring installations. In an effort to ensure Table 4.2 How has United Kingdom made getting electricity easier—or not? By Doing Business report year DB year Reform DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Source: Doing Business database. Doing Business 2014 United Kingdom 40 GETTING ELECTRICITY What are the details? The indicators reported here for United Kingdom are OBTAINING AN ELECTRICITY CONNECTION based on a set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution City: London utility—identified by Doing Business. Data are collected from the distribution utility, then completed and Name of Utility: UK Power Networks verified by electricity regulatory agencies and independent professionals such as electrical engineers, The procedures are those that apply to a warehouse electrical contractors and construction companies. The and electricity connection matching the standard electricity distribution utility surveyed is the one assumptions used by Doing Business in collecting the serving the area (or areas) in which warehouses are data (see the section in this chapter on what the located. If there is a choice of distribution utilities, the indicators cover). The procedures, along with the one serving the largest number of customers is associated time and cost, are summarized below. selected. Summary of procedures for getting electricity in United Kingdom—and the time and cost Time to No. Procedure Cost to complete complete Submit an application to UK Power Networks for an electricity connection and await a quotation and connection offer The application can be submitted online, in person or by mail. One has to attach with the application: completed initial enquiry form if initial enquiry was made, load details and detailed site drawings. At this stage the applicant can choose either UK Power Networks or a qualified contractor to design a part of the network extension while only UK Power Networks can do the design of certain parts of the network extension and design of upstream reinforcement works. If the design is carried out by a qualified contractor and not by the UK Power Networks there are additional procedures for approval of the designs. Majority of the clients choose the UK Power Networks to complete all parts of the 20 calendar days no charge 1 design. UK Power Networks will do the assessment and design which will result in the budget estimate as well as the Construction and Adoption Agreement which will include the formal offer to connect. Since September 2008 UK Power Networks has not charged assessment and design charges in advance but they have been included in the final connection payment as an overhead cost. This follows a consultation by the UK energy regulator Ofgem. A budget estimate and connection offer is free of charge. By law all of the quotations should be provided as soon as reasonably practicable with an absolute backstop of 90 days – this is a requirement Doing Business 2014 United Kingdom 41 Time to No. Procedure Cost to complete complete of Standard License Condition 12 of the Electricity Distribution License. Await and obtain an external inspection carried out by UK Power Networks An external inspection is necessary for preparation of the technical study and an estimate. During the inspection the utility ensures that the 2 location is good for their equipment (service cut-out/substation etc). It 14 calendar days no charge is recommended that somebody from the applicant’s party is present during the inspection. Await completion of the external connection works carried out by UK Power Networks Some of the external connection works which are contestable (not all works are contestable) can be performed by an approved contractor or by UK Power Networks. If contestable works are performed by a subcontractor additional procedures associated with inspections and testing of the contractor’s installation by UK Power Networks are required. In the majority of cases customers choose UK Power Networks to carry out all the external connection works. 106 calendar days GBP 22,400.0 3 Given the case assumptions the most common arrangement would be either 1) 200 amp TP & N (three phases and neutral) service off a passing LV main or 2) installation of a substation. The utility obtains the excavation permit at the local authority or Highways Agency or specific body such as TFL in London. Await issuance of a supply number by UK Power Networks, pass number on to an electricity supplier and await meter installation UK Power Networks automatically issues a supply Number (or MPAN’s) after the connection offer has been accepted by the customer. UK Power Networks will issue a supply number (Metering Point Administration Number - MPAN) to the customer before the connection works are 30 calendar days no charge 4 completed. The customer will pass the MPAN to its chosen electricity supplier. The supplier must register the MPAN with UK Power Networks. The supplier will co-ordinate metering, energisation and application of energy rates. The supply contract start date is aligned with connection energized date. The supplier will need to receive an estimate, or could work with the applicant to develop a load profile to be able to provide a Doing Business 2014 United Kingdom 42 Time to No. Procedure Cost to complete complete supply contract. Receive meter installation and internal wiring inspection by meter operator and electricity starts flowing The metering industry in the UK is an open competitive market, and the applicant can choose their own Meter Operator or can choose to use the Meter Operator services provided by the supplier. The electricity supplier normally appoints the meter operator. Requirements regarding the conclusion of the meter operation contract vary. The applicant can sign a separate contract with the chosen meter operator or cost can be passed on through the supply contract . The internal wiring must be completed by the electrician to BS7671 standards. The electrician must carry out a full inspection and testing of the internal wiring and then provide a BS7671 certificate to both the Meter Operator and to the Electricity Distributor before the connection can be energized. The inspection of the internal wiring is done when a meter is installed. Inspection of internal wiring is done through a visual inspection by a meter operator. It is a good practice that somebody is present during the installation of the meter/internal wiring inspection. 5 In the UK, the DNO only undertakes the work up to the cut-out. All 20 calendar days no charge internal works are the responsibility of the customer who must appoint a qualified electrician. All internal works must be carried out to BS 7671 standard and the Meter Operator (who works on behalf of the supplier) will need to see a BS 7671 certificate before the meter will be attached and the connection energized. There is no specific charge for the meter, but the customer can choose a meter operator and subject to measurement class there will be the annual operations and maintenance charge. The metering must be installed before a supply of electricity can be provided. The electricity can start flowing on the same day the external connection works are finished providing the supplier and the metering operator have sufficient notice. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2014 United Kingdom 43 REGISTERING PROPERTY Ensuring formal property rights is fundamental. WHAT THE REGISTERING PROPERTY Effective administration of land is part of that. If INDICATORS MEASURE formal property transfer is too costly or complicated, formal titles might go informal again. And where property is informal or poorly Procedures to legally transfer title on administered, it has little chance of being immovable property (number) accepted as collateral for loans—limiting access to Preregistration (for example, checking for liens, finance. notarizing sales agreement, paying property transfer taxes) What do the indicators cover? Registration in the economy’s largest business Doing Business records the full sequence of city procedures necessary for a business to purchase property from another business and transfer the Postregistration (for example, filing title with the municipality) property title to the buyer’s name. The transaction is considered complete when it is opposable to Time required to complete each procedure third parties and when the buyer can use the (calendar days) property, use it as collateral for a bank loan or Does not include time spent gathering resell it. The ranking on the ease of registering information property is the simple average of the percentile rankings on its component indicators: procedures, Each procedure starts on a separate day. time and cost. Procedures that can be fully completed online are an exception to this rule. To make the data comparable across economies, Procedure considered completed once final several assumptions about the parties to the document is received transaction, the property and the procedures are used. No prior contact with officials The parties (buyer and seller): Cost required to complete each procedure (% of property value)  Are limited liability companies, 100% domestically and privately owned. Official costs only, no bribes  Are located in the economy’s largest No value added or capital gains taxes included business city. and no rezoning is required.  Have 50 employees each, all of whom are  Has no mortgages attached and has been nationals. under the same ownership for the past 10  Perform general commercial activities. years. The property (fully owned by the seller):  Consists of 557.4 square meters (6,000 square feet) of land and a 10-year-old, 2-story  Has a value of 50 times income per capita. warehouse of 929 square meters (10,000 The sale price equals the value. square feet). The warehouse is in good  Is registered in the land registry or cada- condition and complies with all safety stre, or both, and is free of title disputes. standards, building codes and legal requirements. There is no heating system. The  Is located in a periurban commercial zone, property will be transferred in its entirety. Doing Business 2014 United Kingdom 44 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in procedures, takes 21.5 days and costs 4.7% of the United Kingdom? According to data collected by property value (figure 5.1). Doing Business, registering property there requires 6 Figure 5.1 What it takes to register property in United Kingdom Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the registering property indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2014 United Kingdom 45 REGISTERING PROPERTY Globally, United Kingdom stands at 68 in the ranking and the regional average ranking provide other useful of 189 economies on the ease of registering property information for assessing how easy it is for an (figure 5.2). The rankings for comparator economies entrepreneur in United Kingdom to transfer property. Figure 5.2 How United Kingdom and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2014 United Kingdom 46 REGISTERING PROPERTY What are the changes over time? The benchmarks provided by the economies that over what is possible in making it easier to register time have had the best performance regionally or property. And changes in regional averages can show globally on the procedures, time or cost required to where United Kingdom is keeping up—and where it is complete a property transfer (figure 5.3) help show falling behind. Figure 5.3 Has registering property become easier over time? Procedures (number) Time (days) Doing Business 2014 United Kingdom 47 REGISTERING PROPERTY Cost (% of property value) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. For more information on “no practice” marks, see the data notes. Source: Doing Business database. Doing Business 2014 United Kingdom 48 REGISTERING PROPERTY Economies worldwide have been making it easier for have cut the time required substantially—enabling entrepreneurs to register and transfer property—such buyers to use or mortgage their property earlier. What as by computerizing land registries, introducing time property registration reforms has Doing Business limits for procedures and setting low fixed fees. Many recorded in United Kingdom (table 5.1)? Table 5.1 How has United Kingdom made registering property easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. The lodging of a land transaction return is now processed DB2010 automatically and electronically by the HM Revenue & Customs in the UK reducing time to register property. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. The United Kingdom made transferring property easier by DB2014 introducing electronic lodgment for property transfer applications. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 United Kingdom 49 REGISTERING PROPERTY What are the details? The indicators reported here are based on a set of STANDARD PROPERTY TRANSFER specific procedures—the steps that a buyer and seller must complete to transfer the property to the buyer’s name—identified by Doing Business through information collected from local property City: London lawyers, notaries and property registries. These procedures are those that apply to a transaction Property Value: GBP 1,218,288 matching the standard assumptions used by Doing Business in collecting the data (see the section in The procedures, along with the associated time and this chapter on what the indicators cover). cost, are summarized below. Summary of procedures for registering property in United Kingdom—and the time and cost Time to No. Procedure Cost to complete complete * Standard enquiries of the seller delivered to the buyer's solicitor with a title pack Commercial Property Standard Enquiries (CPSE) are used by solicitors to find out details that cannot be inferred from the searches, eg. who is in actual occupation, how long the property has been used for its present use. Most solicitors use the commercial property standard enquiries prepared by members of the London Property Support Lawyers Group and endorsed by the British Property Federation. 1-4 weeks Depending on the enquiries raised, the seller's solicitor would typically (simultaneous GBP 3500 - GBP 1 spend 1-3 billable hours to prepare the enquiries taking his client's 10,000 with Procedure 2) instructions. It would probably take the buyer's solicitor 30 minutes to 1 hour to review the replies. If there was no particular urgency, this part of the process would typically be started at the same time as the searches are requested, and would be completed in around 1 week after the results of all the searches are received. * Conduct searches on the property The buyer's solicitor will review the registered title to the property. It is the responsibility of the buyer's conveyancer to confirm to the buyer that 1-3 weeks GBP 300 to GBP 2 it will be acquiring good and marketable title to the property. (simultaneous 1000 with Procedure 1) As part of the due diligence to determine whether the title is good and marketable, the purchaser's solicitor will conduct the following searches: 1. Investigation of the title: to know whether the land is registered at the Doing Business 2014 United Kingdom 50 Time to No. Procedure Cost to complete complete Land Registry and know what interests affect this land and if there are any limitations. If the land is unregistered, the solicitor would have to look at the deeds and correspondence between the persons that appear on those deeds. This will be decreasingly the case as registration is now compulsory. 2. Conveyancing searches, which would include: • Local Authority Search • Planning history (eg. permissions) • Desktop environmental search (to determine any environmental issues, such as flooding or contamination) • Public highway search • Chancel repair liability search (in this case the solicitor does not search the property itself, but the area in which the property is. If the area turns out to be affected by the liability to contribute to chancel repairs, then the property has to be insured against any future chancel repair claims. The amount of the insurance depends on the value of the property) • Other searches depending on the area, eg. coal mine shaft search or underground search (these issues affect the value of the property) 3. Seller company search: to see the articles of association and what powers the representatives have For a property in London, solicitors usually request most of these searches through a search portal. These search portals are the one stop shop for most searches, and solicitors need a user name to access them. The search portals will pass on to the solicitor the information that they acquire from the relevant authorities. In total, these searches are usually 300 to 1000 pounds, depending on the number of searches requested, the amount that each local authority charges, and whether the solicitor requests the standard searches or is adding additional questions, which increase the cost. The results of the searches take from one day to 2/3 weeks to come back, depending on the search. The local authority search is the lengthiest one. Once satisfied with the results of the searches, the information provided in the standard enquiries and the title pack, the buyer's solicitor will prepare a report for the buyer on the title and other matters affecting the property. Drafting of contracts and exchange of contracts once agreed Property transactions are conducted by licensed conveyancers or solicitors. However, in the case of commercial properties, these 1 day included in 3 transactions are usually conducted by solicitors. The seller's solicitor will (simultaneous Procedure 1 prepare a draft of the contract and submit it to the purchaser's solicitor with Procedure 4) once approved by his/her client. The purchaser's solicitor will review the draft and suggest any suitable amendments. Doing Business 2014 United Kingdom 51 Time to No. Procedure Cost to complete complete Once the two parties agree on the contract, contracts are exchanged. The solicitors acting for the buyer and seller can meet to exchange contracts, but that is rare. The exchange is usually done over the telephone in accordance with a specific formula for exchanging contracts over the phone. The most common is formula B where each solicitor holds a 'part' contract signed by his client. The solicitors agree over the phone specific terms of the contract (e.g., the amount of the deposit, completion date, etc.) and record the time of exchange and other details. Each solicitor sends their client's part contract to the other solicitor in the post that day. The buyer's solicitor will also send a check for the deposit (usually 10% of the purchase price). It is usual for there to be a gap in time between exchange of contracts and completion of the transfer of the property. Pre-completion search with priority requested at the Land Registry The buyer's solicitor raises pre-completion enquiries of the seller's solicitor known as 'requisitions on title' and a 'pre-completion search Less than a day GBP 3 if lodged with priority' in order to block any movements on the property until (online electronically; GBP 4 completion of the property tansfer. procedure), 7 if lodged in simultaneous paper with Procedure 3 Complete and lodge a Land Transaction Return and pay the Stamp Duty Land Tax (SDLT) (available on-line) The buyer's solicitor would usually prepare the Land Transaction Return for the approval of the buyer (as SDLT is a self-assessment tax) prior to completion. Less than a day GBP 13 + 4% SDLT For every land transaction the purchaser must complete, sign and send (online 5 the land transaction return to be received by HM Revenue & Customs procedure) before the end of 30 days following the effective date of the transaction. The return includes a self-assessment of the stamp duty land tax chargeable on the transaction returned. The completed Land Transaction Return must be sent by post to the Revenue's Rapid Data Capture center in Netherton (near Liverpool) or submitted electronically (functionality available since 2006). When the Return is submitted, the correct amount of SDLT must also be Doing Business 2014 United Kingdom 52 Time to No. Procedure Cost to complete complete paid either by cheque, through the CHAPS automated payment system or via direct bank transfer. Once the Return has been processed by the Revenue the Revenue will issue a Land Transaction Return Certificate. If the Return has been submitted electronically, the Certificate is typically received within two hours (since 2009). If the Return has been submitted in the post, the Certificate is typically received within one month. The issue of a Land Transaction Return Certificate merely evidences that a Return has been filed at the Revenue; issuance of a Certificate does not necessarily mean that the information contained within the Return and/or amount of SDLT paid is correct. The Certificate must be sent to the Land Registry when an application for registration of the transfer is made. If the buyer acquires the property with financing, any legal charge created by it (if it is a company) must be registered at Companies House within 21 days of its creation, failing which the charge is void against a liquidator or another creditor of the company. SDLT is calculated according to the following schedule: Property value | SDLT | Under GBP 150,000 | 0% | Between GBP 150,000 and GBP 250,000 | 1% | Between GBP 250,000 and GBP 500,000 | 3% | Above GBP 500,000 | 4% | The transfer and any legal charges are registered at the Land Registry The buyer's solicitor drafts a Transfer Deed and sends it to the seller's solicitor for approval. Once approved, it is signed by the parties. The Transfer deed makes the transfer of the property to the buyer effective Less than a day 6 on completion. (online), 7 days GBP 910 (paper-based) Parties register the transfer deed (and any legal charges) at the Land Registry by submitting the appropriate documents and paying the Land Registry's fees. A cheque made payable to "Land Registry" must accompany the application for registration to the correct office of the Land Registry (unless there was a prior authorized agreement with the Registry to pay by direct debit) Doing Business 2014 United Kingdom 53 Time to No. Procedure Cost to complete complete On completion of the registration the Land Registry will send to the buyer's solicitor a title information document. The documentation shall include: - Completed Land Registry form AP1 - Original and certified copy of transfer deed - Land transaction certificate - Original and certified copy mortgage if the buyer acquires the property with financing The law requires conveyancers, from 10 November 2008, when they submit an application to register the interest of their client in a property, to provide details of the conveyancers who acted for all other parties involved in the transaction. If any involved person (including a company) is not represented by a conveyancer, the person lodging the application must either confirm that they are satisfied that sufficient steps have been taken to verify the identity of the unrepresented person or otherwise lodge evidence of the unrepresented person's identity. If confirmation of identity is required for an application, but is not provided, the Land Registry will reject the application. Identification requirements extend to buyers, sellers, landlords, tenants, borrowers and lenders. The new Fee Order (the Land Registration Fee Order 2012) came into effect on 22 October 2012 and the fee thresholds are as follows: Property value: GBP0- GBP50,000 - | fee: GBP40 | Property value: GBP50,001- GBP80,000 - | fee: GBP70 | Property value: GBP80,001- GBP100,000 - | fee: GBP120 | Property value: GBP100,001- GBP200,000 - | fee: GBP190 | Property value: GBP200,001- GBP500,000 - | fee: GBP270 | Property value: GBP500,001- GBP1,000,000 - | fee: GBP540 | Property value: GBP1,000,000 + - | fee: GBP910 | Land registry information available at www.landregistry.gov.uk. | Doing Business 2014 United Kingdom 54 Time to No. Procedure Cost to complete complete * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2014 United Kingdom 55 GETTING CREDIT Two types of frameworks can facilitate access to WHAT THE GETTING CREDIT INDICATORS credit and improve its allocation: credit information MEASURE systems and borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable lenders’ rights to view a potential borrower’s Strength of legal rights index (0–10) financial history (positive or negative)—valuable Rights of borrowers and lenders through information to consider when assessing risk. And collateral laws they permit borrowers to establish a good credit Protection of secured creditors’ rights through history that will allow easier access to credit. Sound bankruptcy laws collateral laws enable businesses to use their assets, especially movable property, as security to generate Depth of credit information index (0–6) capital—while strong creditors’ rights have been Scope and accessibility of credit information associated with higher ratios of private sector credit distributed by public credit registries and to GDP. private credit bureaus What do the indicators cover? Public credit registry coverage (% of adults) Doing Business assesses the sharing of credit Number of individuals and firms listed in information and the legal rights of borrowers and public credit registry as percentage of adult lenders with respect to secured transactions population through 2 sets of indicators. The depth of credit Private credit bureau coverage (% of adults) information index measures rules and practices Number of individuals and firms listed in affecting the coverage, scope and accessibility of largest private credit bureau as percentage of credit information available through a public credit adult population registry or a private credit bureau. The strength of legal rights index measures whether certain features that facilitate lending exist within the applicable collateral and bankruptcy laws. Doing Business uses case scenarios to determine the scope of the  Has up to 100 employees. secured transactions system, involving a secured  Is 100% domestically owned, as is the lender. borrower and a secured lender and examining legal The ranking on the ease of getting credit is based on restrictions on the use of movable collateral. These the percentile rankings on the sum of its component scenarios assume that the borrower: indicators: the depth of credit information index and  Is a private, incorporated, limited liability the strength of legal rights index. company.  Has its headquarters and only base of operations in the largest business city. Doing Business 2014 United Kingdom 56 GETTING CREDIT Where does the economy stand today? How well do the credit information system and Globally, United Kingdom stands at 1 in the ranking of collateral and bankruptcy laws in United Kingdom 189 economies on the ease of getting credit (figure facilitate access to credit? The economy has a score of 6.1). The rankings for comparator economies and the 6 on the depth of credit information index and a score regional average ranking provide other useful of 10 on the strength of legal rights index (see the information for assessing how well regulations and summary of scoring at the end of this chapter for institutions in United Kingdom support lending and details). Higher scores indicate more credit information borrowing. and stronger legal rights for borrowers and lenders. Figure 6.1 How United Kingdom and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2014 United Kingdom 57 GETTING CREDIT What are the changes over time? While the most recent Doing Business data reflect how where institutions and regulations have been well the credit information system and collateral and strengthened—and where they have not (table 6.1). bankruptcy laws in United Kingdom support lending That can help identify where the potential for and borrowing today, data over time can help show improvement is greatest. Table 6.1 The ease of getting credit in United Kingdom over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 DB2014 Rank .. .. .. .. .. .. .. .. 1 1 Strength of legal rights 10 10 10 10 10 10 10 10 10 10 index (0-10) Depth of credit 6 6 6 6 6 6 6 6 6 6 information index (0-6) Public registry coverage 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (% of adults) Private bureau 76.2 76.2 86.1 84.6 100.0 100.0 100.0 100.0 100.0 100.0 coverage (% of adults) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 United Kingdom 58 GETTING CREDIT One way to put an economy’s score on the getting 2013 and shows the number of economies with this credit indicators into context is to see where the score in 2013 as well as the regional average score. economy stands in the distribution of scores across Figure 6.3 shows the same thing for the depth of credit economies. Figure 6.2 highlights the score on the information index. strength of legal rights index for United Kingdom in Figure 6.2 How strong are legal rights for borrowers Figure 6.3 How much credit information is shared— and lenders? and how widely? Number of economies with each score on strength of legal Number of economies with each score on depth of credit rights index (0–10), 2013 information index (0–6), 2013 Note: Higher scores indicate that collateral and bankruptcy Note: Higher scores indicate the availability of more credit laws are better designed to facilitate access to credit. information, from either a credit registry or a credit bureau, Source: Doing Business database. to facilitate lending decisions. Regional averages for the depth of credit information index exclude economies with no credit registry or credit bureau. Source: Doing Business database. Doing Business 2014 United Kingdom 59 GETTING CREDIT When economies strengthen the legal rights of lenders credit information, they can increase entrepreneurs’ and borrowers under collateral and bankruptcy laws, access to credit. What credit reforms has Doing and increase the scope, coverage and accessibility of Business recorded in United Kingdom (table 6.2)? Table 6.2 How has United Kingdom made getting credit easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 United Kingdom 60 GETTING CREDIT What are the details? The getting credit indicators reported here for United The data on the legal rights of borrowers and lenders Kingdom are based on detailed information collected are gathered through a survey of financial lawyers and in that economy. The data on credit information verified through analysis of laws and regulations as sharing are collected through a survey of a credit well as public sources of information on collateral and registry and/or credit bureau (if one exists). To bankruptcy laws. For the strength of legal rights index, construct the depth of credit information index, a a score of 1 is assigned for each of 8 aspects related to score of 1 is assigned for each of 6 features of the legal rights in collateral law and 2 aspects in credit registry or credit bureau (see summary of bankruptcy law. scoring below). Summary of scoring for the getting credit indicators in United Kingdom OECD high income OECD high income Indicator United Kingdom average average Strength of legal rights index (0-10) 10 7 Depth of credit information index (0-6) 6 5 Public registry coverage (% of adults) 0.0 42.9 Private bureau coverage (% of adults) 100.0 73.9 Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Regional averages for the depth of credit information index exclude economies with no credit registry or credit bureau. Regional averages for the credit registry coverage exclude economies with no credit registry. Regional averages for the credit bureau coverage exclude economies with no credit bureau. Strength of legal rights index (0–10) Index score: 10 Can any business use movable assets as collateral while keeping possession of the assets; and Yes any financial institution accept such assets as collateral ? Does the law allow businesses to grant a non possessory security right in a single category of Yes movable assets, without requiring a specific description of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of Yes its assets, without requiring a specific description of collateral? May a security right extend to future or after-acquired assets, and may it extend automatically Yes to the products, proceeds or replacements of the original assets ? Is a general description of debts and obligations permitted in collateral agreements; can all types of debts and obligations be secured between parties; and can the collateral agreement Yes include a maximum amount for which the assets are encumbered? Is a collateral registry in operation, that is unified geographically and by asset type, with an Yes electronic database indexed by debtor's names? Doing Business 2014 United Kingdom 61 Strength of legal rights index (0–10) Index score: 10 Are secured creditors paid first (i.e. before tax claims and employee claims) when a debtor Yes defaults outside an insolvency procedure? Are secured creditors paid first (i.e. before tax claims and employee claims) when a business is Yes liquidated? Are secured creditors either not subject to an automatic stay on enforcement when a debtor enters a court-supervised reorganization procedure, or does the law provide secured Yes creditors with grounds for relief from an automatic stay or/and sets a time limit to it? Does the law allow parties to agree in a collateral agreement that the lender may enforce its Yes security right out of court, at the time a security interest is created? Depth of credit information index (0–6) Credit bureau Credit registry Index score: 6 Are data on both firms and individuals distributed? Yes No 1 Are both positive and negative data distributed? Yes No 1 Does the registry distribute credit information from retailers, trade creditors or utility companies as well as Yes No 1 financial institutions? Are more than 2 years of historical credit information Yes No 1 distributed? Is data on all loans below 1% of income per capita Yes No 1 distributed? Is it guaranteed by law that borrowers can inspect Yes No 1 their data in the largest credit registry? Note: An economy receives a score of 1 if there is a "yes" to either private bureau or public registry. Credit bureau Credit registry Coverage (% of adults) (% of adults) Number of firms 10,151,670 0 Number of individuals 47,827,635 0 Source: Doing Business database. Doing Business 2014 United Kingdom 62 PROTECTING INVESTORS Protecting investors matters for the ability of WHAT THE PROTECTING INVESTORS companies to raise the capital they need to grow, INDICATORS MEASURE innovate, diversify and compete. If the laws do not protect minority shareholders, investors may be reluctant to provide funding to companies through Extent of disclosure index (0–10) the purchase of shares unless they become the Approval process for related-party controlling shareholders. Effective regulations define transactions related-party transactions precisely, promote clear Disclosure requirements in case of related- and efficient disclosure requirements, require party transactions shareholder participation in major decisions of the company and set detailed standards of accountability Extent of director liability index (0–10) for company insiders. Ability of minority shareholders to file a direct or derivative lawsuit What do the indicators cover? Ability of minority shareholders to hold Doing Business measures the strength of minority interested parties and members of the shareholder protections against directors’ use of approving body liable for prejudicial related- corporate assets for personal gain—or self-dealing. party transactions The indicators distinguish 3 dimensions of investor protections: transparency of related-party Available legal remedies (damages, repayment of profits, fines, imprisonment and rescission transactions (extent of disclosure index), liability for of the transaction) self-dealing (extent of director liability index) and minority shareholders’ access to evidence before and Ease of shareholder suits index (0–10) during trial (ease of shareholder suits index). The Access to internal corporate documents ranking on the strength of investor protection index is (directly or through a government inspector) the simple average of the percentile rankings on these 3 indices. To make the data comparable across Documents and information available during trial economies, a case study uses several assumptions about the business and the transaction. Strength of investor protection index (0–10) The business (Buyer): Simple average of the extent of disclosure, extent of director liability and ease of  Is a publicly traded corporation listed on the shareholder suits indices economy’s most important stock exchange (or at least a large private company with multiple shareholders). the company purchase used trucks from another company he owns.  Has a board of directors and a chief executive officer (CEO) who may legally act on behalf of  The price is higher than the going price for used Buyer where permitted, even if this is not trucks, but the transaction goes forward. specifically required by law.  All required approvals are obtained, and all The transaction involves the following details: required disclosures made, though the transaction is prejudicial to Buyer.  Mr. James, a director and the majority shareholder of the company, proposes that  Shareholders sue the interested parties and the members of the board of directors. Doing Business 2014 United Kingdom 63 PROTECTING INVESTORS Where does the economy stand today? How strong are investor protections against self- protection index (figure 7.1). While the indicator does dealing in United Kingdom? The economy has a score not measure all aspects related to the protection of of 8.0 on the strength of investor protection index, minority investors, a higher ranking does indicate that with a higher score indicating stronger protections an economy’s regulations offer stronger investor (see the summary of scoring at the end of this chapter protections against self-dealing in the areas measured. for details). Globally, United Kingdom stands at 10 in the ranking of 189 economies on the strength of investor Figure 7.1 How United Kingdom and comparator economies rank on the strength of investor protection index Source: Doing Business database. Doing Business 2014 United Kingdom 64 PROTECTING INVESTORS What are the changes over time? While the most recent Doing Business data reflect how the global ranking on the strength of investor well regulations in United Kingdom protect minority protection index over time shows whether the investors today, data over time show whether the economy is slipping behind other economies in protections have been strengthened (table 7.1). And investor protections—or surpassing them. Table 7.1 The strength of investor protections in United Kingdom over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 DB2014 Rank .. .. .. .. .. .. .. 10 10 Extent of disclosure 10 10 10 10 10 10 10 10 10 index (0-10) Extent of director 7 7 7 7 7 7 7 7 7 liability index (0-10) Ease of shareholder 7 7 7 7 7 7 7 7 7 suits index (0-10) Strength of investor protection index (0- 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 10) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 United Kingdom 65 PROTECTING INVESTORS One way to put an economy’s scores on the protecting and shows the number of economies with this score in investors indicators into context is to see where the 2013 as well as the regional average score. Figure 7.3 economy stands in the distribution of scores across applies to the extent of director liability index, and economies. Figure 7.2 highlights the score on the figure 7.4 to the ease of shareholder suits index. extent of disclosure index for United Kingdom in 2013 Figure 7.2 How strong are disclosure requirements? Figure 7.3 How strong is the liability regime for directors? Number of economies with each score on the extent of Number of economies with each score on the extent of director liability index (0–10), 2013 disclosure index (0–10), 2013 Note: Higher scores indicate greater liability of directors. Note: Higher scores indicate greater disclosure. Source: Doing Business database. Source: Doing Business database. Doing Business 2014 United Kingdom 66 PROTECTING INVESTORS Figure 7.4 How easy is accessing internal corporate documents? Number of economies with each score on the ease of shareholder suits index (0–10), 2013 Note: Higher scores indicate greater minority shareholder access to evidence before and during trial. Source: Doing Business database. Doing Business 2014 United Kingdom 67 PROTECTING INVESTORS The scores recorded over time for United Kingdom on changes over time in the regional average score on the strength of investor protection index may also be this index. revealing (figure 7.5). Equally interesting may be the Figure 7.5 Have investor protections become stronger over time? Strength of investor protection index (0–10) Note: The higher the score, the stronger the protections. Source: Doing Business database. Doing Business 2014 United Kingdom 68 PROTECTING INVESTORS Economies with the strongest protections of minority reasonable time. As a result, reforms to strengthen investors from self-dealing require detailed disclosure investor protections may move ahead on different and define clear duties for directors. They also have fronts—such as through new or amended company well-functioning courts and up-to-date procedural laws, securities regulations or civil procedure rules. rules that give minority shareholders the means to What investor protection reforms has Doing Business prove their case and obtain a judgment within a recorded in United Kingdom (table 7.2)? Table 7.2 How has United Kingdom strengthened investor protections—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 United Kingdom 69 PROTECTING INVESTORS What are the details? The protecting investors indicators reported here for are assigned to each based on a range of conditions United Kingdom are based on detailed information relating to disclosure, director liability and shareholder collected through a survey of corporate and securities suits in a standard case study transaction (see the data lawyers about securities regulations, company laws notes at the end of this chapter). The summary below and court rules of evidence and procedure. To shows the details underlying the scores for United construct the extent of disclosure, extent of director Kingdom. liability and ease of shareholder suits indices, scores Summary of scoring for the protecting investors indicators in United Kingdom OECD high OECD high income Indicator United Kingdom income average average Extent of disclosure index (0-10) 10 7 Extent of director liability index (0-10) 7 5 Ease of shareholder suits index (0-10) 7 7 Strength of investor protection index (0-10) 8.0 6.2 Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Score Score description Extent of disclosure index (0-10) 10 Both board of directors and What corporate body provides legally sufficient 3 shareholders meeting and Mr. James approval for the transaction? is not allowed to vote Whether disclosure of the conflict of interest by Mr. 2 Full disclosure of all material facts James to the board of directors is required? Whether immediate disclosure of the transaction to Disclosure on the transaction and Mr. 2 the public and/or shareholders is required? James' conflict of interest Whether disclosure of the transaction in published Disclosure on the transaction and Mr. 2 periodic filings (annual reports) is required? James' conflict of interest Whether an external body must review the terms of 1 Yes the transaction before it takes place? Extent of director liability index (0-10) 7 Whether shareholders can sue directly or derivatively for the damage that the Buyer-Seller transaction 1 Yes causes to the company? Whether shareholders can hold Mr. James liable for Liable for unfair/oppressive the damage that the Buyer-Seller transaction causes 2 transaction or prejudicial to minority to the company? shareholders Doing Business 2014 United Kingdom 70 Score Score description Whether shareholders can hold members of the approving body liable for the damage that the Buyer- 1 Liable for negligence Seller transaction causes to the company? Possible when the transaction is Whether a court can void the transaction upon a 1 oppressive or prejudicial to minority successful claim by a shareholder plaintiff? shareholders Whether Mr. James pays damages for the harm caused to the company upon a successful claim by 1 Yes the shareholder plaintiff? Whether Mr. James repays profits made from the transaction upon a successful claim by the 1 Yes shareholder plaintiff? Whether fines and imprisonment can be applied 0 No against Mr. James? Ease of shareholder suits index (0-10) 7 Whether shareholders owning 10% or less of Buyer's shares can inspect transaction documents before 0 No filing suit? Whether shareholders owning 10% or less of Buyer's shares can request an inspector to investigate the 1 Yes transaction? Whether the plaintiff can obtain any documents from Information that directly proves 2 the defendant and witnesses during trial? specific facts in the plaintiff’s claim Whether the plaintiff can request categories of documents from the defendant without identifying 1 Yes specific ones? Whether the plaintiff can directly question the 2 Yes, without approval from the judge defendant and witnesses during trial? Whether the level of proof required for civil suits is 1 Yes lower than that of criminal cases? Strength of investor protection index (0-10) 8.0 Source: Doing Business database. Doing Business 2014 United Kingdom 71 PAYING TAXES Taxes are essential. They fund the public amenities, WHAT THE PAYING TAXES INDICATORS infrastructure and services that are crucial for a MEASURE properly functioning economy. But the level of tax rates needs to be carefully chosen—and needless Tax payments for a manufacturing company complexity in tax rules avoided. According to in 2012 (number per year adjusted for Doing Business data, in economies where it is more electronic and joint filing and payment) difficult and costly to pay taxes, larger shares of economic activity end up in the informal sector — Total number of taxes and contributions paid, where businesses pay no taxes at all. including consumption taxes (value added tax, sales tax or goods and service tax) What do the indicators cover? Method and frequency of filing and payment Using a case scenario, Doing Business measures Time required to comply with 3 major taxes the taxes and mandatory contributions that a (hours per year) medium-size company must pay in a given year as well as the administrative burden of paying taxes Collecting information and computing the tax and contributions. This case scenario uses a set of payable financial statements and assumptions about Completing tax return forms, filing with transactions made over the year. Information is proper agencies also compiled on the frequency of filing and Arranging payment or withholding payments as well as time taken to comply with tax laws. The ranking on the ease of paying taxes is Preparing separate tax accounting books, if the simple average of the percentile rankings on required its component indicators: number of annual Total tax rate (% of profit before all taxes) payments, time and total tax rate, with a threshold 1 Profit or corporate income tax being applied to the total tax rate. To make the data comparable across economies, several Social contributions and labor taxes paid by assumptions about the business and the taxes and the employer contributions are used. Property and property transfer taxes  TaxpayerCo is a medium-size business that Dividend, capital gains and financial started operations on January 1, 2011. transactions taxes  The business starts from the same financial Waste collection, vehicle, road and other taxes position in each economy. All the taxes  Taxes and mandatory contributions include and mandatory contributions paid during corporate income tax, turnover tax and all the second year of operation are recorded. labor taxes and contributions paid by the  Taxes and mandatory contributions are company. measured at all levels of government.  A range of standard deductions and exemptions are also recorded. 1 The threshold is defined as the highest total tax rate among the top 15% of economies in the ranking on the total tax rate. It is calculated and adjusted on a yearly basis. The threshold is not based on any economic theory of an “optimal tax rate” that minimizes distortions or maximizes efficiency in the tax system of an economy overall. Instead, it is mainly empirical in nature, set at the lower end of the distribution of tax rates levied on medium-size enterprises in the manufacturing sector as observed through the paying taxes indicators. This reduces the bias in the indicators toward economies that do not need to levy significant taxes on companies like the Doing Business standardized case study company because they raise public revenue in other ways—for example, through taxes on foreign companies, through taxes on sectors other than manufacturing or from natural resources (all of which are outside the scope of the methodology). This year’s threshold is 25.5%. Doing Business 2014 United Kingdom 72 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with Globally, United Kingdom stands at 14 in the ranking taxes in United Kingdom—and how much do firms pay of 189 economies on the ease of paying taxes (figure in taxes? On average, firms make 8 tax payments a 8.1). The rankings for comparator economies and the year, spend 110 hours a year filing, preparing and regional average ranking provide other useful paying taxes and pay total taxes amounting to 34.0% information for assessing the tax compliance burden of profit (see the summary at the end of this chapter for businesses in United Kingdom. for details). Figure 8.1 How United Kingdom and comparator economies rank on the ease of paying taxes Source: Doing Business database. Doing Business 2014 United Kingdom 73 PAYING TAXES What are the changes over time? The benchmarks provided by the economies that over show what is possible in easing the administrative time have had the best performance regionally or burden of tax compliance. And changes in regional globally on the number of payments or the time averages can show where United Kingdom is keeping required to prepare and file taxes (figure 8.2) help up—and where it is falling behind. Figure 8.2 Has paying taxes become easier over time? Payments (number per year) Time (hours per year) Doing Business 2014 United Kingdom 74 PAYING TAXES Total tax rate (% of profit) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. DB2013 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 25.5% applied in DB2014, the total tax rate is set at 25.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2014 United Kingdom 75 PAYING TAXES Economies around the world have made paying taxes concrete results. Some economies simplifying tax faster and easier for businesses—such as by payment and reducing rates have seen tax revenue consolidating filings, reducing the frequency of rise. What tax reforms has Doing Business recorded in payments or offering electronic filing and payment. United Kingdom (table 8.1)? Many have lowered tax rates. Changes have brought Table 8.1 How has United Kingdom made paying taxes easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. The United Kingdom made paying taxes less costly for DB2013 companies by reducing the corporate income tax rate. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 United Kingdom 76 PAYING TAXES What are the details? The indicators reported here for United Kingdom LOCATION OF STANDARDIZED COMPANY are based on a standard set of taxes and contributions that would be paid by the case study company used by Doing Business in collecting the City: London data (see the section in this chapter on what the indicators cover). Tax practitioners are asked to review standard financial statements as well as a standard list of transactions that the company The taxes and contributions paid are listed in the completed during the year. Respondents are asked summary below, along with the associated number of how much in taxes and mandatory contributions payments, time and tax rate. the business must pay and what the process is for doing so. Summary of tax rates and administrative burden in United Kingdom OECD high income OECD high income Indicator United Kingdom average average Payments (number per year) 8 12 Time (hours per year) 110 175 Profit tax (%) 21.6 16.1 Labor tax and contributions (%) 10.6 23.1 Other taxes (%) 1.7 2.0 Total tax rate (% profit) 34.0 41.3 Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate 20% - taxable Corporate income tax 1 online filing 37 21.6 27.5% profit 13.8% (floor of gross Labor tax 1 online filing 48 10.6 GBP 144 salaries per week) property Municipal business tax 1 0 various 1.4 value Doing Business 2014 United Kingdom 77 Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate depending Vehicle tax 1 0 various on weight 0.1 and size of vehicle insurance Tax on insurance contracts 1 0 6% 0.1 premium weight of GBP 64 per Environmental tax 1 0 active 0.1 tonne waste included Fuel Tax 1 0 in fuel 0 price value not Sales tax 1 online filing 25 20% 0 added included Totals 8 110 34.0 Source: Doing Business database. Doing Business 2014 United Kingdom 78 TRADING ACROSS BORDERS In today’s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE business. Excessive document requirements, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead to Documents required to export and import extra costs and delays for exporters and importers, (number) stifling trade potential. Research shows that Bank documents exporters in developing countries gain more from Customs clearance documents a 10% drop in their trading costs than from a similar reduction in the tariffs applied to their Port and terminal handling documents products in global markets. Transport documents What do the indicators cover? Time required to export and import (days) Doing Business measures the time and cost Obtaining, filling out and submitting all the (excluding tariffs and the time and cost for sea documents transport) associated with exporting and importing Inland transport and handling a standard shipment of goods by sea transport, and the number of documents necessary to Customs clearance and inspections complete the transaction. The indicators cover Port and terminal handling procedural requirements such as documentation Does not include sea transport time requirements and procedures at customs and other regulatory agencies as well as at the port. They also Cost required to export and import (US$ per cover trade logistics, including the time and cost of container) inland transport to the largest business city. The All documentation ranking on the ease of trading across borders is the simple average of the percentile rankings on its Inland transport and handling component indicators: documents, time and cost Customs clearance and inspections to export and import. Port and terminal handling To make the data comparable across economies, Official costs only, no bribes Doing Business uses several assumptions about the business and the traded goods. The business: military items.  Is of medium size and employs 60 people.  Do not require refrigeration or any other special environment.  Is located in the periurban area of the economy’s largest business city.  Do not require any special phytosanitary or environmental safety standards other than  Is a private, limited liability company, accepted international standards. domestically owned, formally registered and operating under commercial laws and  Are one of the economy’s leading export or regulations of the economy. import products. The traded goods:  Are transported in a dry-cargo, 20-foot full container load.  Are not hazardous nor do they include Doing Business 2014 United Kingdom 79 TRADING ACROSS BORDERS Where does the economy stand today? What does it take to export or import in United Globally, United Kingdom stands at 16 in the ranking Kingdom? According to data collected by Doing of 189 economies on the ease of trading across Business, exporting a standard container of goods borders (figure 9.1). The rankings for comparator requires 4 documents, takes 8 days and costs $1005. economies and the regional average ranking provide Importing the same container of goods requires 4 other useful information for assessing how easy it is for documents, takes 6 days and costs $1050 (see the a business in United Kingdom to export and import summary of procedures and documents at the end of goods. this chapter for details). Figure 9.1 How United Kingdom and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2014 United Kingdom 80 TRADING ACROSS BORDERS What are the changes over time? The benchmarks provided by the economies that over possible in making it easier to trade across borders. time have had the best performance regionally or And changes in regional averages can show where globally on the documents, time or cost required to United Kingdom is keeping up—and where it is falling export or import (figure 9.2) help show what is behind. Figure 9.2 Has trading across borders become easier over time? Documents to export (number) Time to export (days) Doing Business 2014 United Kingdom 81 TRADING ACROSS BORDERS Cost to export (US$ per container) Documents to import (number) Doing Business 2014 United Kingdom 82 TRADING ACROSS BORDERS Time to import (days) Cost to import (US$ per container) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB201 3 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 United Kingdom 83 TRADING ACROSS BORDERS In economies around the world, trading across borders systems. These changes help improve the trading as measured by Doing Business has become faster and environment and boost firms’ international easier over the years. Governments have introduced competitiveness. What trade reforms has Doing tools to facilitate trade—including single windows, Business recorded in United Kingdom (table 9.1)? risk-based inspections and electronic data interchange Table 9.1 How has United Kingdom made trading across borders easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 United Kingdom 84 TRADING ACROSS BORDERS What are the details? The indicators reported here for United Kingdom LOCATION OF STANDARDIZED COMPANY are based on a set of specific procedural requirements for trading a standard shipment of goods by ocean transport (see the section in this City: London chapter on what the indicators cover). Information on the procedures as well as the required documents and the time and cost to complete each The procedural requirements, and the associated time procedure is collected from local freight forwarders, and cost, for exporting and importing a standard shipping lines, customs brokers, port officials and shipment of goods are listed in the summary below, banks. along with the required documents. Summary of procedures and documents for trading across borders in United Kingdom OECD high income OECD high income Indicator United Kingdom average average Documents to export (number) 4 4 Time to export (days) 8 11 Cost to export (US$ per container) 1,005 1,070 Documents to import (number) 4 4 Time to import (days) 6 10 Cost to import (US$ per container) 1,050 1,090 Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Procedures to export Time (days) Cost (US$) Documents preparation 3 175 Customs clearance and technical control 1 75 Ports and terminal handling 2 205 Inland transportation and handling 2 550 Totals 8 1,005 Procedures to import Time (days) Cost (US$) Documents preparation 2 180 Doing Business 2014 United Kingdom 85 Procedures to import Time (days) Cost (US$) Customs clearance and technical control 1 75 Ports and terminal handling 1 205 Inland transportation and handling 2 590 Totals 6 1,050 Documents to export Documents to import Bill of Lading Bill of Lading Commercial invoice Commercial invoice Customs export declaration Customs import declaration Packing list Packing list Source: Doing Business database. Doing Business 2014 United Kingdom 86 ENFORCING CONTRACTS Effective commercial dispute resolution has many WHAT THE ENFORCING CONTRACTS benefits. Courts are essential for entrepreneurs INDICATORS MEASURE because they interpret the rules of the market and protect economic rights. Efficient and transparent Procedures to enforce a contract through courts encourage new business relationships the courts (number) because businesses know they can rely on the courts if a new customer fails to pay. Speedy trials Steps to file and serve the case are essential for small enterprises, which may lack Steps for trial and judgment the resources to stay in business while awaiting the outcome of a long court dispute. Steps to enforce the judgment Time required to complete procedures What do the indicators cover? (calendar days) Doing Business measures the efficiency of the Time to file and serve the case judicial system in resolving a commercial dispute before local courts. Following the step-by-step Time for trial and obtaining judgment evolution of a standardized case study, it collects Time to enforce the judgment data relating to the time, cost and procedural complexity of resolving a commercial lawsuit. The Cost required to complete procedures (% of ranking on the ease of enforcing contracts is the claim) simple average of the percentile rankings on its Average attorney fees component indicators: procedures, time and cost. Court costs The dispute in the case study involves the breach Enforcement costs of a sales contract between 2 domestic businesses. The case study assumes that the court hears an expert on the quality of the goods in dispute. This distinguishes the case from simple debt enforcement. To make the data comparable across economies, Doing Business uses several assumptions about the case:  The seller and buyer are located in the economy’s largest business city.  The dispute on the quality of the goods requires an expert opinion.  The buyer orders custom-made goods, then fails to pay.  The judge decides in favor of the seller; there is no appeal.  The seller sues the buyer before a competent court.  The seller enforces the judgment through a public sale of the buyer’s movable assets.  The value of the claim is 200% of income per capita.  The seller requests a pretrial attachment to secure the claim. Doing Business 2014 United Kingdom 87 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial Globally, United Kingdom stands at 56 in the ranking dispute through the courts in United Kingdom? of 189 economies on the ease of enforcing contracts According to data collected by Doing Business, (figure 10.1). The rankings for comparator economies contract enforcement takes 437 days, costs 39.9% of and the regional average ranking provide other useful the value of the claim and requires 28 procedures (see benchmarks for assessing the efficiency of contract the summary at the end of this chapter for details). enforcement in United Kingdom. Figure 10.1 How United Kingdom and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2014 United Kingdom 88 ENFORCING CONTRACTS What are the changes over time? The benchmarks provided by the economies that over help show what is possible in improving the efficiency time have had the best performance regionally or of contract enforcement. And changes in regional globally on the number of steps, time or cost required averages can show where United Kingdom is keeping to enforce a contract through the courts (figure 10.2) up—and where it is falling behind. Figure 10.2 Has enforcing contracts become easier over time? Time (days) Cost (% of claim) Doing Business 2014 United Kingdom 89 ENFORCING CONTRACTS Procedures (number) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 United Kingdom 90 ENFORCING CONTRACTS Economies in all regions have improved contract periodic reviews to clear inactive cases from the docket enforcement in recent years. A judiciary can be and by making procedures faster. What reforms improved in different ways. Higher-income economies making it easier (or more difficult) to enforce contracts tend to look for ways to enhance efficiency by has Doing Business recorded in United Kingdom (table introducing new technology. Lower-income economies 10.1)? often work on reducing backlogs by introducing Table 10.1 How has United Kingdom made enforcing contracts easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. The United Kingdom improved the process for enforcing DB2011 contracts by modernizing civil procedures in the commercial court. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 United Kingdom 91 ENFORCING CONTRACTS What are the details? The indicators reported here for United Kingdom COURT NAME are based on a set of specific procedural steps required to resolve a standardized commercial dispute through the courts (see the section in this City: London chapter on what the indicators cover). These procedures, and the time and cost of completing Claim Value LCU: 48738 them, are identified through study of the codes of civil procedure and other court regulations, as well Central London County as through surveys completed by local litigation Court Name: Court lawyers (and, in a quarter of the economies covered by Doing Business, by judges as well). The procedures for resolving a commercial lawsuit, and the associated time and cost, are listed in the summary below. Summary of procedures for enforcing a contract in United Kingdom—and the time and cost OECD high income OECD high income Indicator United Kingdom average average Time (days) 437 529 529 Filing and service 30 Trial and judgment 345 Enforcement of judgment 62 Cost (% of claim) 39.9 21.0 21.0 Attorney cost (% of claim) 35.0 Court cost (% of claim) 3.7 Enforcement Cost (% of claim) 1.2 Procedures (number) 28 31 31 Number of procedures (without bonus points) 30 Electronic filing of court cases -1 Specialized commercial courts -1 Total number of procedures (including bonus 28 points) Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Doing Business 2014 United Kingdom 92 ENFORCING CONTRACTS No. Procedure Filing and service: Plaintiff requests payment: Plaintiff or his lawyer asks Defendant orally or in writing to comply with the 1 contract. 2 Plaintiff’s hiring of lawyer: Plaintiff hires a lawyer to represent him before the court. * Plaintiff’s payment of court fees: Plaintiff pays court duties, stamp duties, or any other t ype of court fee. Assignment of court case to a judge: The court case is assigned to a specific judge through a random * procedure, automated system, ruling of an administrative judge, court officer, etc. Court scrutiny of summons and complaint: A judge examines Plaintiff's summons and complaint for 3 formal requirements. Mailing of summons and complaint: Court or process server, including (private) bailiff, mails summons * and complaint to Defendant. * Proof of service: Plaintiff submits proof of service to court. Application for pre-judgment attachment: Plaintiff submits an application in writing for the attachment of * Defendant's property prior to judgment. (see assumption 5) Decision on pre-judgment attachment: The judge decides whether to grant Plaintiff’s request for pre- * judgment attachment of Defendant’s property and notifies Plaintiff and Defendant of the decision. This step may include requesting that Plaintiff submit guarantees or bonds to secure Defendant Pre-judgment attachment.: Defendant's property is attached prior to judgment. Attachment is either 4 physical or achieved by registering, marking, debiting or separating assets. (see assumption 5) Hearing on pre-judgment attachment: A hearing takes place to resolve the question of whether 5 Defendant’s assets can be attached prior to judgment. This process may include the submission of separate summons and petitions. (see assumption 5) Trial and judgment: Defendant’s filing of defense or answer to Plaintiff’s claim: Defendant files a written pleading which includes his defense or answer on the merits of the case. Defendant's written answer may or may not 6 include witness statements, expert statements, the documents Defendant relies on as evidence and the legal authori Court’s mailing of allocation questionnaire to parties: The court mails a questionnaire to the parties asking * each to allocate the case among different case-tracks (for example, multi track, fast track) and asking each to frame the issues for trial. Parties’ answer to court's allocation questionnaire: Parties submit their completed allocation 7 questionnaires to the court (including their answers regarding case-tracks and the issues for trial). Doing Business 2014 United Kingdom 93 No. Procedure Pre-trial conference on procedure: The judge meets with the parties to discuss procedural issues (for 8 example which applications and motions parties intend to file, which documents parties intend to rely on, what will be presented as evidence the oral hearing or trial, etc.) Discovery requests: Plaintiff and Defendant make requests for the disclosure of documents, attempting to * force the other party to reveal potentially detrimental documents. Discovery disputes: Following a request for discovery of documentary evidence, the other party disputes 9 the request and calls upon the judge to decide the issue. 10 Request for oral hearing or trial: Plaintiff applies for the date(s) for the oral hearing or trial. * Setting of date(s) for oral hearing or trial: The judge sets the date(s) for the oral hearing or trial. * List of (expert) witnesses: The parties file a list of (expert) witnesses with the court. (see assumption 6-a) Trial (prevalent in common law): The parties argue the merits of the case at (an) oral session(s) before the 11 court. Witnesses and expert witnesses are questioned and cross-examined during trial. Final arguments: The parties present their final factual and legal arguments to the court either by oral * presentation or by a written submission. 12 Writing of judgment: The judge produces a written copy of the judgment. Registration of judgment: The court office registers the judgment after receiving a written copy of the 13 judgment. Court notification of availability of the written judgment: The court notifies the parties that the written 14 judgment is available at the courthouse. 15 Plaintiff's receipt of a copy of written judgment: Plaintiff receives a copy of the written judgment. Notification of Defendant of judgment: Plaintiff or court formally notifies the Defendant of the judgment. 16 The appeal period starts to run the day the Defendant is formally notified of the judgment. Appeal period: By law, Defendant has the opportunity to appeal the judgment during a period specified in 17 the law. Defendant decides not to appeal. Judgment becomes final the day the appeal period ends. Reimbursement by Defendant of Plaintiff's court fees: The judgment obliges Defendant to reimburse 18 Plaintiff for the court fees Plaintiff has advanced, because Defendant has lost the case. Enforcement of judgment: Plaintiff’s hiring of lawyer: Plaintiff hires a lawyer to enforce the judgment or continues to be represented * by a lawyer during the enforcement of judgment phase. Plaintiff's approaching of court enforcement officer or (private) bailiff to enforce the judgment: To enforce 19 the judgment, Plaintiff approaches a court enforcement officer such as a court bailiff or sheriff, or a private bailiff. Plaintiff’s request for enforcement order: Plaintiff applies to the court to obtain the enforcement order * ('seal' on judgment). Plaintiff’s advancement of enforcement fees: Plaintiff pays the fees related to the enforcement of the 20 judgment. Doing Business 2014 United Kingdom 94 No. Procedure Attachment of enforcement order to judgment: The judge attaches the enforcement order (‘seal’) to the 21 judgment. Delivery of enforcement order: The court's enforcement order is delivered to a court enforcement officer * or a (private) bailiff. Request to Defendant to comply voluntarily with judgment: Plaintiff, a court enforcement officer or a 22 (private) bailiff requests Defendant to voluntarily comply with the judgment, giving Defendant a last chance to comply voluntarily with the judgment. Identification of Defendant's assets for attachment by court official or Defendant: Judge, a court 23 enforcement officer, a (private) bailiff or the Defendant himself identifies Defendant's movable assets for attachment. Attachment: Defendant’s movable goods are attached (physically or by registering, marking or separating 24 assets). Report on execution of attachment: A court enforcement officer or private process server delivers a report 25 on the attachment of Defendant's movable goods to the judge. Call for public auction: The judge calls a public auction by, for example, advertising or publication in the 26 newspapers. 27 Sale through public auction: The Defendant’s movable property is sold at public auction. Distribution of proceeds: The proceeds of the public auction are distributed to various creditors (including 28 Plaintiff), according to the rules of priority. Reimbursement of Plaintiff’s enforcement fees: Defendant reimburses Plaintiff's enforcement fees which 29 Plaintiff had advanced previously. 30 Payment: Court orders that the proceeds of the public auction or the direct sale be delivered to Plaintiff. * Not counted in the total number of procedures. Source: Doing Business database. Doing Business 2014 United Kingdom 95 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient companies and reallocating the resources of INDICATORS MEASURE inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of Time required to recover debt (years) businesses to normal operation and increase Measured in calendar years returns to creditors. By improving the expectations of creditors and debtors about the outcome of Appeals and requests for extension are insolvency proceedings, well-functioning included insolvency systems can facilitate access to finance, Cost required to recover debt (% of debtor’s save more viable businesses and thereby improve estate) growth and sustainability in the economy overall. Measured as percentage of estate value What do the indicators cover? Court fees Doing Business studies the time, cost and outcome Fees of insolvency administrators of insolvency proceedings involving domestic entities. It does not measure insolvency Lawyers’ fees proceedings of individuals and financial Assessors’ and auctioneers’ fees institutions. The data are derived from survey Other related fees responses by local insolvency practitioners and verified through a study of laws and regulations as Outcome well as public information on bankruptcy systems. Whether business continues operating as a The ranking on the ease of resolving insolvency is going concern or business assets are sold based on the recovery rate, which is recorded as piecemeal cents on the dollar recouped by creditors through Recovery rate for creditors (cents on the reorganization, liquidation or debt enforcement dollar) (foreclosure) proceedings. The recovery rate is a Measures the cents on the dollar recovered function of time, cost and other factors, such as by creditors lending rate and the likelihood of the company continuing to operate. Present value of debt recovered To make the data comparable across economies, Official costs of the insolvency proceedings Doing Business uses several assumptions about the are deducted business and the case. It assumes that the Depreciation of furniture is taken into company: account  Is a domestically owned, limited liability Outcome for the business (survival or not) company operating a hotel. affects the maximum value that can be recovered  Operates in the economy’s largest business city.  Has 201 employees, 1 main secured  Has a higher value as a going concern—and creditor and 50 unsecured creditors. the efficient outcome is either reorganization or sale as a going concern, not piecemeal liquidation. Doing Business 2014 United Kingdom 96 RESOLVING INSOLVENCY Where does the economy stand today? Speed, low costs and continuation of viable businesses sold as going concern. The average recovery rate is characterize the top-performing economies. How 88.6 cents on the dollar. efficient are insolvency proceedings in United Globally, United Kingdom stands at 7 in the ranking of Kingdom? According to data collected by Doing 189 economies on the ease of resolving insolvency Business, resolving insolvency takes 1.0 years on (figure 11.1). The rankings for comparator economies average and costs 6% of the debtor’s estate, with the and the regional average ranking provide other useful most likely outcome being that the company will be benchmarks for assessing the efficiency of insolvency proceedings in United Kingdom. Figure 11.1 How United Kingdom and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2014 United Kingdom 97 RESOLVING INSOLVENCY What are the changes over time? The benchmarks provided by the economies that over possible in improving the efficiency of insolvency time have had the best performance regionally or proceedings. And changes in regional averages can globally on the time or cost of insolvency proceedings show where United Kingdom is keeping up—and or on the recovery rate (figure 11.2) help show what is where it is falling behind. Figure 11.2 Has resolving insolvency become easier over time? Time (years) Cost (% of estate) Doing Business 2014 United Kingdom 98 RESOLVING INSOLVENCY Recovery rate (cents on the dollar) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. “No practice” indicates that in each of the previous 5 years the economy had no cases involving a judicial reorganization, judicial liquidation or debt enforcement procedure (foreclosure). This means that creditors are unlikely to recover their money through a formal legal process (in or out of court). The recovery rate for “no practice” econom ies is 0. Regional averages on time and cost exclude economies with a “no practice” mark. Source: Doing Business database. Doing Business 2014 United Kingdom 99 RESOLVING INSOLVENCY A well-balanced bankruptcy system distinguishes change. Many recent reforms of bankruptcy laws have companies that are financially distressed but been aimed at helping more of the viable businesses economically viable from inefficient companies that survive. What insolvency reforms has Doing Business should be liquidated. But in some insolvency systems recorded in United Kingdom (table 11.1)? even viable businesses are liquidated. This is starting to Table 11.1 How has United Kingdom made resolving insolvency easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. Amendments to the United Kingdom’s insolvency rules DB2011 streamline bankruptcy procedures, favor the sale of the firm as a whole and improve the calculation of administrators’ fees. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 United Kingdom 100 EMPLOYING WORKERS Doing Business measures flexibility in the regulation of employing workers methodology proposed by the employment, specifically as it affects the hiring and consultative group are available on the Doing Business redundancy of workers and the rigidity of working website (http://www.doingbusiness.org). The data on hours. Over the period from 2007 to 2011 employing workers are based on a detailed survey of improvements were made to align the methodology employment regulations that is completed by local for the employing workers indicators with the letter lawyers and public officials. Employment laws and and spirit of the International Labour Organization regulations as well as secondary sources are reviewed (ILO) conventions. Only 4 of the 188 ILO conventions to ensure accuracy. cover areas measured by Doing Business: employee To make the data comparable across economies, termination, weekend work, holiday with pay and night several assumptions about the worker and the work. The Doing Business methodology is fully business are used. consistent with these 4 conventions. The ILO conventions covering areas related to the Employing The worker: Workers indicators do not include the ILO core labor  Earns a salary plus benefits equal to the standards—8 conventions covering the right to economy’s average wage during the entire collective bargaining, the elimination of forced labor, period of his employment. the abolition of child labor and equitable treatment in  Has a pay period that is the most common for workers in the economy. employment practices.  Is a lawful citizen who belongs to the same race and religion as the majority of the Between 2009 and 2011 the World Bank Group worked economy’s population. with a consultative group—including labor lawyers,  Resides in the economy’s largest business city. employer and employee representatives, and experts  Is not a member of a labor union, unless from the ILO, OECD, civil society and the private membership is mandatory. sector—to review the employing workers methodology and explore future areas of research. A i The business:  Is a limited liability company. full report with the conclusions of the consultative  Operates in the economy’s largest business group is available at city. http://www.doingbusiness.org/methodology/employin  Is 100% domestically owned. g-workers.  Operates in the manufacturing sector.  Has 60 employees. This year Doing Business continued research collecting  Is subject to collective bargaining agreements additional data on regulations covering the in economies where such agreements cover probationary period for new employees. more than half the manufacturing sector and apply even to firms not party to them. Doing Business 2014 presents the data on the  Abides by every law and regulation but does not grant workers more benefits than employing workers indicators in an annex. The report mandated by law, regulation or (if applicable) does not present rankings of economies on the collective bargaining agreement. employing workers indicators nor include the topic in the aggregate ranking on the ease of doing business. Detailed data collected on labor regulations and the Doing Business 2014 United Kingdom 101 EMPLOYING WORKERS What do some of the data show? One of the employing workers indicators is the worker in his or her first job. Doing Business data show difficulty of hiring index. This measure assesses, among the trend in the minimum wage applied by United other things, the minimum wage for a 19-year-old Kingdom (figure 12.1). Figure 12.1 Has the minimum wage for a 19-year-old worker or an apprentice increased over time? Minimum wage (US$ per month) Note: A horizontal line along the x-axis of the figure indicates that the economy has no minimum wage. Source: Doing Business database. Doing Business 2014 United Kingdom 102 EMPLOYING WORKERS Employment laws are needed to protect workers from past 5 years did so in ways that increased labor market arbitrary or unfair treatment and to ensure efficient flexibility. What changes did United Kingdom adopt contracting between employers and workers. Many that affected the Doing Business indicators on economies that changed their labor regulations in the employing workers (table 12.1)? Table 12.1 What changes did United Kingdom make in employing workers in 2013? DB year Reform The United Kingdom increased the mandatory paid annual DB2009 leave. DB2010 The United Kingdom increased mandatory paid annual leave. DB2011 No reform as measured by Doing Business. United Kingdom increased the severance payment obligation DB2012 applicable in cases of redundancy dismissals. The United Kingdom increased redundancy costs of the DB2013 severance pay applicable in cases of redundancy dismissals. United Kingdom increased the cap on weekly wage provided DB2014 to employees on the severance payment and the minimum wage. Source: Doing Business database. Doing Business 2014 United Kingdom 103 EMPLOYING WORKERS What are the details? The data on employing workers reported here for lawyers and public officials. Employment laws and United Kingdom are based on a detailed survey of regulations as well as secondary sources are reviewed employment regulations that is completed by local to ensure accuracy. Rigidity of employment index The rigidity of employment index measures 3 areas of labor regulation: difficulty of hiring, rigidity of hours and difficulty of redundancy. Difficulty of hiring index The difficulty of hiring index measures whether fixed- worker. (The average value added per worker is the term contracts are prohibited for permanent tasks; the ratio of an economy’s gross national income per capita maximum cumulative duration of fixed-term contracts; to the working-age population as a percentage of the and the ratio of the minimum wage for a trainee or total population.) first-time employee to the average value added per Difficulty of hiring index Data Fixed-term contracts prohibited for permanent tasks? No No limit, but employees who have worked successive fixed term contracts for a period of four years or more will Maximum length of a single fixed-term contract (months) become permament employees unless the employer can objectively justify the continued use of a fixed term arrangements. Maximum length of fixed-term contracts, including renewals (months) No limit Minimum wage for a 19-year old worker or an apprentice (US$/month) 1355.1 Ratio of minimum wage to value added per worker 0.28 Source: Doing Business database. Doing Business 2014 United Kingdom 104 EMPLOYING WORKERS Rigidity of hours index The rigidity of hours index has 5 components: whether respond to a seasonal increase in production; and there are restrictions on night work; whether there are whether the average paid annual leave for a worker restrictions on weekly holiday work; whether the with 1 year of tenure, a worker with 5 years and a workweek can consist of 5.5 days or is more than 6 worker with 10 years is more than 26 working days or days; whether the workweek can extend to 50 hours or fewer than 15 working days. more (including overtime) for 2 months a year to Rigidity of hours index Data There is no daily limit by law. (There is a weekly limit of 48 hours that can be Standard workday in manufacturing (hours) averaged over longer periods.) However, 8 hours is common. 50-hour workweek allowed for 2 months a year in case of a seasonal Yes increase in production? Maximum working days per week 6.0 Premium for night work (% of hourly pay) in case of continuous 0% operations Premium for work on weekly rest day (% of hourly pay) in case of 0% continuous operations Major restrictions on night work in case of continuous operations? No Major restrictions on weekly holiday in case of continuous operations? No Paid annual leave for a worker with 1 year of tenure (in working days) 28.0 Paid annual leave for a worker with 5 years of tenure (in working days) 28.0 Paid annual leave for a worker with 10 years of tenure (in working days) 28.0 Paid annual leave (average for workers with 1, 5 and 10 years of tenure, in 28.0 working days) Source: Doing Business database. Doing Business 2014 United Kingdom 105 EMPLOYING WORKERS Difficulty of redundancy index The difficulty of redundancy index has 8 components: worker; whether the employer needs approval from a whether redundancy is disallowed as a basis for third party to terminate a group of 9 redundant terminating workers; whether the employer needs to workers; whether the law requires the employer to notify a third party (such as a government agency) to reassign or retrain a worker before making the worker terminate 1 redundant worker; whether the employer redundant; whether priority rules apply for needs to notify a third party to terminate a group of 9 redundancies; and whether priority rules apply for redundant workers; whether the employer needs reemployment. approval from a third party to terminate 1 redundant Difficulty of redundancy index Data Dismissal due to redundancy allowed by law? Yes Third-party notification if 1 worker is dismissed? No Third-party approval if 1 worker is dismissed? No Third-party notification if 9 workers are dismissed? No Third-party approval if 9 workers are dismissed? No Retraining or reassignment obligation before redundancy? No Priority rules for redundancies? No Priority rules for reemployment? No Source: Doing Business database. Doing Business 2014 United Kingdom 106 EMPLOYING WORKERS Redundancy cost The redundancy cost indicator measures the cost of notice requirements and severance payments advance notice requirements, severance payments and applicable to a worker with 1 year of tenure, a worker penalties due when terminating a redundant worker, with 5 years and a worker with 10 years is used to expressed in weeks of salary. The average value of assign the score. Redundancy cost indicator Data Notice period for redundancy dismissal (for a worker with 1 year of tenure, in salary 1.0 weeks) Notice period for redundancy dismissal (for a worker with 5 years of tenure, in 5.0 salary weeks) Notice period for redundancy dismissal (for a worker with 10 years of tenure, in 10.0 salary weeks) Notice period for redundancy dismissal (average for workers with 1, 5 and 10 years 5.3 of tenure, in salary weeks) Severance pay for redundancy dismissal (for a worker with 1 year of tenure, in 0.0 salary weeks) Severance pay for redundancy dismissal (for a worker with 5 years of tenure, in 3.1 salary weeks) Severance pay for redundancy dismissal (for a worker with 10 years of tenure, in 6.3 salary weeks) Severance pay for redundancy dismissal (average for workers with 1, 5 and 10 years 3.1 of tenure, in salary weeks) Source: Doing Business database. Doing Business 2014 United Kingdom 107 DATA NOTES The indicators presented and analyzed in Doing rounds of verification, leading to revisions or Business measure business regulation and the expansions of the information collected. protection of property rights—and their effect on businesses, especially small and medium-size domestic firms. First, the indicators document the complexity of ECONOMY CHARACTERISTICS regulation, such as the number of procedures to start a business or to register and transfer commercial property. Second, they gauge the time and cost to Gross national income per capita achieve a regulatory goal or comply with regulation, such as the time and cost to enforce a contract, go Doing Business 2014 reports 2012 income per capita through bankruptcy or trade across borders. Third, as published in the World Bank’s World Development they measure the extent of legal protections of Indicators 2013. Income is calculated using the Atlas property, for example, the protections of investors method (current U.S. dollars). For cost indicators against looting by company directors or the range of expressed as a percentage of income per capita, assets that can be used as collateral according to 2012 gross national income (GNI) in U.S. dollars is secured transactions laws. Fourth, a set of indicators used as the denominator. GNI data were not documents the tax burden on businesses. Finally, a set available from the World Bank for Afghanistan, The of data covers different aspects of employment Bahamas, Bahrain, Barbados, Brunei Darussalam, regulation. The 11 sets of indicators measured in Djibouti, the Islamic Republic of Iran, Kuwait, Libya, Doing Business were added over time, and the sample Myanmar, New Zealand, Oman, San Marino, the of economies expanded. Syrian Arab Republic, West Bank and Gaza, and the Republic of Yemen. In these cases GDP or GNP per The data for all sets of indicators in Doing Business 2 capita data and growth rates from other sources, 2014 are for June 2013. such as the International Monetary Fund’s World Economic Outlook database and the Economist Intelligence Unit, were used. Methodology Region and income group The Doing Business data are collected in a standardized way. To start, the Doing Business team, Doing Business uses the World Bank regional and with academic advisers, designs a questionnaire. The income group classifications, available at questionnaire uses a simple business case to ensure http://data.worldbank.org/about/country- classifications. The World Bank does not assign comparability across economies and over time—with regional classifications to high-income economies. assumptions about the legal form of the business, its For the purpose of the Doing Business report, high- size, its location and the nature of its operations. income OECD economies are assigned the “regional” Questionnaires are administered to more than 10,200 classification OECD high income. Figures and tables local experts, including lawyers, business consultants, presenting regional averages include economies accountants, freight forwarders, government officials from all income groups (low, lower middle, upper and other professionals routinely administering or middle and high income). advising on legal and regulatory requirements (table Population 21.2). These experts have several rounds of interaction with the Doing Business team, involving conference Doing Business 2014 reports midyear 2012 calls, written correspondence and visits by the team. population statistics as published in World For Doing Business 2014 team members visited 33 Development Indicators 2013. economies to verify data and recruit respondents. The data from questionnaires are subjected to numerous The Doing Business methodology offers several advantages. It is transparent, using factual information about what laws and regulations say and allowing 2 The data for paying taxes refer to January – December 2012. multiple interactions with local respondents to clarify Doing Business 2014 United Kingdom 108 potential misinterpretations of questions. Having entrepreneurs reported in the World Bank Enterprise representative samples of respondents is not an issue; Surveys or other perception surveys. Doing Business is not a statistical survey, and the texts This year Doing Business completed subnational of the relevant laws and regulations are collected and studies in Colombia, Italy and the city of Hargeisa answers checked for accuracy. The methodology is (Somaliland) and is currently updating indicators in inexpensive and easily replicable, so data can be Egypt, Mexico and Nigeria. Doing Business also collected in a large sample of economies. Because published regional studies for the g7+ and the East standard assumptions are used in the data collection, African Community. The g7+ group is a country- comparisons and benchmarks are valid across owned and country-led global mechanism established economies. Finally, the data not only highlight the in April 2010 to monitor, report and draw attention to extent of specific regulatory obstacles to business but the unique challenges faced by fragile states. The also identify their source and point to what might be member countries included in the report are reformed. Information on the methodology for each Afghanistan, Burundi, the Central African Republic, Doing Business topic can be found on the Doing Chad, the Comoros, the Democratic Republic of Business website at Congo, Côte d’Ivoire, Guinea, Guinea-Bissau, Haiti, http://www.doingbusiness.org/methodology. Liberia, Papua New Guinea, Sierra Leone, the Solomon Islands, South Sudan, Timor-Leste and Togo. Limits to what is measured The subnational studies point to differences in business regulation and its implementation —as well as The Doing Business methodology has 5 limitations that in the pace of regulatory reform—across cities in the should be considered when interpreting the data. First, same economy. For several economies subnational the collected data refer to businesses in the economy’s studies are now periodically updated to measure largest business city (which in some economies differs change over time or to expand geographic coverage from the capital) and may not be representative of to additional cities. This year that is the case for all the regulation in other parts of the economy. To address subnational studies published. this limitation, subnational Doing Business indicators were created (box 21.1). Second, the data often focus on a specific business form—generally a limited liability company (or its legal equivalent) of a specified Changes in what is measured size—and may not be representative of the regulation The methodology for 2 indicator sets—trading across on other businesses, for example, sole proprietorships. borders and paying taxes—was updated this year. For Third, transactions described in a standardized case trading across borders, documents that are required scenario refer to a specific set of issues and may not purely for purposes of preferential treatment are no represent the full set of issues a business encounters. longer included in the list of documents (for example, Fourth, the measures of time involve an element of a certificate of origin if the use is only to qualify for a judgment by the expert respondents. When sources preferential tariff rate under trade agreements). For indicate different estimates, the time indicators paying taxes, the value of fuel taxes is no longer reported in Doing Business represent the median included in the total tax rate because of the difficulty values of several responses given under the of computing these taxes in a consistent way across all assumptions of the standardized case. economies covered. The fuel tax amounts are in most cases very small, and measuring these amounts is Finally, the methodology assumes that a business has often complicated because they depend on fuel full information on what is required and does not consumption. Fuel taxes continue to be counted in the waste time when completing procedures. In practice, number of payments. completing a procedure may take longer if the business lacks information or is unable to follow up In a change involving several indicator sets, the rule promptly. Alternatively, the business may choose to establishing that each procedure must take at least 1 disregard some burdensome procedures. For both day was removed for procedures that can be fully reasons the time delays reported in Doing Business completed online in just a few hours. This change 2014 would differ from the recollection of affects the time indicator for starting a business, Doing Business 2014 United Kingdom 109 dealing with construction permits and registering with one another, while the distance to frontier property. For procedures that can be fully completed measure benchmarks economies to the frontier in 3 online, the duration is now set at half a day rather than regulatory practice, measuring the absolute distance to a full day. the best performance on each indicator. Both measures can be used for comparisons over time. The threshold for the total tax rate introduced in 2011 When compared across years, the distance to frontier for the purpose of calculating the ranking on the ease measure shows how much the regulatory environment of paying taxes was updated. All economies with a for local entrepreneurs in each economy has changed total tax rate below the threshold (which is calculated over time in absolute terms, while the ease of doing and adjusted on a yearly basis) receive the same business ranking can show only relative change. ranking on the total tax rate indicator. The threshold is not based on any economic theory of an “optimal tax Ease of doing business rate” that minimizes distortions or maximizes efficiency The ease of doing business index ranks economies in the tax system of an economy overall. Instead, it is from 1 to 189. For each economy the ranking is mainly empirical in nature, set at the lower end of the calculated as the simple average of the percentile distribution of tax rates levied on medium-size rankings on each of the 10 topics included in the index enterprises in the manufacturing sector as observed in Doing Business 2014: starting a business, dealing through the paying taxes indicators. This reduces the with construction permits, getting electricity, bias in the indicators toward economies that do not registering property, getting credit, protecting need to levy significant taxes on companies like the investors, paying taxes, trading across borders, Doing Business standardized case study company enforcing contracts, and resolving insolvency. The because they raise public revenue in other ways—for employing workers indicators are not included in this example, through taxes on foreign companies, through year’s aggregate ease of doing business ranking. taxes on sectors other than manufacturing or from natural resources (all of which are outside the scope of Construction of the ease of doing business index the methodology). This year the threshold is 25,5%. Here is one example of how the ease of doing business index is constructed. In Denmark it takes 4 procedures, 5.5 days and 0.2% of annual income per capita in fees Data challenges and revisions to open a business. The minimum capital requirement Most laws and regulations underlying the Doing is 24% of annual income per capita. On these 4 Business data are available on the Doing Business indicators Denmark ranks in the 12th, 11th, 1st and website at http://www.doingbusiness.org. All the 79th percentiles. So on average Denmark ranks in the sample questionnaires and the details underlying the 25th percentile on the ease of starting a business. It indicators are also published on the website. Questions ranks in the 21st percentile on getting credit, 19th on the methodology and challenges to data can be percentile on paying taxes, 27th percentile on submitted through the website’s “Ask a Question” enforcing contracts, 5th percentile on resolving function at http://www.doingbusiness.org. insolvency and so on. Higher rankings indicate simpler regulation and stronger protection of property rights. Ease of doing business and distance to The simple average of Denmark’s percentile rankings frontier on all topics is 17th. When all economies are ordered Doing Business 2014 presents results for 2 aggregate by their average percentile rankings, Denmark stands measures: the aggregate ranking on the ease of doing at 5 in the aggregate ranking on the ease of doing business and the distance to frontier measure. The business. ease of doing business ranking compares economies More complex aggregation methods—such as 3 For getting electricity the rule that each procedure must take a principal components and unobserved components— minimum of 1 day still applies because in practice there are no yield a ranking nearly identical to the simple average cases in which procedures can be fully completed online in less than a day. For example, even though in some cases it is possible to apply for an electricity connection online, additional requirements mean that the process cannot be completed in less than 1 day. Doing Business 2014 United Kingdom 110 4 used by Doing Business. Thus, Doing Business uses 58 on enforcing contracts, 116 on dealing with the simplest method: weighting all topics equally and, construction permits and 145 on getting electricity. within each topic, giving equal weight to each of the Variation in performance across the indicator sets is topic components. not at all unusual. It reflects differences in the degree If an economy has no laws or regulations covering a of priority that government authorities give to specific area—for example, insolvency—it receives a particular areas of business regulation reform and the “no practice” mark. Similarly, an economy receives a ability of different government agencies to deliver “no practice” or “not possible” mark if regulation exists tangible results in their area of responsibility. but is never used in practice or if a competing Distance to frontier measure regulation prohibits such practice. Either way, a “no practice” mark puts the economy at the bottom of the A drawback of the ease of doing business ranking is ranking on the relevant indicator. that it can measure the regulatory performance of economies only relative to the performance of others. The ease of doing business index is limited in scope. It It does not provide information on how the absolute does not account for an economy’s proximity to large quality of the regulatory environment is improving markets, the quality of its infrastructure services (other over time. Nor does it provide information on how than services related to trading across borders and large the gaps are between economies at a single getting electricity), the strength of its financial system, point in time. the security of property from theft and looting, macroeconomic conditions or the strength of The distance to frontier measure is designed to underlying institutions. address both shortcomings, complementing the ease of doing business ranking. This measure illustrates the Variability of economies’ rankings across topics distance of an economy to the “frontier,” and the Each indicator set measures a different aspect of the change in the measure over time shows the extent to business regulatory environment. The rankings of an which the economy has closed this gap. The frontier is economy can vary, sometimes significantly, across a score derived from the most efficient practice or indicator sets. The average correlation coefficient highest score achieved on each of the component between the 10 indicator sets included in the indicators in 10 Doing Business indicator sets aggregate ranking is 0.38, and the coefficients (excluding the employing workers indicators) by any between any 2 sets of indicators range from 0.18 economy. In starting a business, for example, Canada (between getting electricity and getting credit) to 0.58 and New Zealand have achieved the highest (between trading across borders and resolving performance on the number of procedures required (1) insolvency and between trading across borders and and on the time (0.5 days), Denmark and Slovenia on getting electricity). These correlations suggest that the cost (0% of income per capita) and Chile, Zambia economies rarely score universally well or universally and 99 other economies on the paid-in minimum badly on the indicators. capital requirement (0% of income per capita) (table 22.2). Consider the example of Canada. It stands at 19 in the aggregate ranking on the ease of doing business. Its Calculating the distance to frontier for each economy ranking is 2 on starting a business, 4 on protecting involves 2 main steps. First, individual indicator scores investors, and 8 on paying taxes. But its ranking is only are normalized to a common unit: except for the total tax rate, each of the 31 component indicators y is rescaled to (max − y)/(max − min), with the minimum 4 See Simeon Djankov, Darshini Manraj, Caralee McLiesh and Rita Ramalho, “Doing Business Indicators: Why Aggregate, and How to value (min) representing the frontier—the highest Do It” (World Bank, Washington, DC, 2005). Principal components performance on that indicator across all economies and unobserved components methods yield a ranking nearly since 2003 or the first year the indicator was collected. 5 identical to that from the simple average method because both these methods assign roughly equal weights to the topics, since the For the total tax rate, consistent with the calculation of pairwise correlations among indicators do not differ much. An alternative to the simple average method is to give different weights to the topics, depending on which are considered of more or less 5 Even though scores for the distance to frontier are calculated from importance in the context of a specific economy. 2005, data from as early as 2003 are used to define the frontier Doing Business 2014 United Kingdom 111 the rankings, the frontier is defined as the total tax rate Economies that improved the most across 3 or at the 15th percentile of the overall distribution of more Doing Business topics in 2012/13 total tax rates for all years. Second, for each economy Doing Business 2014 uses a simple method to calculate the scores obtained for individual indicators are which economies improved the most in the ease of aggregated through simple averaging into one doing business. First, it selects the economies that in distance to frontier score, first for each topic and then 2012/13 implemented regulatory reforms making it across all topics. An economy’s distance to frontier is easier to do business in 3 or more of the 10 topics indicated on a scale from 0 to 100, where 0 represents included in this year’s ease of doing business ranking. 6 the lowest performance and 100 the frontier. Twenty-nine economies meet this criterion: Azerbaijan, The maximum (max) and minimum (min) observed Belarus, Burundi, Côte d’Ivoire, Croatia, Djibouti, values are computed for all economies included in the Gabon, Guatemala, Guinea, Italy, Kosovo, Latvia, the Doing Business sample since 2003 and for all years former Yugoslav Republic of Macedonia, Malaysia, (from 2003 to 2013). To mitigate the effects of extreme Mauritius, Mexico, Moldova, Mongolia, Morocco, outliers in the distributions of the rescaled data (very Panama, the Philippines, the Republic of Congo, few economies need 694 days to complete the Romania, the Russian Federation, Rwanda, Sri Lanka, procedures to start a business, but many need 9 days), Ukraine, Uzbekistan and the United Arab Emirates. th the maximum (max) is defined as the 95 percentile of Second, Doing Business sorts these economies on the the pooled data for all economies and all years for increase in their distance to frontier measure from the each indicator. The exceptions are the getting credit, previous year using comparable data. protecting investors and resolving insolvency Selecting the economies that implemented regulatory indicators, whose construction precludes outliers. In reforms in at least 3 topics and improved the most in addition, the cost to export and cost to import for each the distance to frontier measure is intended to year are divided by the GDP deflator, so as to take the highlight economies with ongoing, broadbased reform general price level into account when benchmarking programs. The criterion for identifying the top these absolute-cost indicators across economies with improvers was changed from last year. The different inflation trends. The base year for the deflator improvement in ease of doing business ranking is no is 2013 for all economies. longer used. The improvement in the distance to The difference between an economy’s distance to frontier measure is used instead because under this frontier score in any previous year and its score in measure economies are sorted according to their abs- 2013 illustrates the extent to which the economy has olute improvement instead of relative improvement. closed the gap to the frontier over time. And in any given year the score measures how far an economy is from the highest performance at that time. Take Colombia, which has a score of 70.5 on the distance to frontier measure for 2014. This score indicates that the economy is 29.5 percentage points away from the frontier constructed from the best performances across all economies and all years. Colombia was further from the frontier in 2009, with a score of 66.2. The difference between the scores shows an improvement over time. The distance to frontier measure can also be used for comparisons across economies in the same year, complementing the ease of doing business ranking. For example, Colombia stands at 63 this year in the ease of doing business ranking, while Peru, which is 6 Doing Business reforms making it more difficult to do business are 29.3 percentage points from the frontier, stands at 42. subtracted from the total number of those making it easier to do business. Doing Business 2014 United Kingdom 113 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Doing Business reforms News on the Doing Business project Short summaries of DB2014 business regulation http://www.doingbusiness.org reforms, lists of reforms since DB2008 and a ranking simulation tool Rankings http://www.doingbusiness.org/reforms/ How economies rank—from 1 to 189 http://www.doingbusiness.org/rankings/ Historical data Customized data sets since DB2004 Data http://www.doingbusiness.org/custom-query/ All the data for 189 economies—topic rankings, indicator values, lists of regulatory procedures and Law library details underlying indicators Online collection of business laws and regulations http://www.doingbusiness.org/data/ relating to business and gender issues http://www.doingbusiness.org/law-library/ Reports http://wbl.worldbank.org/ Access to Doing Business reports as well as subnational and regional reports, reform case Contributors studies and customized economy and regional More than 10,200 specialists in 189 economies profiles who participate in Doing Business http://www.doingbusiness.org/reports/ http://www.doingbusiness.org/contributors/doing- business/ Methodology The methodologies and research papers Entrepreneurship data underlying Doing Business Data on business density for 139 economies http://www.doingbusiness.org/methodology/ http://www.doingbusiness.org/data/exploretopics/e ntrepreneurship Research Abstracts of papers on Doing Business topics and Doing Business iPhone App related policy issues Doing Business at a Glance App presents the full http://www.doingbusiness.org/research/ report, rankings and highlights http://www.doingbusiness.org/specialfeatures/ iphone Doing Business 2014 United Kingdom 114