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Doing Business 2013 United Kingdom 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 5 Starting a business ..................................................................................................................... 14 Dealing with construction permits ........................................................................................... 24 Getting electricity ....................................................................................................................... 36 Registering property .................................................................................................................. 44 Getting credit .............................................................................................................................. 56 Protecting investors ................................................................................................................... 63 Paying taxes ................................................................................................................................ 72 Trading across borders .............................................................................................................. 80 Enforcing contracts .................................................................................................................... 89 Resolving insolvency .................................................................................................................. 99 Employing workers .................................................................................................................. 105 Data notes ................................................................................................................................. 112 Resources on the Doing Business website ............................................................................ 117 Doing Business 2013 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 2011). 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 185 economies, from Afghanistan to Zimbabwe, operating in the largest business city. Because over time. The data set covers 46 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 24 in East Asia and the Pacific, 24 in Eastern Europe economies. The data not only highlight the extent of and Central Asia, 19 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 2013 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 2013, 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, 2012 http://www.doingbusiness.org. Doing Business 2013 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 185 by the ease of Population: 62,641,000 doing business index. For each economy the index is calculated as the ranking on the simple average of its GNI per capita (US$): 37,780 percentile rankings on each of the 10 topics included in the index in Doing Business 2013: starting a business, DB2013 rank: 7 dealing with construction permits, getting electricity, registering property, getting credit, protecting DB2012 rank: 6* 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 percentile rankings on its component indicators (see * DB2012 ranking shown is not last year‘s published the data notes for more details). The employing workers ranking but a comparable ranking for DB2012 that indicators are not included in this year‘s aggregate ease captures the effects of such factors as data of doing business ranking, but the data are presented corrections and the addition of 2 economies in this year‘s economy profile. (Barbados and Malta) to the sample this year. See the data notes for sources and definitions. The aggregate ranking on the ease of doing business benchmarks each economy‘s performance on the indicators against that of all other economies in the Doing Business sample (figure 1.1). While this ranking tells much about the business environment in an economy, it does not tell the whole story. The ranking on the ease of doing business, and the underlying 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 2013 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 2013 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 2013 United Kingdom 8 THE BUSINESS ENVIRONMENT Figure 1.3 How United Kingdom ranks on Doing Business topics Source: Doing Business database. Doing Business 2013 United Kingdom 9 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing business year 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 each economy is Yearly movements in rankings can provide some indication from the best performance achieved by any economy since of changes in an economy‘s regulatory environment for 2005 on each indicator in 9 Doing Business indicator sets. firms, but they are always relative. An economy‘s ranking Comparing the measure for an economy at 2 points in might change because of developments in other time allows users to assess how much the economy‘s economies. An economy that implemented business regulatory environment as measured by Doing Business regulation reforms may fail to rise in the rankings (or may has changed over time—how far it has moved toward (or even drop) if it is passed by others whose business away from) the most efficient practices and strongest regulation reforms had a more significant impact as regulations in areas covered by Doing Business (figure 1.4). measured by Doing Business. The results may show that the pace of change varies widely Moreover, year-to-year changes in the overall rankings do across the areas measured. They also may show that an not reflect how the business regulatory environment in an economy is relatively close to the frontier in some areas economy has changed over time—or how it has changed and relatively far from it in others. in different areas. To aid in assessing such changes, last 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. 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 9 indicator sets shown in the figure. See the data notes for more details on the distance to frontier measure. Source: Doing Business database. Doing Business 2013 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 DB2013 United Kingdom DB2012 Best performer globally United States DB2013 Germany DB2013 Indicator Ireland DB2013 France DB2013 Japan DB2013 DB2013 Starting a Business (rank) 19 18 27 106 10 114 13 New Zealand (1) Procedures (number) 6 6 5 9 4 8 6 New Zealand (1)* Time (days) 13 13 7 15 10 23 6 New Zealand (1) Cost (% of income per 0.7 0.7 0.9 4.9 0.3 7.5 1.4 Slovenia (0.0) capita) Paid-in Min. Capital (% of 0.0 0.0 0.0 0.0 0.0 0.0 0.0 91 Economies (0.0)* income per capita) Dealing with Construction Hong Kong SAR, China 20 19 52 14 106 72 17 Permits (rank) (1) Hong Kong SAR, China Procedures (number) 9 9 9 9 12 14 15 (6)* Time (days) 99 99 184 97 156 193 27 Singapore (26) Cost (% of income per 62.4 63.8 68.0 48.1 626.1 28.5 14.4 Qatar (1.1) capita) Doing Business 2013 United Kingdom 11 United Kingdom DB2013 United Kingdom DB2012 Best performer globally United States DB2013 Germany DB2013 Ireland DB2013 Indicator France DB2013 Japan DB2013 DB2013 Getting Electricity (rank) 62 64 42 2 95 27 19 Iceland (1) Procedures (number) 5 5 5 3 5 3 4 Germany (3)* Time (days) 105 109 79 17 205 105 68 Germany (17) Cost (% of income per 108.9 111.4 43.9 48.3 94.2 0.0 16.1 Japan (0.0) capita) Registering Property 73 69 146 81 53 64 25 Georgia (1) (rank) Procedures (number) 6 6 8 5 5 6 4 Georgia (1)* Time (days) 29 29 59 40 38 14 12 Portugal (1) Cost (% of property value) 4.7 4.7 6.1 5.7 2.5 5.8 3.5 Belarus (0.0)* Getting Credit (rank) 1 1 53 23 12 23 4 United Kingdom (1)* Strength of legal rights 10 10 7 7 9 7 9 Malaysia (10)* index (0-10) Depth of credit 6 6 4 6 5 6 6 United Kingdom (6)* information index (0-6) Public registry coverage 0.0 0.0 42.4 1.3 0.0 0.0 0.0 Portugal (90.7) (% of adults) Private bureau coverage United Kingdom 100.0 100.0 0.0 100.0 100.0 100.0 100.0 (% of adults) (100.0)* Protecting Investors 10 10 82 100 6 19 6 New Zealand (1) (rank) Extent of disclosure index Hong Kong SAR, China 10 10 10 5 10 7 7 (0-10) (10)* Doing Business 2013 United Kingdom 12 United Kingdom DB2013 United Kingdom DB2012 Best performer globally United States DB2013 Germany DB2013 Ireland DB2013 Indicator France DB2013 Japan DB2013 DB2013 Extent of director liability 7 7 1 5 6 6 9 Singapore (9)* index (0-10) Ease of shareholder suits 7 7 5 5 9 8 9 New Zealand (10)* index (0-10) Strength of investor 8.0 8.0 5.3 5.0 8.3 7.0 8.3 New Zealand (9.7) protection index (0-10) United Arab Emirates Paying Taxes (rank) 16 19 53 72 6 127 69 (1) Payments (number per Hong Kong SAR, China 8 8 7 9 8 14 11 year) (3)* United Arab Emirates Time (hours per year) 110 110 132 207 80 330 175 (12) Trading Across Borders 14 15 27 13 28 19 22 Singapore (1) (rank) Documents to export 4 4 2 4 4 3 4 France (2) (number) Time to export (days) 7 7 9 7 7 10 6 Singapore (5)* Cost to export (US$ per 950 950 1,078 872 1,135 880 1,090 Malaysia (435) container) Documents to import 4 4 2 5 4 5 5 France (2) (number) Time to import (days) 6 6 11 7 12 11 5 Singapore (4) Cost to import (US$ per 1,045 1,045 1,248 937 1,121 970 1,315 Malaysia (420) container) Enforcing Contracts (rank) 21 21 8 5 63 35 6 Luxembourg (1) Doing Business 2013 United Kingdom 13 United Kingdom DB2013 United Kingdom DB2012 Best performer globally United States DB2013 Germany DB2013 Ireland DB2013 Indicator France DB2013 Japan DB2013 DB2013 Time (days) 399 399 390 394 650 360 370 Singapore (150) Cost (% of claim) 25.9 24.8 17.4 14.4 26.9 32.2 14.4 Bhutan (0.1) Procedures (number) 28 28 29 30 21 30 32 Ireland (21)* Resolving Insolvency 8 6 43 19 9 1 16 Japan (1) (rank) Time (years) 1.0 1.0 1.9 1.2 0.4 0.6 1.5 Ireland (0.4) Cost (% of estate) 6 6 9 8 9 4 7 Singapore (1)* Outcome (0 as piecemeal sale and 1 as going 1 0 1 1 1 1 concern) Recovery rate (cents on 88.6 88.6 48.4 78.1 87.5 92.8 81.5 Japan (92.8) the dollar) Note: DB2012 rankings shown are not last year‘s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. The ranking methodology for the paying taxes indicators changed in Doing Business 2013; see the data notes for details. For more information on “no practice� marks, see the data notes. Data for the outcome of the resolving insolvency indicator are not available for DB2012. * 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 2013 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 larg est 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 business in an economy by recording all Procedure completed once final document is procedures officially required or commonly done in received practice by an entrepreneur to start up and formally operate an industrial or commercial No prior contact with officials business—as well as the time and cost required to Cost required to complete each procedure complete these procedures. It also records the (% of income per capita) paid-in minimum capital that companies must deposit before registration (or within 3 months). Official costs only, no bribes The ranking on the ease of starting a business is No professional fees unless services required the simple average of the percentile rankings on by law the 4 component indicators: procedures, time, cost and paid-in minimum capital requirement. Paid-in minimum capital (% of income per capita) To make the data comparable across economies, Doing Business uses several assumptions about the Deposited in a bank or with a notary before business and the procedures. It assumes that all registration (or within 3 months) information is readily available to the entrepreneur  Has a start-up capital of 10 times income per and that there has been no prior contact with capita. officials. It also assumes that the entrepreneur will  Has a turnover of at least 100 times income per pay no bribes. And it assumes that the business: capita.  Is a limited liability company, located in the  Does not qualify for any special benefits. largest business city.  Does not own real estate.  Has between 10 and 50 employees.  Is 100% domestically owned.  Conducts general commercial or industrial activities. Doing Business 2013 United Kingdom 15 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in United procedures, takes 13 days, costs 0.7% 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. 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 2013 United Kingdom 16 STARTING A BUSINESS Globally, United Kingdom stands at 19 in the ranking and the regional average ranking provide other useful of 185 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 2013 United Kingdom 17 STARTING A BUSINESS What are the changes over time? While the most recent Doing Business data reflect how the process have changed—and which have not (table easy (or difficult) it is to start a business in United 2.1). That can help identify where the potential for Kingdom today, data over time show which aspects of improvement is greatest. Table 2.1 The ease of starting a business in United Kingdom over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. .. .. 18 19 Procedures 6 6 6 6 6 6 6 6 6 6 (number) Time (days) 13 13 13 13 13 13 13 13 13 13 Cost (% of income per 1.0 0.9 0.7 0.7 0.8 0.8 0.7 0.7 0.7 0.7 capita) Paid-in Min. Capital (% of 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 income per capita) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year‘s published rankings but comparable rankings for DB20 12 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. Source: Doing Business database. Doing Business 2013 United Kingdom 18 STARTING A BUSINESS Equally helpful may be the benchmarks provided by what is possible in making it easier to start a business. the economies that over time have had the best And changes in regional averages can show where performance regionally or globally on the procedures, United Kingdom is keeping up—and where it is falling time, cost or paid-in minimum capital required to start behind. a business (figure 2.3). These benchmarks help show Figure 2.3 Has starting a business become easier over time? Procedures (number) Time (days) Doing Business 2013 United Kingdom 19 STARTING A BUSINESS Cost (% of income per capita) Paid-in minimum capital (% of income per capita) Note: Ninety-one economies globally have no paid-in minimum capital requirement. Source: Doing Business database. Doing Business 2013 United Kingdom 20 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 2.2)? 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 2.2 How has United Kingdom made starting a business easier—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. 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. 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 2013 United Kingdom 21 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 1 day no charge 1 This can be done here. Prepare memorandum and articles of association; fill out and sign Form IN01 (application for registration). Forms are also 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 GBP 135 information included on the form IN01 which should be lodged with (approximately GBP 2 the relevant Registrar of Companies (i.e. for England and Wales (or 1 day 100 for solicitor Wales), Scotland or Northern Ireland): services + GBP 35 for statutory book) (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 (i.e. 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 2013 United Kingdom 22 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 3 1 day GBP 30 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. Contact HMRC and register for VAT The company has to contact HMCR and register for corporate tax (tax 1 day no charge 4 on company profits). VAT registration may be carried out online. * 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 an activation PIN within around a week and will need to activate this within 28 days (or else request a new PIN). 8 days, simultaneous 5 with previous no charge Inland Revenue has been subsumed into HMRC. Companies must procedure Register and Enrol online which produces and Activation Code. For security reasons, a check is run on the data provided and bona fide businesses sent an 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. 6 Sign up for employer’s liability insurance 1 day no charge Doing Business 2013 United Kingdom 23 Time to No. Procedure Cost to complete complete 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. The Employers‘ Liability (Compulsory Insurance) Act 1969 requires that 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. Source: Doing Business database. Doing Business 2013 United Kingdom 24 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 Completing 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 fixed telephone line cost for a business to obtain all the necessary Registering the warehouse after its approvals to build a simple commercial warehouse completion (if required for use as collateral or in the economy‘s largest business city, connect it to for transfer of the warehouse) basic utilities and register the property so that it Time required to complete each procedure can be used as collateral or transferred to another (calendar days) 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, time and cost. Procedure completed once final document is received To make the data comparable across economies, Doing Business uses several assumptions about the No prior contact with officials business and the warehouse, including the utility Cost required to complete each procedure (% connections. of income per capita) The business: Official costs only, no bribes  Is a limited liability company operating in  Will be connected to water, sewerage the construction business and located in (sewage system, septic tank or their the largest business city. equivalent) and a fixed telephone line. The  Is domestically owned and operated. connection to each utility network will be 10 meters (32 feet, 10 inches) long.  Has 60 builders and other employees.  Will be used for general storage, such as of The warehouse: books or stationery (not for goods requiring  Is a new construction (there was no special conditions). previous construction on the land).  Will take 30 weeks to construct (excluding all  Has complete architectural and technical delays due to administrative and regulatory plans prepared by a licensed architect. requirements). Doing Business 2013 United Kingdom 25 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to construction permits there requires 9 procedures, build a warehouse in United Kingdom? According to takes 99 days and costs 62.4% 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. 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 2013 United Kingdom 26 DEALING WITH CONSTRUCTION PERMITS Globally, United Kingdom stands at 20 in the ranking ranking provide other useful information for assessing of 185 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 2013 United Kingdom 27 DEALING WITH CONSTRUCTION PERMITS What are the changes over time? While the most recent Doing Business data reflect how aspects of the process have changed—and which have easy (or difficult) it is to deal with construction permits not (table 3.1). That can help identify where the in United Kingdom today, data over time show which potential for improvement is greatest. Table 3.1 The ease of dealing with construction permits in United Kingdom over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. 19 20 Procedures (number) 17 17 17 17 9 9 9 9 Time (days) 150 150 150 150 113 113 99 99 Cost (% of income 55.3 54.2 50.9 50.4 56.0 57.5 63.8 62.4 per capita) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year‘s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. For more information on ―no practice‖ marks, see the data notes. Source: Doing Business database. Doing Business 2013 United Kingdom 28 DEALING WITH CONSTRUCTION PERMITS Equally helpful may be the benchmarks provided by possible in making it easier to deal with construction the economies that over time have had the best permits. And changes in regional averages can show performance regionally or globally on the procedures, where United Kingdom is keeping up—and where it is time or cost required to deal with construction permits falling behind. (figure 3.3). These benchmarks help show what is Figure 3.3 Has dealing with construction permits become easier over time? Procedures (number) Time (days) Doing Business 2013 United Kingdom 29 DEALING WITH CONSTRUCTION PERMITS Cost (% of income per capita) Source: Doing Business database. Doing Business 2013 United Kingdom 30 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 3.2)? Construction is one of them. In an effort to ensure Table 3.2 How has United Kingdom made dealing with construction permits easier—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. 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. 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 2013 United Kingdom 31 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, Estimated construction lawyers, construction firms, utility GBP 929,000 Warehouse Value : service providers and public officials who deal with building regulations. These procedures are those The procedures, along with the associated time and that apply to a company and structure matching cost, are summarized below. 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 1 day GBP 3,896 1 a degree) • Check plans for compliance with building regulations • Issue a plans certificate (if requested) • Inspect the work as it progresses • Issue a final completion certificate (if requested) A list of approved inspectors can be viewed at the Association of Corporate Approved Inspectors. 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 Doing Business 2013 United Kingdom 32 Time to No. Procedure Cost to complete complete external companies. It also eliminates need for companies deal with Building Control Department of Local Authority. However, the Local 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 60 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. Once the planning permission (consent) is obtained from Planning Department in Local Authority, the AI sends a notice to the Building Control Department of Local Authority that it would take the responsibility over the building control process. In return within 5 days it will receive a notice of acknowledgement that is not conditional to beginning the works. Construction works may begin as soon as the notice has been filed to the Local Authority. AI, for BuildCo‘s case, would conduct at least 8 -- 9 inspections at various stages of construction and risk based factors. 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. Doing Business 2013 United Kingdom 33 Time to No. Procedure Cost to complete complete 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). 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 the Development Management Procedure Order (2010) -- see section on Reform Update. 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. 56 days GBP 5,809 2 The size of BuildCo's proposed development falls below the threshold for a ―major application‖, which means that the time frame for a decision is 8 weeks rather than 13. 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 8 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. Submit application to local Fire Safety Office and obtain approval Approved Inspector submits respective elements of the drawing and plans pertinent to fire safety to a local Fire Safety Office, as part of the 3 formal plan vetting process in order that they can assure themselves 21 days no charge that the building is compliant with the latest fire safety Legislation and 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. Doing Business 2013 United Kingdom 34 Time to No. Procedure Cost to complete complete 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. 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. Obtaining water and sewerage connection 4 20 days GBP 5,321 BuildCo must file a letter of intent and must buy all materials for the connection itself. * Receive inspection from the water provider 5 1 day no charge * Obtaining phone connection BuildCo must file a letter of intent and must buy all materials for the connection itself. According to British Telecom the largest service 7 days GBP 106 6 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 extend to six working days. In practice, however the connection may Doing Business 2013 United Kingdom 35 Time to No. Procedure Cost to complete complete take up to 2 months even for areas with existing telecom communications. The updated fee schedule for obtaining a new fixed telephone line for businesses from British Telecom costs GBP 106.37. * Receive inspection from the telecom provider 7 1 day no charge * Request and receive Energy Performance Certificate from Accredite Energy Assessor Following the nationwide implementation of the "Energy Performance of Buildings Directive" adopted, on December 16, 2002, as of January 4, 2009 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 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 1 day GBP 78 8 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 the EPC may vary between GBP 55.00 to GBP 100.00. File completion certificate to Building Control Department of Local Authority Once the building is completed BuildCo would notify AI about the completion. AI completes the final inspection within 24 hours and prepares the certificate of completion. AI will file copy of completion 9 certificate to Building Control Department of Local Authority within 5 1 day no charge days after completion of final inspection. LABC then files the documents and sends an acknowledgement of receipt to BuildCo/AI. Although, legally not required, Building Control Department, in practice may conduct an inspection. LABC is not required to issue an approval of a Completion Certificate issued by an AI, however, failure by BuildCo to obtain one may prove to be problematic. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2013 United Kingdom 36 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 150 meters long.  Is a new construction being connected to  Is to either the low-voltage or the medium- electricity for the first time. voltage distribution network and either overhead  Has 2 stories, both above ground, with a or underground, whichever is more common in total surface of about 1,300.6 square the economy and in the area where the meters (14,000 square feet), and is built on warehouse is located. The length of any a plot of 929 square meters (10,000 square connection in the customer‘s private domain is feet). negligible. The electricity connection:  Involves installing one electricity meter. The monthly electricity consumption will be 0.07  Is a 3-phase, 4-wire Y, 140-kilovolt-ampere gigawatt-hour (GWh). The internal electrical (kVA) (subscribed capacity) connection. wiring has been completed. Doing Business 2013 United Kingdom 37 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity requires 5 procedures, takes 105 days and costs connection in United Kingdom? According to data 108.9% 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 2013 United Kingdom 38 GETTING ELECTRICITY Globally, United Kingdom stands at 62 in the ranking perspective in assessing how easy it is for an of 185 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 2013 United Kingdom 39 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 DB2013 DB2012 globally DB2013 DB2013 Rank 62 64 Iceland (1) Iceland (1) Procedures (number) 5 5 Germany (3) Germany (3)* Time (days) 105 109 Germany (17) Germany (17) Cost (% of income per capita) 108.9 111.4 Japan (0.0) Japan (0.0) Note: DB2012 rankings shown are not last year‘s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) 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 2013 United Kingdom 40 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. Source: Doing Business database. Doing Business 2013 United Kingdom 41 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 1 design. 31 calendar days no charge 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. Ofgem is currently considering new regulation concerning assessment and design charges. 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 2013 United Kingdom 42 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 2 and an estimate. During the inspection the utility ensures that the 14 calendar days no charge location is OK for their equipment (service cut-out/substation etc). It 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 74 calendar days GBP 26,540.5 3 to carry out all the external connection works. 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 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 completed. The customer will pass the MPAN to its chosen electricity 4 supplier. The supplier must register the MPAN with UK Power Networks. 30 calendar days no charge 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 supply contract. * Receive meter installation and internal wiring inspection by meter operator and electricity starts flowing 5 20 calendar days no charge 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 Doing Business 2013 United Kingdom 43 Time to No. Procedure Cost to complete complete 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. In the UK, the DNO only undertakes the work up to the cut-out. All 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 2013 United Kingdom 44 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. Procedure completed once final document is received To make the data comparable across economies, several assumptions about the parties to the No prior contact with officials transaction, the property and the procedures are Cost required to complete each procedure used. (% of property value) The parties (buyer and seller): Official costs only, no bribes  Are limited liability companies, 100% No value added or capital gains taxes included domestically and privately owned.  Are located in the periurban area of the economy‘s largest business city.  Has no mortgages attached and has been under the same ownership for the past 10  Have 50 employees each, all of whom are years. nationals.  Consists of 557.4 square meters (6,000 square  Perform general commercial activities. feet) of land and a 10-year-old, 2-story The property (fully owned by the seller): warehouse of 929 square meters (10,000  Has a value of 50 times income per capita. square feet). The warehouse is in good The sale price equals the value. condition and complies with all safety standards, building codes and legal  Is registered in the land registry or requirements. The property will be transferred cadastre, or both, and is free of title in its entirety. disputes.  Is located in a periurban commercial zone, and no rezoning is required. Doing Business 2013 United Kingdom 45 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in procedures, takes 29 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. 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 2013 United Kingdom 46 REGISTERING PROPERTY Globally, United Kingdom stands at 73 in the ranking and the regional average ranking provide other useful of 185 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 2013 United Kingdom 47 REGISTERING PROPERTY What are the changes over time? While the most recent Doing Business data reflect how the process have changed—and which have not (table easy (or difficult) it is to register property in United 5.1). That can help identify where the potential for Kingdom today, data over time show which aspects of improvement is greatest. Table 5.1 The ease of registering property in United Kingdom over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. .. 69 73 Procedures (number) 6 6 6 6 6 6 6 6 6 Time (days) 42 42 42 42 42 29 29 29 29 Cost (% of property value) 4.9 4.8 4.8 4.8 4.7 4.7 4.7 4.7 4.7 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year‘s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. For more information on ―no practice‖ marks, see the data notes. Source: Doing Business database. Doing Business 2013 United Kingdom 48 REGISTERING PROPERTY Equally helpful may be the benchmarks provided by (figure 5.3). These benchmarks help show what is the economies that over time have had the best possible in making it easier to register property. And performance regionally or globally on the procedures, changes in regional averages can show where United time or cost required to complete a property transfer Kingdom is keeping up—and where it is falling behind. Figure 5.3 Has registering property become easier over time? Procedures (number) Time (days) Doing Business 2013 United Kingdom 49 REGISTERING PROPERTY Cost (% of property value) Source: Doing Business database. Doing Business 2013 United Kingdom 50 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 5.2)? Table 5.2 How has United Kingdom made registering property easier—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. DB2009 No reform as measured by Doing Business. The lodging of a land transaction return is now processed automatically and electronically by the HM Revenue & DB2010 Customs in the United Kingdom, 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. 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 2013 United Kingdom 51 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 City: London through information collected from local property Property Value: GBP 1,218,452 lawyers, notaries and property registries. These procedures are those that apply to a transaction The procedures, along with the associated time and matching the standard assumptions used by Doing cost, are summarized below. Business in collecting the data (see the section in this chapter on what the indicators cover). 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 1-4 weeks and endorsed by the British Property Federation. GBP 3,500 - GBP 1 (simultaneous with 10,000 Procedure 2) Depending on the enquiries raised, the seller's solicitor would typically spend 1-3 billable hours to prepare the enquiries taking his client's 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 it will be acquiring good and marketable title to the property. 1-3 weeks As part of the due diligence to determine whether the title is good and GBP 300 to GBP 2 (simultaneous with marketable, the purchaser's solicitor will conduct the following searches: 1000 Procedure 1) 1. Investigation of the title: to know whether the land is registered at the 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 Doing Business 2013 United Kingdom 52 Time to No. Procedure Cost to complete complete 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 GBP 300-1,000, 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 transactions are usually conducted by solicitors. The seller's solicitor will prepare a draft of the contract and submit it to the purchaser's solicitor once approved by his/her client. The purchaser's solicitor will review the 1 day (simultaneous included in 3 draft and suggest any suitable amendments. with Procedure 4) Procedure 3 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 Doing Business 2013 United Kingdom 53 Time to No. Procedure Cost to complete complete 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 GBP 4 if lodged 1 day (simultaneous 4 solicitor known as 'requisitions on title' and a 'pre-completion search electronically; GBP 8 with Procedure 3) with priority' in order to block any movements on the property until if lodged in paper completion of the property tansfer. 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. For every land transaction the purchaser must complete, sign and send the land transaction return to be received by HM Revenue & Customs 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 GBP 13 + 4% SDLT paid either by cheque, through the CHAPS automated payment system 1 day 5 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 in GBP: SDLT): Under GBP 150,000: 0% Doing Business 2013 United Kingdom 54 Time to No. Procedure Cost to complete complete 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 on completion. 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) 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 6 with financing 7 days GBP 920 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 2009) came into effect on 6 July 2009 and the fee thresholds are as follows: Property value (GBP) | Fee (GBP) | 0 - 50,000 | 50 | 50,000 - 80,000 | 80 | Doing Business 2013 United Kingdom 55 Time to No. Procedure Cost to complete complete 80,0001 - 100,000 | 130 | 100,001 - 200,000 | 200 | 200,001 - 500,000 | 280 | 500,001 - 1.000,000 | 550 | Above 1.000,000 | 920 | Land registry information available online at: www.landregistry.gov.uk * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2013 United Kingdom 56 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 the legal rights of borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable lenders to view a Strength of legal rights index (0–10) potential borrower‘s financial history (positive or Protection of rights of borrowers and lenders negative)—valuable information to consider when through collateral laws assessing risk. And they permit borrowers to Protection of secured creditors‘ rights through establish a good credit history that will allow easier bankruptcy laws access to credit. Sound collateral laws enable businesses to use their assets, especially movable Depth of credit information index (0–6) property, as security to generate capital—while Scope and accessibility of credit information strong creditors‘ rights have been associated with distributed by public credit registries and higher ratios of private sector credit 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 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, limited liability company. the strength of legal rights index.  Has its headquarters and only base of operations in the largest business city. Doing Business 2013 United Kingdom 57 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 185 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 2013 United Kingdom 58 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 Rank .. .. .. .. .. .. .. 1 1 Strength of legal rights 10 10 10 10 10 10 10 10 10 index (0-10) Depth of credit 6 6 6 6 6 6 6 6 6 information index (0-6) Public registry 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 coverage (% of adults) Private bureau n.a. 76.2 86.1 84.6 100.0 100.0 100.0 100.0 100.0 coverage (% of adults) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year‘s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. Source: Doing Business database. Doing Business 2013 United Kingdom 59 GETTING CREDIT One way to put an economy‘s score on the getting 2012 and shows the number of economies with this credit indicators into context is to see where the score in 2012 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), 2012 information index (0–6), 2012 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 public credit registry or a private Source: Doing Business database. credit bureau, to facilitate lending decisions. Regional averages for the depth of credit information index exclude economies with no public registry or private bureau. Source: Doing Business database. Doing Business 2013 United Kingdom 60 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 DB2008 No reform as measured by Doing Business. 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. 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 2013 United Kingdom 61 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 public well as public sources of information on collateral and credit registry or private credit bureau (if one exists). bankruptcy laws. For the strength of legal rights index, To 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 public credit registry or private credit bureau (see bankruptcy law. summary of scoring below). Summary of scoring for the getting credit indicators in United Kingdom OECD high OECD high income Indicator United Kingdom income 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 31.5 Private bureau coverage (% of adults) 100.0 74.6 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 public registry or private bureau. Regional averages for the public registry coverage exclude economies with no public registry. Regional averages for the private bureau coverage exclude economies with no private 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; Yes and any financial institution accept such assets as collateral ? Does the law allow businesses to grant a non possessory security right in a single category Yes of 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 Yes automatically 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 2013 United Kingdom 62 Strength of legal rights index (0–10) Index score: 10 Are secured creditors paid first (i.e. before general tax claims and employee claims) when a Yes debtor defaults outside an insolvency procedure? Are secured creditors paid first (i.e. before general tax claims and employee claims) when a Yes business is liquidated? Are secured creditors either not subject to an automatic stay or moratorium on enforcement procedures when a debtor enters a court-supervised reorganization procedure, or the law Yes provides secured creditors with grounds for relief from an automatic stay or 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? Private credit Public credit Depth of credit information index (0–6) Index score: 6 bureau registry 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 Yes No 1 as 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. Coverage Private credit bureau Public credit registry Number of firms 9,850,960 0 Number of individuals 47,466,778 0 Source: Doing Business database. Doing Business 2013 United Kingdom 63 PROTECTING INVESTORS Investor protections matter 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 provide such protections, investors may be reluctant to invest unless they become the controlling Extent of disclosure index (0–10) shareholders. Strong regulations clearly define Who can approve related-party transactions related-party transactions, promote clear and efficient Disclosure requirements in case of related- disclosure requirements, require shareholder party transactions participation in major decisions of the company and set clear standards of accountability for company Extent of director liability index (0–10) insiders. Ability of shareholders to hold interested What do the indicators cover? parties and members of the approving body liable in case of related-party transactions Doing Business measures the strength of minority Available legal remedies (damages, repayment shareholder protections against directors‘ use of of profits, fines, imprisonment and rescission corporate assets for personal gain—or self-dealing. of the transaction) The indicators distinguish 3 dimensions of investor protections: transparency of related-party Ability of shareholders to sue directly or transactions (extent of disclosure index), liability for derivatively self-dealing (extent of director liability index) and Ease of shareholder suits index (0–10) shareholders‘ ability to sue officers and directors for Access to internal corporate documents misconduct (ease of shareholder suits index). The (directly or through a government inspector) ranking on the strength of investor protection index is the simple average of the percentile rankings on Documents and information available during these 3 indices. To make the data comparable across trial economies, a case study uses several assumptions Strength of investor protection index (0–10) about the business and the transaction. Simple average of the extent of disclosure, The business (Buyer): extent of director liability and ease of shareholder suits indices  Is a publicly traded corporation listed on the economy‘s most important stock exchange (or at least a large private company with multiple the company purchase used trucks from another shareholders). company he owns.  Has a board of directors and a chief executive  The price is higher than the going price for used officer (CEO) who may legally act on behalf of trucks, but the transaction goes forward. Buyer where permitted, even if this is not specifically required by law.  All required approvals are obtained, and all required disclosures made, though the transaction The transaction involves the following details: is prejudicial to Buyer.  Mr. James, a director and the majority  Shareholders sue the interested parties and the shareholder of the company, proposes that members of the board of directors. Doing Business 2013 United Kingdom 64 PROTECTING INVESTORS Where does the economy stand today? How strong are investor protections in United protection index (figure 7.1). While the indicator does Kingdom? The economy has a score of 8.0 on the not measure all aspects related to the protection of strength of investor protection index, with a higher minority investors, a higher ranking does indicate that score indicating stronger protections (see the an economy‘s regulations offer stronger investor summary of scoring at the end of this chapter for protections against self-dealing in the areas measured. details). Globally, United Kingdom stands at 10 in the ranking of 185 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 2013 United Kingdom 65 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 Rank .. .. .. .. .. .. 10 10 Extent of disclosure 10 10 10 10 10 10 10 10 index (0-10) Extent of director liability index (0- 7 7 7 7 7 7 7 7 10) Ease of shareholder 7 7 7 7 7 7 7 7 suits index (0-10) Strength of investor protection 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 index (0-10) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year‘s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. Source: Doing Business database. Doing Business 2013 United Kingdom 66 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 2012 as well as the regional average score. Figure 7.3 economy stands in the distribution of scores across shows the same thing for the extent of director liability economies. Figure 7.2 highlights the score on the index, and figure 7.4 for the ease of shareholder suits extent of disclosure index for United Kingdom in 2012 index. 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 extent of Number of economies with each score on extent of director liability index (0–10), 2012 disclosure index (0–10), 2012 Note: Higher scores indicate greater liability of directors. Note: Higher scores indicate greater disclosure. No economy receives a score of 10 on the extent of Source: Doing Business database. director liability index. Source: Doing Business database. Doing Business 2013 United Kingdom 67 PROTECTING INVESTORS Figure 7.4 How easy is access to internal corporate documents? Number of economies with each score on ease of shareholder suits index (0–10), 2012 Note: Higher scores indicate greater powers of shareholders to challenge the transaction. Source: Doing Business database. Doing Business 2013 United Kingdom 68 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 investor protections. Source: Doing Business database. Doing Business 2013 United Kingdom 69 PROTECTING INVESTORS Economies with the strongest protections of minority time. So reforms to strengthen investor protections investors from self-dealing require more disclosure may move ahead on different fronts—such as through and define clear duties for directors. They also have new or amended company laws or civil procedure well-functioning courts and up-to-date procedural rules. What investor protection reforms has Doing rules that give minority investors the means to prove Business recorded in United Kingdom (table 7.2)? their case and obtain a judgment within a reasonable Table 7.2 How has United Kingdom strengthened investor protections—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. 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. 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 2013 United Kingdom 70 PROTECTING INVESTORS What are the details? The protecting investors indicators reported here for ease of shareholder suits indices, a score is assigned United Kingdom are based on detailed information for each of a range of conditions relating to disclosure, collected through a survey of corporate and securities director liability and shareholder suits in a standard lawyers as well as on securities regulations, company case study transaction (see the notes at the end of this laws and court rules of evidence. To construct the chapter). The summary below shows the details extent of disclosure, extent of director liability and underlying the scores for United Kingdom. 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 6 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 6.1 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? Doing Business 2013 United Kingdom 71 Score Score description 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 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 2013 United Kingdom 72 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 2011 (number per year adjusted for Doing Business data, in economies where it is more electronic or 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, 2010. 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 25.7%. Doing Business 2013 United Kingdom 73 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with Globally, United Kingdom stands at 16 in the ranking taxes in United Kingdom—and how much do firms pay of 185 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 35.5% 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 Note: DB2013 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 25.7% applied in DB2013, the total tax rate is set at 25.7% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2013 United Kingdom 74 PAYING TAXES What are the changes over time? While the most recent Doing Business data reflect how the process have changed — and which have not easy (or difficult) it is to comply with tax rules in United (table 8.1). That can help identify where the potential Kingdom today, data over time show which aspects of for easing tax compliance is greatest. Table 8.1 The ease of paying taxes in United Kingdom over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. 19 16 Payments (number per 8 8 8 8 8 8 8 8 year) Time (hours per year) 105 105 105 105 110 110 110 110 Total tax rate (% profit) 35.8 35.8 35.7 35.3 35.9 37.3 37.3 35.5 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year‘s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. DB2013 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 25.7% applied in DB2013, the total tax rate is set at 25.7% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2013 United Kingdom 75 PAYING TAXES Equally helpful may be the benchmarks provided by possible in easing the administrative burden of tax the economies that over time have had the best compliance. And changes in regional averages can performance regionally or globally on the number of show where United Kingdom is keeping up—and payments or the time required to prepare and file where it is falling behind. taxes (figure 8.2). These benchmarks help show what is Figure 8.2 Has paying taxes become easier over time? Payments (number per year) Time (hours per year) Doing Business 2013 United Kingdom 76 PAYING TAXES Total tax rate (% of profit) Source: Doing Business database. Doing Business 2013 United Kingdom 77 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 8.2)? Many have lowered tax rates. Changes have brought Table 8.2 How has United Kingdom made paying taxes easier—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. 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. 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 2013 United Kingdom 78 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 OECD high income Indicator United Kingdom income average average Payments (number per year) 8 12 Time (hours per year) 110 176 Profit tax (%) 22.2 15.2 Labor tax and contributions (%) 10.2 23.8 Other taxes (%) 3.1 3.7 Total tax rate (% profit) 35.5 42.7 Note: In cases where an economy‘s regional classification is ―OECD high income,‖ regional averages above are only displayed once. Total tax Tax or mandatory Payments Notes on Time Statutory Notes on Tax base rate (% of contribution (number) payments (hours) tax rate total tax rate profit) 20% and taxable Corporate income tax 1 online filing 40 22.2 26% profit 13.8% (floor gross Labor tax 1 online filing 45 of GBP 136 10.2 salaries per week) property Municipal business tax 1 0 various 1.4 value Doing Business 2013 United Kingdom 79 Total tax Tax or mandatory Payments Notes on Time Statutory Notes on Tax base rate (% of contribution (number) payments (hours) tax rate total tax rate profit) included in Fuel tax 1 0 1.4 fuel price depending on weight Vehicle tax 1 0 various 0.1 and size of vehicle insurance Tax on insurance contracts 1 0 6% 0.1 premium GBP 56 per weight of Environmental tax 1 0 0.1 ton active waste Sales tax 1 online filing 25 20% value added 0 not included Totals 8 110 35.5 Source: Doing Business database. Doing Business 2013 United Kingdom 80 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:  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 military items. Doing Business 2013 United Kingdom 81 TRADING ACROSS BORDERS Where does the economy stand today? What does it take to export or import in United Globally, United Kingdom stands at 14 in the ranking Kingdom? According to data collected by Doing of 185 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 7 days and costs $950. 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 $1045 (see the a business in United Kingdom to export and import summary of procedures and documents at the end of goods. this chapter for details). Figure 9.1 How United Kingdom and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2013 United Kingdom 82 TRADING ACROSS BORDERS What are the changes over time? While the most recent Doing Business data reflect how the process have changed—and which have not (table easy (or difficult) it is to export or import in United 9.1). That can help identify where the potential for Kingdom today, data over time show which aspects of improvement is greatest. Table 9.1 The ease of trading across borders in United Kingdom over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. 15 14 Documents to export 4 4 4 4 4 4 4 4 (number) Time to export (days) 9 9 9 9 9 7 7 7 Cost to export (US$ per 940 940 940 1,030 1,030 950 950 950 container) Documents to import 4 4 4 4 4 4 4 4 (number) Time to import (days) 8 8 8 8 8 6 6 6 Cost to import (US$ per 1,267 1,267 1,267 1,350 1,160 1,045 1,045 1,045 container) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year‘s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. Source: Doing Business database. Doing Business 2013 United Kingdom 83 TRADING ACROSS BORDERS Equally helpful may be the benchmarks provided by These benchmarks help show what is possible in the economies that over time have had the best making it easier to trade across borders. And changes performance regionally or globally on the documents, in regional averages can show where United Kingdom time or cost required to export or import (figure 9.2). is keeping up—and where it is falling behind. Figure 9.2 Has trading across borders become easier over time? Documents to export (number) Time to export (days) Doing Business 2013 United Kingdom 84 TRADING ACROSS BORDERS Cost to export (US$ per container) Documents to import (number) Doing Business 2013 United Kingdom 85 TRADING ACROSS BORDERS Time to import (days) Cost to import (US$ per container) Source: Doing Business database. Doing Business 2013 United Kingdom 86 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 9.2)? risk-based inspections and electronic data interchange Table 9.2 How has United Kingdom made trading across borders easier—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. 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. 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 2013 United Kingdom 87 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 OECD high income Indicator United Kingdom income average average Documents to export (number) 4 4 Time to export (days) 7 10 Cost to export (US$ per container) 950 1,028 Documents to import (number) 4 5 Time to import (days) 6 10 Cost to import (US$ per container) 1,045 1,080 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$) Documents preparation 2 125 Customs clearance and technical control 1 75 Ports and terminal handling 2 200 Inland transportation and handling 2 550 Totals 7 950 Procedures to import Time (days) Cost (US$) Documents preparation 2 180 Customs clearance and technical control 1 75 Doing Business 2013 United Kingdom 88 Procedures to import Time (days) Cost (US$) Ports and terminal handling 1 200 Inland transportation and handling 2 590 Totals 6 1,045 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 2013 United Kingdom 89 ENFORCING CONTRACTS Well-functioning courts help businesses expand WHAT THE ENFORCING CONTRACTS their network and markets. Without effective INDICATORS MEASURE contract enforcement, people might well do business only with family, friends and others with whom they have established relationships. Where Procedures to enforce a contract through contract enforcement is efficient, firms are more the courts (number) likely to engage with new borrowers or customers, Any interaction between the parties in a and they have greater access to credit. commercial dispute, or between them and the judge or court officer What do the indicators cover? Steps to file and serve the case Doing Business measures the efficiency of the judicial system in resolving a commercial dispute Steps for trial and judgment before local courts. Following the step-by-step Steps to enforce the judgment evolution of a standardized case study, it collects Time required to complete procedures data relating to the time, cost and procedural (calendar days) complexity of resolving a commercial lawsuit. The ranking on the ease of enforcing contracts is the Time to file and serve the case simple average of the percentile rankings on its Time for trial and obtaining judgment component indicators: procedures, time and cost. Time to enforce the judgment The dispute in the case study involves the breach of a sales contract between 2 domestic businesses. Cost required to complete procedures (% of The case study assumes that the court hears an claim) expert on the quality of the goods in dispute. This No bribes distinguishes the case from simple debt Average attorney fees enforcement. To make the data comparable across economies, Doing Business uses several Court costs assumptions about the case: Enforcement costs  The seller and buyer are located in the economy‘s largest business city.  The buyer orders custom-made goods,  The dispute on the quality of the goods then fails to pay. requires an expert opinion.  The seller sues the buyer before a  The judge decides in favor of the seller; there competent court. is no appeal.  The value of the claim is 200% of income  The seller enforces the judgment through a per capita. public sale of the buyer‘s movable assets.  The seller requests a pretrial attachment to secure the claim. Doing Business 2013 United Kingdom 90 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial Globally, United Kingdom stands at 21 in the ranking dispute through the courts in United Kingdom? of 185 economies on the ease of enforcing contracts According to data collected by Doing Business, (figure 10.1). The rankings for comparator economies enforcing a contract takes 399 days, costs 25.9% of the and the regional average ranking provide other useful value of the claim and requires 28 procedures (see the benchmarks for assessing the efficiency of contract 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 2013 United Kingdom 91 ENFORCING CONTRACTS What are the changes over time? While the most recent Doing Business data reflect how time help identify which areas have changed and easy (or difficult) it is to enforce a contract in United where the potential for improvement is greatest (table Kingdom today, data on the underlying indicators over 10.1). Table 10.1 The ease of enforcing contracts in United Kingdom over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. .. .. 21 21 Time (days) 404 404 404 404 404 404 399 399 399 399 Cost (% of claim) 21.9 21.9 23.4 23.4 23.4 23.4 23.4 23.4 24.8 25.9 Procedures (number) 30 30 30 30 30 30 30 28 28 28 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year‘s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. Source: Doing Business database. Doing Business 2013 United Kingdom 92 ENFORCING CONTRACTS Equally helpful may be the benchmarks provided by help show what is possible in improving the efficiency the economies that over time have had the best of contract enforcement. And changes in regional performance regionally or globally on the number of averages can show where United Kingdom is keeping steps, time or cost required to enforce a contract up—and where it is falling behind. through the courts (figure 10.2). These benchmarks Figure 10.2 Has enforcing contracts become easier over time? Time (days) Cost (% of claim) Doing Business 2013 United Kingdom 93 ENFORCING CONTRACTS Procedures (number) Source: Doing Business database. Doing Business 2013 United Kingdom 94 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 10.2)? often work on reducing backlogs by introducing Table 10.2 How has United Kingdom made enforcing contracts easier—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. 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. 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 2013 United Kingdom 95 ENFORCING CONTRACTS What are the details? The indicators reported here for United Kingdom COMPETENT COURT 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 The procedures for resolving a commercial lawsuit, and them, are identified through study of the codes of the associated time and cost, are listed in the summary civil procedure and other court regulations, as well below. as through surveys completed by local litigation lawyers (and, in a quarter of the economies covered by Doing Business, by judges as well). Summary of procedures for enforcing a contract in United Kingdom—and the time and cost OECD high OECD high income Indicator United Kingdom income average average Time (days) 399 510 510 Filing and service 30 Trial and judgment 313 Enforcement of judgment 56 Cost (% of claim) 25.9 20.1 20.1 Attorney cost (% of claim) 21.0 Court cost (% of claim) 3.7 Enforcement Cost (% of claim) 1.2 Procedures (number) 28 31 31 Note: In cases where an economy‘s regional classification is ―OECD high income,‖ regional averages above are only displayed once. Doing Business 2013 United Kingdom 96 ENFORCING CONTRACTS No. Procedure Filing and service: 1 Plaintiff requests payment: Plaintiff or his lawyer asks Defendant orally or in writing to comply with the 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 type 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 formal 3 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 physical or 4 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 Defendant‘s 5 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 6 defense or answer on the merits of the case. Defendant's written answer may or may not 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 questionnaires to 7 the court (including their answers regarding case-tracks and the issues for trial). Pre-trial conference on procedure: The judge meets with the parties to discuss procedural issues (for example 8 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.) Doing Business 2013 United Kingdom 97 No. Procedure 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 the 9 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 court. 11 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. 13 Registration of judgment: The court office registers the judgment after receiving a written copy of the 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. The 16 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 the law. 17 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 Plaintiff for 18 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). 20 Plaintiff’s advancement of enforcement fees: Plaintiff pays the fees related to the enforcement of the judgment. 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. Doing Business 2013 United Kingdom 98 No. Procedure Request to Defendant to comply voluntarily with judgment: Plaintiff, a court enforcement officer or a (private) 22 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 enforcement 23 officer, a (private) bailiff or the Defendant himself identifies Defendant's movable assets for attachment. 24 Attachment: Defendant‘s movable goods are attached (physically or by registering, marking or separating assets). Report on execution of attachment: A court enforcement officer or private process server delivers a report on the 25 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 Plaintiff 29 had advanced previously. 30 Payment: Court orders that the proceeds of the public auction or the direct sale be delivered to Plaintiff. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2013 United Kingdom 99 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 Recovery rate for creditors (cents on the well as public information on bankruptcy systems. dollar) The ranking on the ease of resolving insolvency is Measures the cents on the dollar recovered based on the recovery rate, which is recorded as by creditors cents on the dollar recouped by creditors through Present value of debt recovered reorganization, liquidation or debt enforcement Official costs of the insolvency proceedings (foreclosure) proceedings. The recovery rate is a are deducted function of time, cost and other factors, such as lending rate and the likelihood of the company Depreciation of furniture is taken into continuing to operate. account To make the data comparable across economies, Outcome for the business (survival or not) Doing Business uses several assumptions about the affects the maximum value that can be recovered business and the case. It assumes that the company:  Is a domestically owned, limited liability company operating a hotel.  Has 201 employees, 1 main secured creditor  Operates in the economy‘s largest business and 50 unsecured creditors. city.  Has a higher value as a going concern—and the efficient outcome is either reorganization or sale as a going concern, not piecemeal liquidation. Doing Business 2013 United Kingdom 100 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 8 in the ranking of Kingdom? According to data collected by Doing 185 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 2013 United Kingdom 101 RESOLVING INSOLVENCY What are the changes over time? While the most recent Doing Business data reflect the efficiency has changed—and where it has not (table efficiency of insolvency proceedings in United 11.1). That can help identify where the potential for Kingdom today, data over time show where the improvement is greatest. Table 11.1 The ease of resolving insolvency in United Kingdom over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. .. .. 6 8 Time (years) 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 Cost (% of estate) 6 6 6 6 6 6 6 6 6 6 Recovery rate (cents on the 85.6 85.8 85.3 85.2 84.6 84.2 84.2 88.6 88.6 88.6 dollar) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year‘s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) 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‖ economies is 0. Source: Doing Business database. Doing Business 2013 United Kingdom 102 RESOLVING INSOLVENCY Equally helpful may be the benchmarks provided by possible in improving the efficiency of insolvency the economies that over time have had the best proceedings. And changes in regional averages can performance regionally or globally on the time or cost show where United Kingdom is keeping up—and of insolvency proceedings or on the recovery rate where it is falling behind. (figure 11.2). These benchmarks help show what is Figure 11.2 Has resolving insolvency become easier over time? Time (years) Cost (% of estate) Doing Business 2013 United Kingdom 103 RESOLVING INSOLVENCY Recovery rate (cents on the dollar) Note: Regional averages on time and cost exclude economies with a “no practice� mark. Source: Doing Business database. Doing Business 2013 United Kingdom 104 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 11.2)? even viable businesses are liquidated. This is starting to Table 11.2 How has United Kingdom made resolving insolvency easier—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. 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. 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 2013 United Kingdom 105 EMPLOYING WORKERS Doing Business measures flexibility in the regulation of Particular data for United Kingdom are presented here employment, specifically as it affects the hiring and without scoring. redundancy of workers and the rigidity of working hours. From 2007 to 2011 improvements were made to To make the data on employing workers comparable align the methodology for the employing workers across economies, several assumptions about the indicators with the letter and spirit of the International worker and the business are used. Labour Organization (ILO) conventions. Only 4 of the 188 ILO conventions cover areas measured by Doing The worker: Business: employee termination, weekend work, holiday with pay and night work. The Doing Business  Earns a salary plus benefits equal to the methodology is fully consistent with these 4 economy‘s average wage during the entire conventions. The ILO conventions covering areas period of his employment. related to the employing workers indicators do not  Has a pay period that is the most common for include the ILO core labor standards—8 conventions workers in the economy. covering the right to collective bargaining, the  Is a lawful citizen who belongs to the same elimination of forced labor, the abolition of child labor race and religion as the majority of the and equitable treatment in employment practices. economy‘s population.  Resides in the economy‘s largest business city. Between 2009 and 2011 the World Bank Group worked  Is not a member of a labor union, unless with a consultative group—including labor lawyers, membership is mandatory. employer and employee representatives, and experts from the ILO, the Organisation for Economic Co- The business: operation and Development, civil society and the private sector—to review the employing workers  Is a limited liability company. methodology and explore future areas of research.  Operates in the economy‘s largest business city. A full report with the conclusions of the consultative  Is 100% domestically owned. group is available at http://www.doingbusiness.org/  Operates in the manufacturing sector. methodology/employing-workers.  Has 60 employees.  Is subject to collective bargaining agreements Doing Business 2013 does not present rankings of in economies where such agreements cover economies on the employing workers indicators or more than half the manufacturing sector and include the topic in the aggregate ranking on the ease apply even to firms not party to them. of doing business. The report does present the data on  Abides by every law and regulation but does the employing workers indicators in an annex. Detailed not grant workers more benefits than data collected on labor regulations are available on the mandated by law, regulation or (if applicable) Doing Business website (http://www.doing business.org). collective bargaining agreement. Doing Business 2013 United Kingdom 106 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 2013 United Kingdom 107 EMPLOYING WORKERS Employment laws are needed to protect workers from past 4 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 2012? Reform The United Kingdom increased redundancy costs of the severance pay applicable in cases of redundancy dismissals. Source: Doing Business database. Doing Business 2013 United Kingdom 108 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) 1338.2 Ratio of minimum wage to value added per worker 0.28 Source: Doing Business database. Doing Business 2013 United Kingdom 109 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 2013 United Kingdom 110 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 2013 United Kingdom 111 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 3.0 salary weeks) Severance pay for redundancy dismissal (for a worker with 10 years of tenure, in 6.0 salary weeks) Severance pay for redundancy dismissal (average for workers with 1, 5 and 10 years 3.0 of tenure, in salary weeks) Source: Doing Business database. Doing Business 2013 United Kingdom 112 DATA NOTES The indicators presented and analyzed in Doing Business measure business regulation and the ECONOMY CHARACTERISTICS protection of property rights—and their effect on businesses, especially small and medium-size domestic firms. First, the indicators document the complexity of Gross national income per capita regulation, such as the number of procedures to start a business or to register and transfer commercial Doing Business 2013 reports 2011 income per capita property. Second, they gauge the time and cost of as published in the World Bank‘s World Development achieving a regulatory goal or complying with Indicators 2012. Income is calculated using the Atlas method (current US$). For cost indicators expressed regulation, such as the time and cost to enforce a as a percentage of income per capita, 2011 gross contract, go through bankruptcy or trade across national income (GNI) in U.S. dollars is used as the borders. Third, they measure the extent of legal denominator. GNI data were not available from the protections of property, for example, the protections World Bank for Afghanistan; Australia; The Bahamas; of investors against looting by company directors or Bahrain; Barbados; Brunei Darussalam; Cyprus; the range of assets that can be used as collateral Djibouti; Guyana; the Islamic Republic of Iran; according to secured transactions laws. Fourth, a set of Kuwait; Malta; New Zealand; Oman; Puerto Rico indicators documents the tax burden on businesses. (territory of the United States); Sudan; Suriname; the Finally, a set of data covers different aspects of Syrian Arab Republic; Timor-Leste; West Bank and employment regulation. Gaza; and the Republic of Yemen. In these cases GDP or GNP per capita data and growth rates from The data for all sets of indicators in Doing Business the International Monetary Fund‘s World Economic 2 2013 are for June 2012. Outlook database and the Economist Intelligence Unit were used. Region and income group Methodology Doing Business uses the World Bank regional and The Doing Business data are collected in a income group classifications, available at standardized way. To start, the Doing Business team, http://data.worldbank.org/about/country- with academic advisers, designs a questionnaire. The classifications. The World Bank does not assign questionnaire uses a simple business case to ensure regional classifications to high-income economies. comparability across economies and over time —with For the purpose of the Doing Business report, high- assumptions about the legal form of the business, its income OECD economies are assigned the ―regional‖ size, its location and the nature of its operations. classification OECD high income. Figures and tables Questionnaires are administered through more than presenting regional averages include economies 9,600 local experts, including lawyers, business from all income groups (low, lower middle, upper consultants, accountants, freight forwarders, middle and high income). government officials and other professionals routinely Population administering or advising on legal and regulatory Doing Business 2013 reports midyear 2011 requirements. These experts have several rounds of population statistics as published in World interaction with the Doing Business team, involving Development Indicators 2012. conference calls, written correspondence and visits by the team. For Doing Business 2013 team members visited 24 economies to verify data and recruit The Doing Business methodology offers several respondents. The data from questionnaires are advantages. It is transparent, using factual information subjected to numerous rounds of verification, leading about what laws and regulations say and allowing to revisions or expansions of the information collected. multiple interactions with local respondents to clarify potential misinterpretations of questions. Having 2 The data for paying taxes refer to January – December 2011. Doing Business 2013 United Kingdom 113 representative samples of respondents is not an issue; 2013 would differ from the recollection of Doing Business is not a statistical survey, and the texts entrepreneurs reported in the World Bank Enterprise of the relevant laws and regulations are collected and Surveys or other perception surveys. answers checked for accuracy. The methodology is inexpensive and easily replicable, so data can be collected in a large sample of economies. Because Subnational Doing Business indicators standard assumptions are used in the data collection, This year Doing Business completed subnational comparisons and benchmarks are valid across studies for Indonesia, Kenya, Mexico, the Russian economies. Finally, the data not only highlight the Federation and the United Arab Emirates. Each of extent of specific regulatory obstacles to business but these countries had already asked to have subnational also identify their source and point to what might be data in the past, and this year Doing Business updated reformed. the indicators, measured improvements over time and Information on the methodology for each Doing expanded geographic coverage to additional cities or Business topic can be found on the Doing Business added additional indicators. Doing Business also website at http://www.doingbusiness.org/methodology/. published regional studies for the Arab world, the East African Community and member states of the Organization for the Harmonization of Business Law in Limits to what is measured Africa (OHADA). The Doing Business methodology has 5 limitations that The subnational studies point to differences in should be considered when interpreting the data. First, business regulation and its implementation —as well as the collected data refer to businesses in the economy‘s in the pace of regulatory reform—across cities in the largest business city (which in some economies differs same economy. For several economies subnational from the capital) and may not be representative of studies are now periodically updated to measure regulation in other parts of the economy. To address change over time or to expand geographic coverage this limitation, subnational Doing Business indicators to additional cities. This year that is the case for all the were created (see the section on subnational Doing subnational studies published. Business indicators). Second, the data often focus on a specific business form—generally a limited liability company (or its legal equivalent) of a specified size — Changes in what is measured and may not be representative of the regulation on The ranking methodology for paying taxes was other businesses, for example, sole proprietorships. updated this year. The threshold for the total tax rate Third, transactions described in a standardized case introduced last year for the purpose of calculating the scenario refer to a specific set of issues and may not ranking on the ease of paying taxes was updated. All represent the full set of issues a business encounters. economies with a total tax rate below the threshold Fourth, the measures of time involve an element of (which is calculated and adjusted on a yearly basis) judgment by the expert respondents. When sources receive the same ranking on the total tax rate indicate different estimates, the time indicators indicator. The threshold is not based on any economic reported in Doing Business represent the median theory of an ―optimal tax rate‖ that minimizes values of several responses given under the distortions or maximizes efficiency in the tax system of assumptions of the standardized case. an economy overall. Instead, it is mainly empirical in Finally, the methodology assumes that a business has nature, set at the lower end of the distribution of tax full information on what is required and does not rates levied on medium-size enterprises in the waste time when completing procedures. In practice, manufacturing sector as observed through the paying completing a procedure may take longer if the taxes indicators. This reduces the bias in the indicators business lacks information or is unable to follow up toward economies that do not need to levy significant promptly. Alternatively, the business may choose to taxes on companies like the Doing Business disregard some burdensome procedures. For both standardized case study company because they raise reasons the time delays reported in Doing Business public revenue in other ways—for example, through Doing Business 2013 United Kingdom 114 taxes on foreign companies, through taxes on sectors investors, paying taxes, trading across borders, other than manufacturing or from natural resources enforcing contracts, and resolving insolvency. The (all of which are outside the scope of the employing workers indicators are not included in this methodology). Giving the same ranking to all year‘s aggregate ease of doing business ranking. In economies whose total tax rate is below the threshold addition to this year‘s ranking, Doing Business presents avoids awarding economies in the scoring for having a comparable ranking for the previous year, adjusted an unusually low total tax rate, often for reasons for any changes in methodology as well as additions of 3 unrelated to government policies toward enterprises. economies or topics. For example, economies that are very small or that are Construction of the ease of doing business index rich in natural resources do not need to levy broad- based taxes. Here is one example of how the ease of doing business index is constructed. In Finland it takes 3 procedures, 14 days and 4% of annual income per capita in fees to Data challenges and revisions register a property. On these 3 indicators Finland ranks in the 6th, 16th and 39th percentiles. So on average Most laws and regulations underlying the Doing Finland ranks in the 20th percentile on the ease of Business data are available on the Doing Business registering property. It ranks in the 30th percentile on website at http://www.doingbusiness.org. All the th starting a business, 28 percentile on getting credit, sample questionnaires and the details underlying the 24th percentile on paying taxes, 13th percentile on indicators are also published on the website. Questions enforcing contracts, 5th percentile on trading across on the methodology and challenges to data can be borders and so on. Higher rankings indicate simpler submitted through the website‘s ―Ask a Question‖ regulation and stronger protection of property rights. function at http://www.doingbusiness.org. The simple average of Finland‘s percentile rankings on all topics is 21st. When all economies are ordered by Ease of doing business and distance to their average percentile rankings, Finland stands at 11 frontier in the aggregate ranking on the ease of doing business. Doing Business 2013 presents results for 2 aggregate measures: the aggregate ranking on the ease of doing More complex aggregation methods—such as business and the distance to frontier measure. The principal components and unobserved components— ease of doing business ranking compares economies yield a ranking nearly identical to the simple average 4 with one another, while the distance to frontier used by Doing Business. Thus, Doing Business uses measure benchmarks economies to the frontier in the simplest method: weighting all topics equally and, regulatory practice, measuring the absolute distance to the best performance on each indicator. Both measures can be used for comparisons over time. 3 In case of revisions to the methodology or corrections to the underlying data, the data are back-calculated to provide a When compared across years, the distance to frontier comparable time series since the year the relevant economy or topic measure shows how much the regulatory environment was first included in the data set. The time series is available on the for local entrepreneurs in each economy has changed Doing Business website (http://www.doingbusiness.org). Six topics over time in absolute terms, while the ease of doing and more than 50 economies have been added since the inception business ranking can show only relative change. of the project. Earlier rankings on the ease of doing business are therefore not comparable. Ease of doing business 4 See Simeon Djankov, Darshini Manraj, Caralee McLiesh and Rita Ramalho, ―Doing Business Indicators: Why Aggregate, and How to The ease of doing business index ranks economies Do It‖ (World Bank, Washington, DC, 2005). Principal components from 1 to 185. For each economy the ranking is and unobserved components methods yield a ranking nearly calculated as the simple average of the percentile identical to that from the simple average method because both rankings on each of the 10 topics included in the index these methods assign roughly equal weights to the topics, since the pairwise correlations among indicators do not differ much. An in Doing Business 2013: starting a business, dealing alternative to the simple average method is to give different weights with construction permits, getting electricity, to the topics, depending on which are considered of more or less registering property, getting credit, protecting importance in the context of a specific economy. Doing Business 2013 United Kingdom 115 within each topic, giving equal weight to each of the ability of different government agencies to deliver 5 topic components. tangible results in their area of responsibility. If an economy has no laws or regulations covering a Economies that improved the most across 3 or more specific area—for example, insolvency—it receives a Doing Business topics in 2011/12 ―no practice‖ mark. Similarly, an economy receives a Doing Business 2013 uses a simple method to calculate ―no practice‖ or ―not possible‖ mark if regulation exists which economies improved the most in the ease of but is never used in practice or if a competing doing business. First, it selects the economies that in regulation prohibits such practice. Either way, a ―no 2011/12 implemented regulatory reforms making it practice‖ mark puts the economy at the bottom of the easier to do business in 3 or more of the 10 topics ranking on the relevant indicator. 6 included in this year‘s ease of doing business ranking. The ease of doing business index is limited in scope. It Twenty-three economies meet this criterion: Benin, does not account for an economy‘s proximity to large Burundi, Costa Rica, the Czech Republic, Georgia, markets, the quality of its infrastructure services (other Greece, Guinea, Kazakhstan, Korea, the Lao People‘s than services related to trading across borders and Democratic Republic, Liberia, Mongolia, the getting electricity), the strength of its financial system, Netherlands, Panama, Poland, Portugal, Serbia, the the security of property from theft and looting, Slovak Republic, Slovenia, Sri Lanka, Ukraine, the macroeconomic conditions or the strength of United Arab Emirates and Uzbekistan. Second, Doing underlying institutions. Business ranks these economies on the increase in their ranking on the ease of doing business from the Variability of economies‘ rankings across topics previous year using comparable rankings. Each indicator set measures a different aspect of the Selecting the economies that implemented regulatory business regulatory environment. The rankings of an reforms in at least 3 topics and improved the most in economy can vary, sometimes significantly, across the aggregate ranking is intended to highlight indicator sets. The average correlation coefficient economies with ongoing, broad-based reform between the 10 indicator sets included in the programs. aggregate ranking is 0.37, and the coefficients between any 2 sets of indicators range from 0.19 Distance to frontier measure (between dealing with construction permits and A drawback of the ease of doing business ranking is getting credit) to 0.60 (between starting a business that it can measure the regulatory performance of and protecting investors). These correlations suggest economies only relative to the performance of others. that economies rarely score universally well or It does not provide information on how the absolute universally badly on the indicators. quality of the regulatory environment is improving Consider the example of Canada. It stands at 17 in the over time. Nor does it provide information on how aggregate ranking on the ease of doing business. Its large the gaps are between economies at a single ranking is 3 on starting a business, and 4 on both point in time. resolving insolvency and protecting investors. But its The distance to frontier measure is designed to ranking is only 62 on enforcing contracts, 69 on address both shortcomings, complementing the ease dealing with construction permits and 152 on getting of doing business ranking. This measure illustrates the electricity. distance of an economy to the ―frontier,‖ and the Variation in performance across the indicator sets is change in the measure over time shows the extent to not at all unusual. It reflects differences in the degree which the economy has closed this gap. The frontier is of priority that government authorities give to a score derived from the most efficient practice or particular areas of business regulation reform and the highest score achieved on each of the component indicators in 9 Doing Business indicator sets (excluding 5 6 A technical note on the different aggregation and weighting Doing Business reforms making it more difficult to do business are methods is available on the Doing Business website subtracted from the total number of those making it easier to do (http://www.doingbusiness.org). business. Doing Business 2013 United Kingdom 116 the employing workers and getting electricity The maximum (max) and minimum (min) observed indicators) by any economy since 2005. In starting a values are computed for the 174 economies included business, for example, New Zealand has achieved the in the Doing Business sample since 2005 and for all highest performance on the time (1 day), Canada and years (from 2005 to 2012). The year 2005 was chosen New Zealand on the number of procedures required as the baseline for the economy sample because it was (1), Slovenia on the cost (0% of income per capita) and the first year in which data were available for the Australia and 90 other economies on the paid-in majority of economies (a total of 174) and for all 9 minimum capital requirement (0% of income per indicator sets included in the measure. To mitigate the capita). Calculating the distance to frontier for each effects of extreme outliers in the distributions of the economy involves 2 main steps. First, individual rescaled data (very few economies need 694 days to indicator scores are normalized to a common unit: complete the procedures to start a business, but many th except for the total tax rate. To do so, each of the 28 need 9 days), the maximum (max) is defined as the 95 component indicators y is rescaled to (max − y)/(max percentile of the pooled data for all economies and all − min), with the minimum value (min) representing the years for each indicator. The exceptions are the getting frontier—the highest performance on that indicator credit, protecting investors and resolving insolvency across all economies since 2005. For the total tax rate, indicators, whose construction precludes outliers. consistent with the calculation of the rankings, the Take Ghana, which has a score of 67 on the distance to frontier is defined as the total tax rate corresponding th frontier measure for 2012. This score indicates that the to the 15 percentile based on the overall distribution economy is 33 percentage points away from the of total tax rates for all years. Second, for each frontier constructed from the best performances economy the scores obtained for individual indicators across all economies and all years. Ghana was further are aggregated through simple averaging into one from the frontier in 2005, with a score of 54. The distance to frontier score. An economy‘s distance to difference between the scores shows an improvement frontier is indicated on a scale from 0 to 100, where 0 over time. represents the lowest performance and 100 the frontier. The distance to frontier measure can also be used for comparisons across economies in the same year, The difference between an economy‘s distance to complementing the ease of doing business ranking. frontier score in 2005 and its score in 2012 illustrates For example, Ghana stands at 64 this year in the ease the extent to which the economy has closed the gap to of doing business ranking, while Peru, which is 29 the frontier over time. And in any given year the score percentage points from the frontier, stands at 43. measures how far an economy is from the highest performance at that time. Doing Business 2013 United Kingdom 117 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Doing Business reforms News on the Doing Business project Short summaries of DB2013 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 185 http://www.doingbusiness.org/rankings/ Historical data Customized data sets since DB2004 Data http://www.doingbusiness.org/custom-query/ All the data for 185 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 9,600 specialists in 185 economies who profiles participate in Doing Business http://www.doingbusiness.org/reports/ http://www.doingbusiness.org/contributors/doing- business/ Methodology The methodologies and research papers NEW! Entrepreneurship data underlying Doing Business Data on business density for 130 economies http://www.doingbusiness.org/methodology/ http://www.doingbusiness.org/data/exploretopics/e ntrepreneurship Research Abstracts of papers on Doing Business topics and More to come related policy issues Coming soon—information on good practices and http://www.doingbusiness.org/research/ data on transparency and on the distance to frontier Doing Business 2013 United Kingdom 118