UK: Country Profile

Background information

History

The United Kingdom has historically played a leading role in developing parliamentary democracy, and advancing literature and science. At its zenith in the 19th century, the British Empire stretched over one-fourth of the earth’s surface. The first half of the 20th century saw the UK’s strength seriously depleted in two world wars and the Irish Republic’s withdrawal from the union. The second half witnessed the dismantling of the Empire and the UK rebuilding itself into a modern and prosperous European nation. As one of five permanent members of the UN Security Council and a founding member of NATO and the Commonwealth, the UK pursues a global approach to foreign policy. The Scottish Parliament, the National Assembly for Wales, and the Northern Ireland Assembly were established in 1999. The latter was suspended until May 2007 due to wrangling over the peace process, but devolution was fully completed in March 2010.

The UK was an active member of the EU from 1973 to 2016, although it chose to remain outside the Economic and Monetary Union. However, frustrated by a remote bureaucracy in Brussels, and massive migration into the country, UK citizens on 23 June 2016 narrowly voted to leave the EU. The so-called “Brexit” will take years to carry out but could be the signal for referenda in other EU countries where scepticism of EU membership benefits is strong.

Economy

The UK, a leading trading power and financial centre, is the third largest economy in Europe after Germany and France. Agriculture is intensive, highly mechanised, and efficient by European standards, producing about 60% of food needs with less than 2% of the labour force. The UK has large coal, natural gas, and oil resources, but its oil and natural gas reserves are declining; the UK has been a net importer of energy since 2005. Services, particularly banking, insurance, and business services, are key drivers of British GDP growth. Manufacturing, meanwhile, has declined in importance but still accounts for about 10% of economic output.

In 2008, the global financial crisis hit the economy particularly hard, due to the importance of its financial sector.

The City of London in the afternoon

Falling home prices, high consumer debt, and the global economic slowdown compounded Britain’s economic problems, pushing the economy into recession in the latter half of 2008 and prompting the then Labour government to implement a number of measures to stimulate the economy and stabilize the financial markets. Facing burgeoning public deficits and debt levels, in 2010 the Cameron-led coalition government (between the Conservatives and Liberal Democrats) initiated an austerity program, which has continued under the new Conservative majority government. However, the deficit still remains one of the highest in the G7, standing at 5.1% of GDP as of mid-2015. London intends to eliminate its deficit by 2020, primarily through additional cuts to public spending and welfare benefits. It has also pledged to lower its corporation tax from 20% to 18% by 2020.

In 2012, weak consumer spending and subdued business investment weighed on the economy, however, GDP grew 1.7% in 2013 and 2.8% in 2014, accelerating because of greater consumer spending and a recovering housing market. As of late 2015, the Bank of England is examining when to begin raising interest rates from historically low levels while being cautious not to damage economic growth. While the UK is one of the fastest growing economies in the G7, economists are concerned about the potential negative impact of the UK voting to leave the EU. The UK has an extensive trade relationship with other EU members through its access to the single market and economic observers have warned the exit could jeopardise its position as the central location for European financial services.

GDP (purchasing power parity):
$2.679 trillion (2015 est.)
$2.62 trillion (2014 est.)
$2.548 trillion (2013 est.)
Note: data is in 2015 US dollars
Country comparison to the GDP (official exchange rate):
$2.849 trillion (2015 est.)
GDP – real growth rate:
2.2% (2015 est.)
2.9% (2014 est.)
2.2% (2013 est.)
Country comparison to the world: 131
GDP – per capita (PPP):
$41,200 (2015 est.)
$40,600 (2014 est.)
$39,800 (2013 est.)
Note: data is in 2015 US dollars
Country comparison to the world: 39

(Information courtesy of The CIA World Fact Book.

Employment Issues

As with most countries, when hiring staff in the United Kingdom there are a host of details to be aware of including:
• EU Data Protection: the legal requirement to keep your employees’ personal data secure – although this could change as a result of Brexit.
• Share option planning: the management of employer taxes on share option gains in the United Kingdom requires a good deal of foresight and planning.
• Non-compete legislation which often constitutes part of the employment contract.
• Risk mitigation with regards to eventual termination of employment.
• The P11D process: this is a streamlined way to ensure that employee expense reports are not necessarily taxed as benefits.

Below is some information to help you better understand the statutory and market norms that are commonly negotiated by employees in the United Kingdom during the recruitment phase.

Public Holidays

The UK celebrates eight public holidays:
• New Year’s Day
• Good Friday
• Easter Monday
• Early May Bank Holiday
• Spring Bank Holiday
• Summer Bank Holiday
• Christmas Day
• Boxing Day

Working Hours

The work week is set at 48 hours, averaged over 17 weeks.

Holiday entitlement

Almost all full-time employees in the UK are legally entitled to 28 days of paid vacation per year (known as statutory leave entitlement or annual leave).

An employer can choose to include public holidays as part of a worker’s statutory annual leave but this is highly unusual. The market norm is to provide 22-25 days of paid holiday days or more per year, in addition to paid public holidays.

Sick Leave

All employees are entitled to Statutory Sick Pay for up to 28 weeks, paid for by the employer. Sick Pay begins after the employee has been out of work for four or more days in a row. Many companies offer additional sick pay on top of the statutory pay.

Maternity/Paternity Leave

Female employees are entitled to 52 weeks of maternity leave. Two weeks must be taken after the baby is born (four weeks for factory workers.) The leave is divided into:
• Ordinary Maternity Leave – first 26 weeks
• Additional Maternity Leave – last 26 weeks

Employees receive Statutory Maternity Pay for up to 39 weeks.
• 90% of average weekly earnings (before tax) for the first 6 weeks
• £139.58 or 90% of average weekly earnings (whichever is lower) for the next 33 weeks

Women are guaranteed employment during the pregnancy and while on maternity leave.

Partners are entitled to:
• one to two weeks of paid paternity leave
• shared parental leave

Shared parental leave enables a parent to take the leave in blocks, rather than all at once. The mother must end her maternity leave or her maternity pay for the partner to be eligible for shared leave or shared pay.

The partner who shares the leave is eligible to take:
• the remaining leave (52 weeks minus any weeks of maternity or adoption leave)
• the remaining pay (39 weeks minus any weeks of maternity pay, maternity allowance or adoption pay)

All shared leave and shared pay must be taken between the baby’s birth and first birthday.

Termination/Severance

In the UK, notice of termination must be given if the employee has been with the company for at least one month.

The employees’ length of service is the mechanism used to calculate the notice period and is calculated thus:
• one week notice for one month and less than two years of service
• one week notice for each year for between two and 12 years of service
• 12 weeks’ notice for 12+ years of service

Employees with less than one month of service do not need to be given notice.

There is no right to pay in lieu of notice, but such a clause is often included in the employment contract.
Severance pay is given when an employee is terminated due to redundancy and the employee has worked for the employer continuously for at least two years prior to the redundancy, according to the following system:
• One half of one week’s pay for each year of service where the employee was below the age of 22.
• One week’s pay for each year of service where the employee was between 22 to 40 of age.
• 1 1/2 week’s pay for each year of employment where the employee was 41 and over.

There is a wage cap for redundancy pay that is adjusted annually.

Taxes

Employers have to deduct Personal Income Tax and a National Insurance contribution (see below) from employment via a state run system called PAYE (Pay As You Earn).

Health Insurance

The primary statutory benefits in the United Kingdom are provided through the employers’ portion of National Insurance Contribution, NIC, which is the compulsory national social security program by which all employers and employees contribute to the public health care system.

The employer’s portion of the national insurance contribution is usually 13.8% on top of total compensation for companies hiring professional employees in the UK.

Additional Benefits

In addition, many companies also provide supplementary benefits such as medical and life insurance for their employers. Small employers may wish to provide an allowance in place of purchasing an insurance plan for their employees; a monthly allowance of £200 -£300 is fairly typical with which an employee can purchase his or her own coverage if they wish.

It is worth noting that most UK/EU insurance plans carry exclusions on coverage while the employees are in the US. UK employees traveling back and forth to the US or outside Europe should be covered under a separate travel insurance policy.

Share options: issuing options to employees in the UK comes with a tax burden to both the employer and the employee. The tax impacts of these plans can be mitigated against by the employer but that needs considerable advance planning.

Employment Contracts

It is a legal requirement that an employment contract is put in place in the United Kingdom which spells out the terms of the employee’s duties, compensation, benefits, grievance and disciplinary procedures as well as termination requirements. The offer letter and employment contract in the UK should always state the salary and any compensation amounts in British pounds rather than a foreign currency.

UK Trade Tariffs

An overview of the trade tariff regime which applies when trading with the UK can be found on the UK Government website. There is a great deal of very useful information on this site but we strongly recommend that you take advice on how this information applies in your specific circumstances.

Business Culture in UK – top tips

Tip 1london
British companies tend to develop managers to be ‘generalists’ rather than ‘specialists’. This managers are expected to be interested in, and take a view on, a wide number of topic areas outside their own particular functional area.

Tip 2
Recent trends have resulted in a change in working patterns and many people now move job and employer on a reasonably frequent basis.

Tip 3
British organisations have moved away from the traditional hierarchical models of the past towards a much flatter system. In the process, many layers of management have been removed.

Tip 4
Job descriptions in the UK are often very unclear and imprecise in terms of job description leaving a potential vacuum in ownership of task and decision.

Tip 5
Managers try to develop a close, friendly relationship with staff and like to be seen as part of the team rather than removed from the team.

Tip 6
The value of pure academic education is viewed with some suspicion. Respect is earned through experience rather than qualification. It is rare to see a professor or doctor on the senior management committee of a large UK company.

Tip 7
Managers find it difficult to give direct, precise instructions and will often couch instructions in very diplomatic language.

Tip 8
There are lots and lots of meetings in the UK and they often fail to produce the desired decision.

Tip 9
The British do less empirical preparation for meetings than many other nationalities – seeing the meeting as a forum for debating potential solutions rather than as a place to go into things in enormous detail.

Tip 10
Meetings are formally structured, roughly following a predetermined agenda and keeping more or less to time.

Tip 11
The British like to be part of a team and like the team to have a companionable, often humorous atmosphere.

Tip 12
Members of a team are expected to take an overall interest in a project, rather than confining themselves precisely to their allocated role only.

Tip 13
The British place diplomacy firmly before directness and will try to avoid creating negative emotions in meeting situations etc.

Tip 14
The British often misinterpret direct speech as rudeness, aggression and arrogance.

Tip 15
Humour is expected in virtually all business situations. Humour is not seen as unprofessional, even when used in tense and difficult situations.

Tip 16
Self-promotion is not appreciated in the UK. It is far better to self-deprecate. It is, of course, acceptable to be positive about your company and products.

Tip 17
Meetings will often begin with a good amount of seemingly meaningless small talk. This often involves topics such as the weather, sport, traffic etc. This is seen as a good way to start the meeting in a friendly manner.

Tip 18
Women play an increasingly prominent role in business life – especially in service industries.

Tip 19
Formal dress codes of dark blue and grey suits are still predominant although changes are starting to occur in this area – especially in the manufacturing and IT sectors.

Tip 20
Colleagues will virtually always use first names amongst themselves. It is considered very formal and distancing to use surnames.

For a more comprehensive guide to business culture in the UK please visit here.

The information above is intended as background information only and professional advice should always be taken in advance of making any decisions.