2014 Index of Economic Freedom

United Kingdom

overall score74.9
world rank14
Rule of Law

Property Rights90.0

Freedom From Corruption76.4

Limited Government

Government Spending29.5

Fiscal Freedom56.6

Regulatory Efficiency

Business Freedom92.0

Labor Freedom73.1

Monetary Freedom73.5

Open Markets

Trade Freedom87.8

Investment Freedom90.0

Financial Freedom80.0

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Quick Facts
  • Population:
    • 63.2 million
  • GDP (PPP):
    • $2.3 trillion
    • 0.2% growth
    • -0.4% 5-year compound annual growth
    • $36,941 per capita
  • Unemployment:
    • 8.0%
  • Inflation (CPI):
    • 2.8%
  • FDI Inflow:
    • $62.4 billion
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The United Kingdom’s economic freedom score is 74.9, making its economy the 14th freest in the 2014 Index. Its score is essentially the same as last year, with modest improvements in government spending, labor freedom, monetary freedom, and trade freedom offset by deteriorations in business freedom, freedom from corruption, and fiscal freedom. The U.K. is ranked 5th out of 43 countries in the Europe region.

Over the 20-year history of the Index, the U.K.’s economic freedom has declined by 3 points, the second worst performance among advanced economies. Despite notable improvements in trade freedom and investment freedom, the overall gain has been offset by combined declines in the management of public finance and regulatory efficiency.

Britain’s economy has been consistently rated one of the world’s 20 freest. However, since 2006, when it reached its highest economic freedom score ever, the U.K. has been largely on a path of declining economic freedom. Expansionary public spending has generated significant budgetary pressure. With government debt over 90 percent of the size of the economy, underlying economic fundamentals generally remain weak.

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Background

Following the market reforms instituted by Prime Minister Margaret Thatcher in the 1980s, Britain experienced steady economic growth throughout the 1990s, but the government’s size and spending grew significantly under successive Labour governments. Prime Minister David Cameron’s Conservative–Liberal Democrat coalition government, formed after the 2010 general election, has cut public services but maintained spending on the National Health Service and foreign aid. The government’s debt continues to increase. The economy was in recession in early 2012 but has bounced back to positive growth. Cameron vetoed Britain’s participation in the European Union’s Fiscal Compact in 2011 and has been at the forefront of attempts to cap the EU’s annual and long-term budgets. He has also promised a referendum for 2017 on continued membership in the EU.

Rule of LawView Methodology

Property Rights 90.0 Create a Graph using this measurement

Freedom From Corruption 76.4 Create a Graph using this measurement

Corruption is not pervasive, but high-profile scandals have damaged political reputations in both major parties. The Bribery Act, considered one of the most sweeping anti-bribery laws in the world, came into force in 2011. The rule of law is well established within an independent legal framework. Private property rights and contracts are very secure, and the court system is efficient. Protection of intellectual property rights is effective.

Limited GovernmentView Methodology

The top individual income tax rate is 50 percent, and the top corporate rate is 24 percent. Other taxes include a value-added tax (VAT) and an environment tax. The overall tax burden amounts to 35.5 percent of gross domestic income. Public expenditures have been falling to 48.5 percent of GDP. However, public debt continues to rise, surpassing 90 percent of gross domestic output.

Regulatory EfficiencyView Methodology

It takes six procedures and 12 days to incorporate a business, and no minimum capital is required. However, completing licensing requirements takes almost three months. The non-salary cost of employing a worker is moderate, and severance payments are not overly burdensome. The government controls virtually all prices for health care services and will triple subsidies for low-carbon power generation by 2020.

Open MarketsView Methodology

EU members have a low 1.1 percent average tariff rate and, in general, few non-tariff barriers to trade. The United Kingdom has few limitations on foreign investment. The overall stability of the financial system has been restored. However, the state continues to hold stakes in two large banks, Royal Bank of Scotland and Lloyds. The process of selling government shares in these institutions has begun, but progress has been gradual.

Country's Score Over Time

Bar Graph of United Kingdom Economic Freedom Scores Over a Time Period

Country Comparisons

Bar Graphs comparing United Kingdom to other economic country groups

Regional Ranking

rank country overall change
1Switzerland81.60.6
2Ireland76.20.5
3Denmark76.10.0
4Estonia75.90.6
5United Kingdom74.90.1
6The Netherlands74.20.7
7Luxembourg74.20.0
8Germany73.40.6
9Finland73.4-0.6
10Sweden73.10.2
11Lithuania730.9
12Georgia72.60.4
13Iceland72.40.3
14Austria72.40.6
15Czech Republic72.21.3
16Norway70.90.4
17Belgium69.90.7
18Armenia68.9-0.5
19Latvia68.72.2
20Macedonia68.60.4
21Cyprus67.6-1.4
22Spain67.2-0.8
23Poland671.0
24Hungary 67-0.3
25Albania66.91.7
26Slovakia66.4-2.3
27Malta66.4-1.1
28Bulgaria65.70.7
29Romania65.50.4
30Turkey64.92.0
31Montenegro63.61.0
32Portugal63.50.4
33France63.5-0.6
34Slovenia62.71.0
35Italy60.90.3
36Croatia60.4-0.9
37Serbia 59.40.8
38Bosnia and Herzegovina58.41.1
39Moldova57.31.8
40Greece55.70.3
41Russia51.90.8
42Belarus50.12.1
43Ukraine49.33.0
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