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PESTLE ANALYSIS

Summary
When companies are looking to invest in different countries or locate offices in those countries, their management will often seek to run a PESTLE analysis of that country. PESTLE stands for political, economic, social, technological, legal and ecological elements within what is called an "external macroenvironment," which can range in size from a major city to an entire country. The UK comprises Great Britain (England, Wales and Scotland) and Northern Ireland. Politically UK follows a constitutional monarchy and parliamentary system where monarch Queen Elizabeth is Head of State and Prime Minister David Cameron is the head of Government. The Great Britain countries are associated with UK but not constitutionally part of it. Currently UK is politically stable and there is less military involvement in government decisions. UK is one of the largest economies in the world. As in most other developed countries the manufacturing sector has been declining while services sector is inclining in growth. The UK was hard hit by the global economic crisis in 2008-09 and again by the Euro zone crisis. UK is also a member of United Nations Security Council and European Union. Socially UK has a wide selection of people from different social backgrounds. In the UK, generally there is a high education level, meaning that people will be more demanding. Religion and culture are also considerations within the social section. In the UK there are a variety of religions and cultures including Christians, Muslims, Hindus, Jews and many more. Technologically UK is a place of innovation and research. UK government allows tax credit for those companies who are investing in Research and development. Universities of UK are top listed universities and are known for their research program. The Internet is becoming more widespread within the UK, with millions of people using it every day within the UK alone. United Kingdom has three laws in it. First is English law for England and Wales, second is Northern Ireland law and third is Scottish law. The Supreme Court of the United Kingdom is the highest court in the land for all criminal and civil cases in England and Wales and Northern Ireland, and for all civil cases in Scots law. According to the crime statistics report criminal and civil crimes in England and Wales has decreased by 48% because of the strict legal system. Environmentally, the UK is clean and green and worried about CO2 emission. They have made some of the most ambitious pledges about going even greener. UK bodies have achieved their target of 15% reduction of green house gases and now their target is to reduce it by 20%. UK bodies are also working on lowering the industrial waste disposal and want to recycle the household wastes.

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Waris Hussain

UK PESTLE Analysis

Political Analysis
Overview of UK Political System
Great Britain is a constitutional monarchy. This means that the official head of the State is the monarch (a king or a queen) but his or her powers are limited by the constitution. For years it has been Her Majesty Queen Elizabeth II.

Parliament:
The UK Parliament is the supreme legislative body in the UK and British overseas territories. The parliament is a bicameral assembly, with an upper house, the House of Lords, and a lower house, the House of Commons. At its head is the Sovereign, Queen Elizabeth II. The House of Commons and the House of Lords are both involved in passing legislation, scrutinizing the work of the government and debating current issues. Members of the House of Lords are mostly appointed by the Queen. The House of Lords acts as a chamber of review for legislation passed by the lower house. The Supreme Court of the United Kingdom is now the highest court for all matters under English law, Northern Irish law and Scottish civil law. Members of the House of Commons are publicly elected. Members of the Commons alone are responsible for making decisions on financial Bills, such as proposed new taxes. The Lords can consider these Bills but cannot block or amend them.

Government:
As far as formation of government is related the political party or coalition that wins the most seats in a general election forms the new government, led by its party leader, who then becomes the Prime Minister. At the general election held on 6 May 2010, the Conservative Party, led by David Cameron, won 306 of the 650 seats in the House of Commons. The Liberal Democrats, led by Nick Clegg, won 57 seats. Following the election, the Conservatives and the Liberal Democrats announced a coalition Government with David Cameron as Prime Minister and Nick Clegg as Deputy Prime Minister.
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Crown:
Along with the House of Commons and the House of Lords, the Crown is an integral part of the British Parliament although the Queen's modern role has become largely ceremonial. The Queen is only a formal and symbolic head of State. Generally, the day after a general election the Queen invites the leader of the party that won the most seats in the House of Commons to become Prime Minister and to form the government. The Queen opens Parliament through the State Opening. She also dismisses Parliament before a general election at the request of the Prime Minister. In reality, the Queen acts only on the advice of her ministers.

Devolution:
Parliamentary reforms in the UK referred to as "devolution", have created a number of national assemblies, including a national Parliament in Scotland, a national Assembly in Wales and a national Assembly in Northern Ireland. Scotland, Wales and Northern Ireland all held successful referendums on devolution in the late 1990s. This led to the establishment of the separate national assemblies and the democratic election of officials. The Scottish Parliament and the National Assembly for Wales took responsibility for their devolved powers on 1 July 1999, the Northern Ireland Assembly on 2 December 1999. The Northern Ireland Assembly was suspended at midnight on 14 October 2002. Power was restored to the Assembly on 8 May 2007.

Europe:
The UK is one of 27 member states of the European Union (EU) and is subject to EU legislation. One of the roles of the UK Parliament is to scrutinize EU draft legislation and other EU documents and to change UK law to reflect agreed EU legislation and treaties. In the UK the Scrutiny Reserve Resolutions provide that no UK minister should agree in the European Council of Ministers or the European Council to a proposal that is still 'subject to scrutiny' in the UK Parliament , and if they do, requires them to explain their reasons. The UK Parliament receives copies of EU documents, together with an Explanatory Memorandum prepared by the relevant government department. Documents are considered by the Scrutiny Committees in both the Commons and the Lords.

Election, Political Parties in UK and their current representation


The UK political system is a multi-party system. Since the 1920s, the two largest political parties have been the Conservative Party and the Labor Party. Before the Labor Party rose in British politics the Liberal Party was the other major political party along with the Conservatives. There are six types of elections in the United Kingdom: United Kingdom general elections, elections to devolved parliaments and assemblies, elections to the European Parliament, local elections, mayoral elections and Police and Crime Commissioner elections. General elections have fixed dates, and must be called within five years of the opening of parliament following the last election. United Kingdom general elections are held following, dissolution of Parliament. All the Members of Parliament forming the House of Commons of the Parliament of the United Kingdom are elected. Following the Parliament Act 1911, parliamentary sessions last a maximum of five years, and are ended by the dissolution of Parliament. Traditionally the dates of general elections are not fixed in advance, and the time is chosen by the governing party to maximize political advantage. The 2010 election was held on 6 May 2010.

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Candidates aim to win particular geographic constituencies in the United Kingdom. Each constituency elects one MP by the first past the post system of election. At the 2005 general election, there were 646 constituencies, thus 646 MPs were elected to Parliament. The party with the most seats usually forms the government, and the second largest party forms Her Majesty's Loyal Opposition. In 2010The election took place in 650 constituencies across the United Kingdom under the first-past-the-post system. The table below is showing the political parties in UK and their current representations. Party UK House of Common
306 57 257 8 6 5 3 3 1 1 1 0 0 0

Scottish Parliament
15 5 37 69 0 2 0

National Assembly for Wales


14 5 30 11 0 0 0

Northern Ireland Assembly


38 29 14 8 15 1

London Assembly
9 2 12 2 0

European Parliament
25 11 13 1 2 1 1 0 0 2 0 1 0 13

Conservative Party Liberal Democrats Labor Party Democratic Unionist Party Scottish National Party Sinn Fein Plaid Cymru Party of Wales Social Democratic Alliance Party of Northern Ireland Green Party of England Respect Party Ulster Unionist Party Scottish Green Party UK Independence party

General Election of 2010


The last general election was held in May 2010 to elect House of Common members. In 650 constituencies election took place under first past the post system. Conservative party led by David Cameron won the election but could not able to get majority that is 326 seats in order to create overall majority that is why it resulted in hung party. The coalition partner of Conservatives was Liberal Democrats. Before this general election Labor party ruled in House of Common for 13 years. Mr. David Cameron then becomes the Prime Minister of United Kingdom and representative of House of Common.

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This Election happened because the Prime Minister at that time Gordon Brown of Labor party asks the Queen Elizabeth to dissolve the parliament and call for re-election. Brown asked the Queen to dissolve Parliament because in the UK it is the Prime Minister who chooses when to hold an election. The only limitation is that he must call an election within 5 years of the last one. Brown stepped down because, regrettably, his party lost the election. No party won a majority in the election, so at first there was no winner and so Brown remained as the Prime Minister until a stable government could be formed. The result of 2010 election can be seen from the chart given below:

Parliamentary Seats
Others Sinn Fein Scottsh National Democratic Unionist Liberal Democrats Labor Conservative 0 100 200

Seats Won

300

400

Detail chart of Parliament seats is given in Appendix (A)

Current Strength and Opportunity


Political stability
The United Kingdom (UK) is a CRT-1 country with very low levels of risk across all three categories one is political risk, second is economic risk and third is financial system risk. Parliamentary sovereignty is a key convention, so it is part of the constitution; it states that parliament is the supreme law making body, therefore in ensures a clear centre of authority. Parliament can make, amend and repeal laws, they are the supreme law. Furthermore there is less of military influence in the UK political and constitutional system.

Flexibility of constitution
The UK constitution is uncodified which is in itself is a strength. Unlike a codified constitution (the USA), the UK has flexibility and is able to adapt to new circumstances. For example in 1998 the Human Rights Act was introduced to UK law. In the USA this would be a lengthy procedure as they would have to amend the rigid constitution, as a result there have only been 27 amendments since the constitution was written. Whereas a simple act of parliament can change the UK constitution. Flexibility is strength within the constitution because power is not rigidly set. It can be distributed across the three branches of government: the legislature, the executive and the judiciary.
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European Union Member


Being apart of the European Union, makes you a part of the single market, which is a common market and customs union between the member countries. The single market involves the free movement of the following 3 important aspects: 1. Free movement of goods: goods can be moved freely throughout member countries. The only restriction that may be placed on a good is when there is a risk, such a public health risk, environment, or consumer protection. 2. Free movement of capital: allows investments to move between countries without any additional cost. These investments include things such as property purchases and buying shares between countries. In 2005 the Commission of the EU completed the legislative phase of an action plan aimed at developing a true European-wide market in financial services and is now trying to put a new strategy in place to deepen financial integration and deliver further benefits to industry and consumers alike among England and the other countries. 3. Free movement of services: allows citizens to move, work, live, and retire in any member country that they wish. This was introduced in 1993 with the concept of Community Citizenship amongst the countries of the EU. Along with the free movement of these things, the countries of the EU all instill the same external tariff on all the goods entering their market. Once the goods are in the target market, they can not be taxed any further than they already have."

Bilateral relationship
UK has a strong bilateral relationship with many developed economies of the world. These bilateral relation ship is based on both Political and economic relationship. UKs most important strategic partners are United States of America, France, Australia, New Zealand and some Asian countries.

New Banking Regulations


New banking regulation has increased the power of the Bank of England to oversee financial stability, phasing out the FSA. Targeted changes include a banking tax, limiting bonus, and curbing high risk behavior. This will allow many new industries to set up.

UK Code of Governance
United Kingdom code of cooperate governance code is currently too robust and flexible. It has a principal based approach which allows the companies to follow code and if they found any difficulty in following any code they companies are allowed to do that but they have to give reason in their financial statement which is to be certified by the auditor. This robust code of governance was implemented after the liquidation of many financial industry sectors which cause the economic crisis. This will increase the shareholder confidence.

Price Control policies


The government either directly or through regulatory bodies has permanent price control powers over most public utilities which discourage the monopoly and allow the free and fair competition. This will allow many small and new private and public entities to setup.

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Tax Incentives
Expenditure on certain energy efficient assets qualifies for 100% tax deduction in the year of acquisition. The annual investment allowance also provides for a full tax deduction for the first GBP 100,000 each year. Tax incentives on research and development are available for all large and small entities. In 2011-2012 government announces to setup or invite 21 new entities to create new business activity in economically declining areas of UK. Also UK has tax treaties with many countries.

Current Weakness and Threats


Relationship with EU
Currently UK relationship with European Union is in danger and David Cameron has currently called for a referendum to be done between 2015 and 2017 in which public will decide whether they want UK to exit European Union or not. Currently European countries are in crisis which directly or indirectly is depreciating the value of United Kingdom, its economy and its currency.

Exchange Controls
There are no exchange controls in UK. No currency considerations affect the remittance of profits, dividends, interest and royalties or of licensing, management and patent fees. Nevertheless the UK tax authorities may challenge the level of transfer if they suspect corporate tax avoidance or evasion. In short UK tax authorities have to work on their Exchange control program so that tax avoidance and evasion can be stop.

High Tax Rates


The UK has the ninth highest tax burden for people earning over 125,000 in a list of 26 countries, according to a poll by accountants UHY. For the very top earners - classed as people earning 950,000 a year or more Britain has the sixth highest tax rate. As well as being hit by high levels of income tax, Britons have been affected other tax rises relating to National Insurance and changes in allowances and reliefs. UHY found that people earning over 125,000 keep 60.8 per cent of their income after personal taxes and social security contributions. This means that they take home less money than people earning the equivalent amount in countries including Uruguay, China, India, Romania and Brazil. People earning over 950,000 keep half their salary, UHY said. The only countries with worse tax rates are France, Italy, the Netherlands, Ireland and Spain. This will discourage the FDI in UK in future.

Protection for Individual Rights


Finally, the UK constitution provides weak protection for individual rights and civil liberties. This is, in part, a consequence of elective dictatorship but the fact is that there is nothing that forces the government to respect individual freedom and basic rights. For instance, the Human Rights Act passed in 1998 was largely ineffective as it stops well short of being an entrenched bill of rights. Its provisions have been set-aside in the past by Parliament, for instance, over terrorism legislation in 2001.

Over-centralized System of Government


Criticism has been that the UK has an over centralized system of government with weak or ineffective checks and balances. One of the key features of liberal democracy is that government power is limited through internal tensions between and amongst government bodies. However, UK government is
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characterized more by the concentration of power than its fragmentation. This can be seen through the way in which the PM tends to dominate cabinet, how the executive usually controls Parliament and how central government usually controls local government. However, this has been controlled relatively well since 1997 with Blair introducing a number of constitutional reforms. For example, the devolution of power in Scotland and Wales transferred a degree of central power from Westminster and distributed it on a local level.

Massive Defense cuts


British Prime Minister David Cameron announced defense cuts today that will completely fundamentally change British military capabilities. As part of the cuts the flagship of the Royal Navy, the aircraft carrier HMS Ark Royal and its fleet of Harriers will be immediately scrapped. That will leave the UK without an aircraft carrier capable of years. Cameron said massive budget deficits made completely reshaping the British military a necessity. Also to be cut, 7,000 Army personnel, 5,000 Navy personnel, another 5,000 from the RAF, and 40% of the country's tank force.

Fiscal Austerity Programs


Many governments around the world will have to cut spending and increase taxes to avoid fiscal deficits that increased during the financial crisis. These programs will decrease government spending in the economy, which will slow growth rates. Additionally, citizens will have less money and benefits to use in case of emergencies. The fear is that cuts might be so drastic that they hurt the economy. "Fiscal Austerity programs" has a significant impact, so an analyst should put more weight into it.

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UK PESTLE Analysis