A bi-annual study of the business competitiveness of over 100 cities in 10 countries around the world by KPMG has found that the UK ranks seventh among 10 countries for the cost of doing business.
Competitive Alternatives 2016 examined ten countries – the G7 of Canada, France, Germany, Italy, Japan, UK, US – plus Australia, Mexico and the Netherlands and considered many aspects of the cost of doing business, such as costs for labour, facilities, utilities, transportation and taxes.
The UK was ranked seventh in the 2016 report – falling 3 places from its fourth place ranking in the 2014 report as Italy and Australia move up in the rankings this year to fourth and fifth place. While France’s ranking dropped from fifth in 2014 to sixth in 2016, it still moves ahead of the UK. Study results are influenced, in part, by exchange rates, so the appreciation of UK pound relative to the Euro and Australian dollar is one factor behind the UK result. An increase in office leasing costs, mainly for suburban offices, also contributed to the UK’s fall from the top five in this report.
The report also considered the competitiveness of each country by four industry sectors – digital services, research and development (R&D), corporate services and manufacturing – where the UK achieved its highest ranking coming in fifth place out of all 10 countries studied.
Commenting on the findings Yael Selfin, Economist at KPMG, said:
“There is no doubt that the UK is in a hotly contested international competition for global investment. The decisions international businesses make when they locate have an important economic impact on the countries they operate in and can have a powerful social impact.
“Moderate labour costs and a low corporate tax rate contribute favourably to the UK’s ranking. The UK’s tax regime is a crucial factor for international enterprises as they make important funding and operational decisions. While we wait to see where our economy is headed, this study continues to demonstrate the UK’s position as a cost competitive location for business.”
From a tax perspective, the UK, Canada and the Netherlands offer the lowest effective rates of corporate income tax across a range of business sectors, all helped by tax incentives designed to support R&D and other high tech activities.
The UK saw a decrease in costs of 3.7 percent since the 2014 study (relative to the US – the study baseline), however costs fell faster in other European countries pushing the UK down the rankings. The results for the United Kingdom reflect the combined results for two major cities: London and Manchester. Business costs are very different between these two cities, with a spread of 9.0 percentage points separating them. Even with the current strength of the UK pound relative to the euro, Manchester enjoys the lowest business costs among the 10 major European cities compared, while London is the most costly location among the European cities.
Overall, the report found Australia, Italy and Germany have seen the greatest gains in cost competitiveness since 2014 due to local cost factor issues, such as moderate growth in labour costs or reductions in facility lease costs, combined with the declines for their currencies relative to both the US dollar and the pound. Australia and Mexico both experienced a 22.3 percent currency depreciation relative to the US dollar since 2014, however Australia’s business cost index improved by almost 10 percentage points over that time, versus a gain of less than 4 points for Mexico.
Higher rates of salary growth and increased costs for industrial facilities both impact the final results for Mexico. In addition, for Mexico, lower wage levels and a higher share of business costs that are denominated in US dollars make total business costs there somewhat less susceptible to exchange rate swings than in the other study countries.
|2016 Rank||Country||2016 Cost Index1||% cost advantage versus US2||2014 Rank|
1 Business costs in this table are expressed as a percentage index, with the United States being assigned the baseline index of 100.0. A cost index less than 100 indicates lower costs than the US. For example, an index number of 95.0 represents a 5.0 percent cost advantage relative to the US.
2 The US baseline of 100.0 reflects average costs in the four largest US cities: New York City, Los Angeles, Chicago and Dallas-Fort Worth. National costs for all other countries are also based on major cities in each country.
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About KPMG's Competitive Alternatives Study
KPMG's 2016 Competitive Alternatives study provides an independent comparison of international business locations in more than 100 cities in 10 countries around the world.
Competitive Alternatives is a biennial KPMG study that focuses on business locations in the NAFTA marketplace, as well as leading mature market countries in Europe and Asia Pacific. KPMG initiated this study to help Canadian and international businesses make informed global business decisions. Competitive Alternatives is also intended to assist economic developers and corporate site selectors in understanding these competitiveness issues across a broad range of jurisdictions.
To access the full report, please visit CompetitiveAlternatives.com
Exchange rates per USD used in the Competitive Alternatives 2016 study are as follows: AUD $1.39, CAD $1.34, EUR €0.91, JPY ¥121.44, MX $16.76 and UK £0.66.
About KPMG UK LLP
KPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 12,000 partners and staff. The UK firm recorded a revenue of £1.96 billion in the year ended September 2015. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 155 countries and has 174,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.