• The pound sterling is the 4th most commonly used reserve currency measured in total value
• London – the capital of the United Kingdom – is the largest city in the European Union by GDP
• The county of Greater Manchester has a gross value added (sum of all goods and services produced before taxes and subsidies) equal to Kenya
• London is the world’s largest forex trading centre
• The GDP per capita of England is nearly 50% larger than the GDP per capita of Wales
• Personal income tax rates in the UK depend on both your location and your income, and ranges from 0% for all UK residents earning below £11,850 to 46% for Scottish residents above £150,000
The United Kingdom holds a special place in many Australians’ hearts. As a highly developed nation and the birthplace of many Australians’ ancestors, it combines a culture with many similarities to ours with a world-class standard of living and endless business opportunities. Those looking to settle overseas for both personal and financial reasons could do scarcely better than the UK.
Immigration in the United Kingdom is regulated according to a five-tier points system. Each tier replaces a previous type of work visa and as such corresponds to a different type of immigrant. For the purposes of this article, we’ll be focusing on the most relevant professional (working, non-student) visas:
• Entrepreneur – issued to individuals looking to start a new company in the UK or take control of an existing one. Must possess at least £50,000 in investment funds and meet the English language requirements. Can stay for a maximum of three years and four months and can be extended for an additional two years.
• Investor – issued to individuals looking to invest £2,000,000 or more in the UK economy. Can stay for a maximum of three years and four months and can be extended for an additional two years. There is no language requirement for the Tier 1 (Investor) visa.
• Exceptional Talent – issued to individuals endorsed as either recognised or emerging leaders in science, engineering, humanities, medicine, digital technology, the arts or fashion. Applicants must be endorsed by the Home Office – only 2000 visa in this sub-class are granted within the 12month period between 6 April to 5 April of the following year. Can stay for a maximum of five years and four months and can be extended for an additional five years, or applicants can apply for settlement at the conclusion of the visa.
• General – issued to individuals who have been offered a skilled job in the UK by a company licensed to sponsor overseas workers. You must either be paid a salary of no less than £30,000 or be employed in certain roles exempted from the salary requirement (see UK Visas and Immigration for further details). Additionally, you must meet a standard of English language ability and have sufficient personal savings to support yourself upon arrival – typically £945 but this can be waived should you be working with a fully approved sponsor who can cover these costs. Can stay for the shorter of a maximum of five years and 14 days or the time listed on your certificate of sponsorship plus one month. Extendable for up to another five years as long as the cumulative length of your stay does not exceed six years. Priority service rendering a verdict within 10 business days is available for a limited number of applicants per day.
• Intra-company transfer – issued to individuals transferring to the UK branch of the organisation you already work for. Must have worked for the organisation for at least 12 months or be paid a salary of at least £73,900 at your position in the UK, or be a graduate trainee being educated into a specialist role. Duration of stay depends on the salary you earn at the company – more than £120,000 – 9 years; less than £120,000 – 5 years, 1 month; graduate trainee – 12 months. Can be extended to the maximum time allowed for your visa type.
The UK is a centre of the international banking system. The largest in Europe and the 4th largest in the world, the UK banking sector is a significant part of the nation’s economy, with the financial sector as a whole contributing 6.5% of total economic output.
The banking sector is highly developed, with the local market dominated by a small number of consolidated independent banks – HSBC Holdings, Lloyds Banking Group, Royal Bank of Scotland Group, Barclays and Standard Chartered.
In addition, hundreds of overseas banks have incorporated in the United Kingdom, including Australian firms such as ANZ, Macquarie and Westpac. As such, you may be able to access financial services upon landing via your existing bank, but for convenience’s sake and to avoid the possibility of additional fees, we highly recommend enquiring with the local branch of your bank or opening an account with a UK-based bank.
Electronic payment options are diverse and extremely popular, with studies suggesting that cash makes up fewer than 1 in 2 transactions in the United Kingdom and that by 2026 it will make up just 21% of sales. So just as back home, you’ll be able to rely on your card for the majority of transactions.
The pound sterling has been the currency of England – and later the United Kingdom – for hundreds of years, with many tracing the modern currency back to 1694 with the establishment of the Bank of England. Prior to decimalisation in 1971, the pound was divided into pounds, shillings and pence, wherein 12 pence equalled a shilling and 20 shillings equalled a pound. Since decimalisation, 1 pound (£) has been divided into 100 pence §, with common banknotes being £5, £10, £20 and £50, with coins commonly found in 1p, 2p, 5p, 10p, 20p, 50p, £1 and £2 denominations.
The value of the pound sterling has remained high against the Australian dollar since the latter’s introduction, with the pound having on average nearly twice the value in US dollars as the Australian dollar over the last ten years. True to this, over the past 12 months, 1 AUD has on average been able to buy 0.5586 GBP, or nearly 56 pence.
Being a nation composed of four constituent countries (England, Northern Ireland, Scotland and Wales), taxation can differ depending on where you settle in the United Kingdom. All four countries leverage a progressive income tax on personal and corporate income, but exact rates of taxation differ. Additionally, all regard all income below a certain point as tax-free – this portion is referred to as the personal allowance and is similar to the tax-free threshold in Australia. For the 2018/2019 financial year, the personal allowance is £11,850.
Within England, Wales and Northern Ireland for the 2018/2019 financial year, the first £46,350 of taxable income above the personal allowance (or £58,200 including personal allowance) is taxed at 20%. After that, the next £103,649 pounds – to a total of £150,000 after the personal allowance – is taxed at 40%, and any income beyond this level is taxed at 45%. Additionally, for every £2 earned above £100,000, £1 of the personal allowance is lost, resulting in a higher effective tax rate.
Scotland’s system has an additional two tax brackets. The basic rate of 20% at use across the rest of the UK is divided into a starter, basic and intermediate rate. For the 2018/2019 financial year, the first £2,000 above the personal allowance are taxed at the concessionary starter rate of 19%. Income between £13,851 and £24,000 is taxed at the basic rate of 20%, and income between £24,001 and £43,430 is taxed at the intermediate rate of 21%. Beyond this, the Scottish system broadly follows the UK system, with income between £43,430 and £150,000 taxed at a slightly higher 41% and income beyond that taxed at 46%. As in the rest of the UK, every £2 earned over £100,000 results in the personal allowance being reduced by £1.
The United Kingdom has a reputation as an expensive place to live, but this is mostly the supremely high cost of living in London skewing perception. While it is true that compared to Sydney, rent, consumer prices, restaurant prices and local purchasing power are all higher in London, this does not hold for even other major urban centres. By comparison, Manchester – one of the United Kingdom’s other major cities – offers cheaper consumer prices, rents and groceries, but with more expensive restaurants and lower local purchasing power. Those able to land a similarly well-paying job in Manchester or Birmingham will see their money go significantly further.
Monetary policy in the United Kingdom is based on the single goal of achieving maximum price stability, which the UK Government defines as an inflation rate of 2%. The Bank of England (BoE) has two available policy tools to allow it to help the Government achieve this mandate: The Bank Rate and quantitative easing.
The Bank Rate is the rate that the Bank of England pays to commercial banks that hold money with them; it influences the rate those banks charge people to borrow money or pay on their savings. By controlling the Bank Rate, the BoE is attempting to affect how much people spend which, in turn, will influence how much things cost. In periods of economic downturn, the Bank of England also has the ability to make asset purchases to stimulate the economy, known as quantitative easing. For example, in response to the Brexit vote in August 2016 the BoE announced a total of £435 billion in asset purchases.
The BoE does not attempt to control the level of the exchange rate directly. That said, its actions can have important secondary effects on the Pound. Adjustments to the Bank Rate can influence demand for the currency. For example, higher interest rates could lead investors to favour pounds relative to other currencies.
While monetary policy matters for exchange rates, ultimately demand for GBP is driven by what the market, in its collective wisdom, perceives the attractiveness of UK assets and the health of the UK economy to be. The relative freedom that the UK government affords the foreign exchange market means the pound is free to fluctuate in response to changes in market sentiment. Sudden changes in perception about the health of the UK economy and its future prospects can lead to unexpected and extreme moves in the currency.
The biggest recent example of this was the fall in sterling immediately following the Brexit vote in June 2016. Global investors believed a UK exit from the EU would result in a weaker, more isolated UK economy. The Pound dropped by over 19% that day against the USD, before bouncing back slowly in the following days. While dramatic price plunges like this are rare, they highlight just how important global macroeconomic perceptions can be on driving the value of the GBP exchange rate.
The AUD is generally referred to ask a ‘risk currency’ due to its comparatively higher interest rates and correlation to global equity markets. Trade in natural resources plays an outsized role in the Australian economy, meaning that the AUD will respond more than other currencies to the overall level of global commodity prices. For GBP, near-term drivers of the exchange rate will be dominated by Brexit negotiations and the geopolitical developments related to the future of Theresa May’s premiership.
From 2008-2013, in the wake of the Global Financial Crisis, the Pound depreciated relative to the Australian dollar. This trend notably reversed in 2013 in light of declining growth in China and a slowdown in the global commodity super-cycle, which hurt Australia’s all-important mining sector. Since 1975, there has never been an instance where the Australian dollar has been stronger than the British Pound.
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