It is free to send money from Paypal. Only the receipient pays for the fees. However if you are paying in US$ and the UK party only accepts UK pounds then there may be a 2.5% foreign exchange fees levied or your bank would use their own foreign exchange rate.
Yes, this really sucks. I paid 55 pounds and PayPal charged me 88 CAD. It so happened that I got the refund, but the amount of can I got was 78CAD - the difference in conversion rate from the moment I paid and received a refund
At this there is a small change now at Paypal, they give me the option of accepting their conversion or to let my bank do the conversion. In the end, it would pretty much end up about the same.