Download File - LPS Business DEPT

Assessing Changes in the Business
Environment
The Relationship between the
Political and Legal Environment
Lifestyles around Europe are converging, but tastes are not.
Nicholas Colchester
A government which robs Peter to pay Paul can always depend upon
the support of Paul.
George Bernard Shaw
BUSS4.3 Political and Legal
In this topic you will learn about:

Assessing the effects of:
◦ Government intervention in the economy
◦ Government economic policies
◦ Political decisions affecting trade and access to
markets
◦ The impact of legislation relating to businesses

Evaluating responses of businesses to a changing
political and legal environment
Party political broadcast
BUSS4.3 Political and Legal
The AQA specification states
Consideration might be given to the provision of products by
the government, government regulation and legislation and
other forms of intervention such as tax and subsidy. Monetary,
fiscal policy and supply side policies should also be
considered.
Political decisions should include issues such as: the
enlargement of the European Union and moves towards
greater freedom of trade.
Legislation affecting businesses should include: employment
law, consumer protection, environmental protection and health
and safety legislation on businesses. A broad understanding of
scope and impact is all that is required.
BUSS4.3 Political and Legal
Government Intervention in the Economy

The UK is a mixed economy – individuals and private organisations
(Private Sector) and the Government (Public Sector) provide goods
and services

The Private Sector provide goods and services in order to make a
profit

The Government provide goods and services that the market does not
adequately provide:
 Merit goods are those that the Government deem to be necessary for a fair
society e.g. education and health
 Public goods are those that the Private Sector would not provide because
everyone would benefit from them without having to pay for them e.g. street lighting
BUSS4.3 Political and Legal
Government Intervention in the Economy
The provision of products by the Government



The Government spend money on a range of goods and services –
healthcare, education, transport, housing etc.
Private Sector firms will benefit from this, many UK businesses have
some form of government as a customer e.g. a private building firm
may provide services to rebuild a school
Firms may deliberately target the Public Sector – the government
outsource work to the Private Sector
Is it right to have some services offered both in the Public Sector and the
Private Sector e.g. education and hospitals?
Do you think the Railways should be in the
Private Sector or the Public Sector?
BUSS4.3 Political and Legal
Government Intervention in the Economy
Government Regulation and Legislation
Government Regulations and Legislation (Laws) are legal restrictions
used to control markets. They occur for a number of reasons:

Monopoly power – e.g. the water companies
 The Government may intervene to stop the public being exploited






Should the government
intervene or is it just
good business?
Merit goods and public goods – forcing companies to provide a service that the
market would not provide
De-merit goods – to stop or restrict the provision of goods that do not benefit
society e.g. drugs
Health and Safety – safeguarding employees in the workplace
Employment Law – safeguarding employee rights in the workplace
Consumer Protection – protection from exploitation by firms
Competition Law – increasing competition to provide greater choice and quality at
lower prices to the consumer
Is it right for the government to
devolve power?
BUSS4.3 Political and Legal
Government Economic Policies
Monetary Policy - aimed at controlling the demand for money in the
economy, mainly through the use of interest rates

In 1997 the Government handed the control of interest rates to the
Bank of England (BOE). The BOE Monetary Policy Committee
(MPC) has a remit to try and keep the inflation rate as close to 2%
as possible

The MPC use interest rates to control inflation. It has nine
members who vote on the interest rate on a monthly basis. If the
inflation rate is above 2% they are likely to put up the Base Rate of
interest
In this video clip Evan Davis explains how the MPC decides whether to raise interest
rates. See if you can redraw or re enact this explanation to explain how they would
decide whether to lower interest rates in current economic climate.
BUSS4.3 Political and Legal
Government Economic Policies
Monetary Policy – the Interest Rate Process

Banks normally borrow money from other banks if they have short term
liquidity problems. The BOE is known as ‘the Lender of Last Resort’ and
can be used instead of other banks for borrowing purposes. The Base Rate
is the rate at which the BOE lend money to other banks.

Banks borrow money from the BOE on a short term basis (Officially known
as the Repo Rate).

If the BOE raise the Base Rate all banks will have to pay more to borrow
money.

The banks pass this increase in ‘the price of money’ on to their customers
e.g. in the form of higher mortgages.

People have to pay back more in the form of loans and mortgages due to
higher interest rates. Disposable income falls, demand falls and demand pull
inflation starts to come down.
In summary: High interest rates encourage saving and discourage spending
BUSS4.3 Political and Legal
Government Economic Policies
Fiscal Policy – Government Taxation, Expenditure and Borrowing
Governments tax individuals and firms to pay for the supply of goods and
services from the state e.g. Education and health. If income from tax is lower
than spending the Government will borrow the difference.
Each year in April the Chancellor of the Exchequer delivers the Budget –
detailing Government spending plans and how it will pay for them.
Research the key points in this year’s budget and discuss their impact on
businesses. What strategies can businesses adopt to respond?
 Contractionary fiscal policy occurs when the Government reduces
expenditure or increases tax. This might occur because of too much
inflation in the economy or if borrowing is too high.
 Expansionary fiscal policy entails increasing government expenditure
and lowering tax. This might occur to ‘kick-start’ the economy as an
impetus to economic recovery.
BUSS4.3 Political and Legal
Government Economic Policies
Government Taxation
Government Taxation is a financial charge on an individual or firm. Direct
taxes apply to income earned or capital gained. Indirect taxes apply to
expenditure on products.
Why Tax?
To fund Government Spending
To redistribute income in the economy
DIRECT TAX
INDIRECT TAX
 Income Tax
 Value Added Tax
 Corporation Tax
 Corporation Tax
 Inheritance Tax
 Excise Duties
 Capital Gains Tax
 National Insurance Contributions
What new tax
would you
introduce?
Visit www.hrmc.gov.uk and
search each type of direct and
indirect tax. Write a definition
and see if you can find up-todate tax rates for each one
BUSS4.3 Political and Legal
Government Economic Policies
Supply side policy - Government Subsidies
Government Subsidies are financial assistance given to individuals, firms
and industries to provide a good or a service.
Why subsidise?
To provide goods and services thought to be socially desirable
To protect jobs
To protect ‘infant industries’
Can subsidies promote inefficiency?
BUSS4.3 Political and Legal
Government Economic Policies
Supply Side Policy – increasing the supply of goods and services to the
economy. At their heart supply side policies have the key intention of freeing up
markets to operate efficiently in order to improve the quality and increase the
quantity of output.
Privatisation of Britain
in the 1980s
Types of supply side policy include:
 Privatisation is the process of transferring state owned organisations (Public Sector) to
the Private Sector (normally becoming Plcs). The idea is to increase efficiency
 Deregulation involves removing obstacles that stop firms joining an industry, these
obstacles are known as barriers to entry
 Public-Private Partnerships (PPP) are any collaboration between public bodies and
private companies that are created to improve public services by utilising the skills of
private industry
 Private Finance Initiatives (PFI) occur where the Government get private companies to
pay for and construct buildings such as schools and hospitals and guarantee that they will
rent these premises back from the private sector over a period of time
 Labour market reforms have seen a reduction in the power of trade unions and an
increase in the flexibility of firms in dealing with their employees. The Government have
also created incentives for unemployed workers to return to work
BUSS4.3 Political and Legal
Political decisions affecting trade and access
to markets
The Enlargement of the European Union (EU) – the process of admitting new
states into the EU
"A gradual and carefully managed enlargement process creates a win-win situation for all countries
concerned." Olli Rehn, European Commissioner for Enlargement – 2008
By 2009 the EU had 27 member states and a population of almost 500 million.
How many of the member states can you name?
Benefits of EU enlargement
Disadvantages of EU enlargement
 Free movement of labour providing cheaper,
mainly Eastern European, labour in the UK
 Increased
 Opportunities to sell into new EU markets
 Diseconomies of scale as UK firms face
communication and coordination problems as they
expand across Europe
 Economies of scale as the firm grows across EU
 Pan European marketing strategies can be used
 Cheaper raw materials from new low cost EU
countries such as Eastern Europe
 Increased size of free market providing protection
from tariffs and quotas
competition with pan-European takeovers
and foreign firms and workers undercutting the UK
 New languages and cultures are more difficult to
target
 Accuracy of market research becomes less
predictable for new member states
BUSS4.3 Political and Legal
Political decisions affecting trade and access
to markets
Greater freedom of trade
Free trade occurs when there are no barriers to trade between nations. Comparative advantage
is the theory that countries produce what they are good at because they can produce these
products cheaply and more efficiently and then trade with other countries for products that they are
not good at producing. This creates better quality products at a cheaper price.
The EU is a free trade area where member states do not have to pay tariffs (a tax on imports) or
meet quotas (a limit on the volume of imports).
Arguments for Free Trade
Arguments against Free Trade
 Comparative
 Infant industries need time to develop against big
multinational companies
advantage
 Trade creation as new markets are
created
 Economies of scale
 Diversification of an economy so that a country does
not rely on certain products for income e.g. agriculture
where prices might fluctuate
 Competition leading to greater choice
and efficiency
 Protection of jobs in the UK from cheaper foreign
workers, although this is likely to lead to retaliation
 An increase in world economic
growth
Alistair Darling on dangers of
protectionism
BUSS4.3 Political and Legal
Legislation affecting businesses
Legislation involves creating and enacting laws in order to protect individuals, firms and society as
a whole. Laws are passed through UK Acts of Parliament and the UK is subject to EU law.
The AQA specification specifically looks at four main areas of legislation. Candidates require a
broad understanding of these areas.
Employment
Law
Environmental
Protection
Legislation
Consumer
Protection
Health and
Safety
BUSS4.3 Political and Legal
Legislation affecting businesses
Employment Law
Laws relating to employment can be sub divided into individual labour law and collective labour law
 Individual labour law guarantees certain rights for individual employees:
•1970 Equal Pay Act – both sexes should be treated equally at work
•1975 Sex Discrimination Act – this outlawed discrimination based on gender for recruitment,
promotion, training or dismissal
•1976 Race Relations Act – illegal to discriminate based on colour
•1995 Disability Discrimination Act – illegal to discriminate against disable people and made
provision to assist the employment of disabled people
•1998 Working Time Regulations – employees cannot be forced to work more than 48 hours a
week
•1999 National Minimum Wage Act – a minimum hourly wage rate introduced across the UK
ACTIVITY
2006
Laws banning age
discrimination
Using the Internet, research the Employment Law
shown on this page. Choose 2 laws and explain
how they might impact on a firm of your choice.
As a class it would be a good idea to make sure
between you all the laws are covered.
BUSS4.3 Political and Legal
Legislation affecting businesses
Employment Law
Laws relating to employment can be sub divided into individual labour law and collective labour law
 Collective labour law guarantees certain rights, and places certain restrictions, on groups of
employees e.g. trade unions:
•1980 Employment Act – ‘Secondary picketing’ outlawed.
•1984 Trade Union Act – a secret ballot required before strike action
•1990 Employment Act – outlawed closed shops (where all workers belong to a single union)
•1993 Trade Union Reform Act – unions must give employees at least 7 days notice of
industrial action
•1999 Employment Relations Act – right to recognition of a union in the workplace if 50%
belong to a union
ACTIVITY
Much of this legislation
has served to reduce
union power
Using the Internet, research the Employment Law shown on this page.
Choose 2 and explain how they might impact on a firm of your choice.
As a class it would be a good idea to make sure between you all the
laws are covered.
BUSS4.3 Political and Legal
Legislation affecting businesses
Consumer Protection Law
These laws protect the consumer from firms with regards the quality of goods or services sold
•1968 Trade Descriptions Act
•1974 Consumer Credit Act
•1979 Sale of Goods Act
Why do we protect consumers?
 In order to maximise profits some firms would
unfairly exploit consumers if they were not protected
•1986 Weights and Measures Act
 ‘Consumerism’ places the interests of the consumer
as the most important factor in the exchange process.
•1987 Consumer Protection Act
What is the impact on the firm?
•1990 Food Safety Act
 Consumer Protection legislation ensures that firms
must take into account the consumers’ requirements –
if not they can be taken to court. In particular, this will
increase cost.
•1998 Competition Act
•2007 Consumer Protection from Unfair
Trading Regulations
ACTIVITY
Using the Internet, research the
Consumer Protection legislation
shown above. Choose 3 laws and
explain how they might impact on a
firm of your choice..
 These laws safeguard the reputation of UK and EU
firms.
Are consumer laws too
complex?
Do you read the labels?
BUSS4.3 Political and Legal
Legislation affecting businesses
Environmental Protection Law
These laws help to ensure that firms do not have a negative impact on the environment
•1990 Environmental Protection Act
Why do we have environmental protection law?
 Firms must improve the control of pollution
arising from industrial and other processes
 In order to protect the environment from the
harmful consequences of a firm’s production e.g.
Pollution, litter etc.
•1995 Environment Act
 A firm must clean up any contaminated
sites that it owns. The Act also established
the Environment Agency in order to oversee
environmental protection
 To force firms to pay for the negative
externalities that they create but do not have to pay
for e.g. neither the firm nor the consumer pay for
pollution caused by a factory but it effects people
living in the area
What is the impact on the firm?
ACTIVITY
 New environmentally friendly production
Using the Internet, research the
Environmental Protection legislation shown
on this page. Explain how they might
impact on a firm of your choice
 New products that meet higher environmental
standards
Just when you thought it was safe to
go in the water!
 Greater use of recycling
BUSS4.3 Political and Legal
Legislation affecting businesses
Health and Safety Law
These laws look after the health and safety (H&S) of employees in the workplace
•1974 Health and Safety at Work Act
 A firm must provide a safe working environment with free
safety equipment and clothing. There must be a H&S policy and
union safety representatives are allowed to inspect the
workplace
 The Health and Safety Executive was set up by the
Government to oversee this
•1981 Health and Safety Regulations – to provide adequate first
aid provision
•1992 Health and Safety Regulations – rules for Display Screen
Equipment (Computers) including free eye tests
•1996 Health and Safety Regulations – employers must consult
with employees on any H&S changes in the workplace
•2007 Corporate Manslaughter and Corporate Homicide Act – a
firm can be found responsible for manslaughter or homicide. Not
a H&S Act but it does put real pressure on firms!
Why do we have health and safety
law?
 In order to protect employees from
exploitation and the consequences of
poor H&S e.g. Illness and injury
 To maintain high standards in the UK
workplace
What is the impact on the firm?
 There are significant costs associated
with H&S e.g. safety inspections and
training
 Firms can now even be charged with
murder. The impact of a firms policies is
closely associated with the boardroom
ACTIVITY
Using the Internet, research the Health and Safety legislation shown on this page.
Choose 2 laws and explain how they might impact on a firm of your choice.
BUSS4.3 Political and Legal
ACTIVITY – Banks to face tougher
regulations
 Watch the video clip of Alistair Darling outlining the
Government’s plans to enable tougher regulations on
banks.
 Read the article linked to the video clip and annotate all
aspects of business studies theory
 Draw a table to record arguments for tougher regulations
and against tougher regulations of banks
 Carry out some independent research to identify the
views of the current coalition government.
 Reach a justified conclusion
 Should the Government intervene to force tougher
regulations on banks?
Grumpy Old Men – The Nanny State!
BUSS4.3 Political and Legal
Essay
The enlargement of the EU has created
more threats than opportunities to UK
firms. With reference to businesses you
have studied to what extent do you agree
with this statement?
BUSS4.3 Political and Legal