Transcript Governmental Opportunities and Constraints

Governmental Opportunities and
Constraints
Content
• Government policies affecting business:
– UK and EU Law
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Health and safety
Employment
Consumer protection
Competition
– Economic policy
• Fiscal and monetary policies
• Intervention vs. laissez faire
• Privatisation
Business Law
• There are a number of different laws that govern
how businesses operate
• There are three main sources of these laws:
– Acts of parliament
– Common Law
– European Law
Health and Safety Law
• This aims to discourage dangerous practices by
businesses and protect the workforce
• Main act is the health and safety at work act, 1974
• Health and safety executive oversee the act
• This has increased costs but also ensures that
accidents are reduced
Employment Law
• Employment laws cover individual and collective
labour laws
• Individual labour laws look at the rights and
obligations of individual workers
• Collective labour laws look at the activities of trade
unions and the conduct of industrial relations
Individual Labour Laws
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The Sex Discrimination Acts, 1975, 1986
The Race Relations Act, 1976
The Disability Discrimination Act, 1995
The National Minimum Wage Act, 1998
Collective Labour Laws
• Employment Acts, 1980,1982
• The Trade Union Act, 1984
• The Trade Union Reform and Employment Rights
Act, 1993
• The Employment Relations Act, 1999
Employment Laws and Business
• Employment laws may increase costs of labour
• However they can increase motivation as workers
are better paid and feel more secure
• Collective labour has allowed the workforce to
become more flexible
Consumer Protection
• Consumer protection legislation aims to safeguard
consumers against:
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Businesses charging excessive prices / rates of interest
Unfair trading practices
Unsafe products
Having insufficient / incomplete information to base
purchasing decisions on
Consumer Protection Laws
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Sale of Goods Act, 1970
Consumer Protection Act, 1987
The Weights and Measures Act, 1986
The Consumer Credit Act, 1974
The Control Of Advertising – this is controlled by:
– The Trade Descriptions Act, 1968
– Advertising Standards Authority
Impact of Consumer Protection Laws
• To meet all these laws / requirements can prove
expensive to businesses
• It can also lead to higher consumer expectations
which add further costs to businesses
• Small businesses feel the impact of these costs the
most
Competition Law
• This is meant to create free and fair competition in the UK and the
EU
• Unfair competition may arise because:
– Monopoly power is abused
– Mergers and takeovers
– Restrictive practices
• The Competition commission investigates unfair competition
practices
• The office of fair trading ensure all firms comply with relevant
legislation
• Watchdog organisations monitor some firms that have over 25% of
the market e.g. OFTEL and BT
Key Competition Laws
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Fair Trading Act, 1973
Restrictive practices acts, 1956, 1968 and 1976
The Competition Acts, 1980, 1990
The EU’s competition policy:
– Laws prevent any activities restricting free competition in the EU
– Laws stop any firm abusing a dominate position in any EU market
– The EU controls any merger creating a new firm with a turnover
greater than £4.2 million
Economic Policy
• Economic policies are the actions through which the
authorities try and create the best possible economic
environment for businesses and individuals
• Economic objectives are what the government wants to
achieve and include:
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Stable prices
Steady and sustained economic growth
Low unemployment
A balanced balance of payments
Economic Policy
• The governments key economic policy objective is
to achieve high and stable levels of growth and
employment
• The government uses a range of policies to attempt
to achieve their objectives
What is fiscal policy
• Fiscal policy monitors how government spend their money
and how
they control their taxes.
• Contractionary fiscal policy: this is done when the
government reduces spending or increases taxes higher,
they try to increase their PSBR( public sector borrowing
requirement) to fund the tax drops they also do this to
reduce its surplus on its budget for the fiscal year.
• Expansionary fiscal policy: This is when the government
cut taxing or increase government spending. They will
increase the amount the government borrows to fund the
expenditure.
Direct & indirect taxes
• Direct taxes are taxes of income and expenditure
e.g. income tax, corporation tax(levied on company
profits).
• Indirect taxes are taxes such as VAT (value added
tax), changes in this type of tax has a rapid effect on
the level of economical activity. E.g. an increase in
VAT will cut consumer spending and in turn lower
levels of economic activity
Government Expenditure
• Governments spend in two ways:
1. Transfer payments – money spent on
unemployment benefits, pensions etc
2. The infrastructure – this includes spending on
houses, roads, education etc
Monetary Policy
• This looks at controlling the amount of money in
circulation and therefore spending and economic
activity
• Monetary policy covers:
– Changing interest rates (the most commonly used tool
by recent UK governments)
– Controlling the money supply
– Manipulating the exchange rate
Changes to Interest Rates
• If interest rates increase it is likely that consumer
spending will decrease reducing the level of
economic growth which can lead to falling sales for
businesses as demand may be reduced
• If interest rates decrease then demand is likely to
increase leading to an increase in economic growth
which leads to an increase in sales for businesses
Impact of changes to interest rates
• Small firms are most vulnerable to changes in rates
especially if they have a high level of borrowing
• Firms with lots of overseas trade may also be
heavily affected as a rise in interest rates tends to
increase exchange rates
Intervention vs. Laissez Faire
• Government intervention is where the state has a
high level of involvement in business matters
• Laissez faire is a policy where governments reduce
taxation and spend less on supporting business
activities
Government Intervention vs. Laissez Faire
• Government intervention tends to increase costs
and decrease competitiveness of businesses
• The laissez faire approach helps to increase the
level of entrepreneurs in an economy
• A disadvantage of the laissez faire approach is it
doesn’t protect struggling industries and poor
regions
Privatisation
• Where the ownership of businesses is transferred from the
state to private individuals
• This was a common occurrence in the UK in the 1980s and
1990s
• Advantages of privatisation:
– Removes potentially inefficient monopolies offering consumers
more choice and better products
– Private businesses are more likely to adopt longer term strategies
– It creates revenue for the government
Disadvantages of Privatisation
• In reality it may not create more efficient industries
• As these businesses now have shareholders they
have not adopted long term strategies instead
adopting shorter term strategies to get the returns
demanded by shareholders
Summary
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There are a number of EU and UK laws which govern how businesses operate
Health and safety law aims to protect employees and ensure that the work environment is
safe
Employment law includes individualist and collectivist legislation
Consumer protection laws protect the consumer and ensure that they know what they are
getting
Competition law aims to prevent unfair competition
All laws incur costs for businesses that can impact their profitability
Economic policy is the actions that the government takes to meet economic objectives such
as an increase in economic growth
Monetary polices aim to control the amount of money in the economy usually through the
manipulation of interest rates
Fiscal policies look at government incomes and expenditure
Government intervention describes where the government plays a key role in business
activities whereas a laissez faire policy is one with little government involvement
Privatisation is the sale of public companies to private individuals