Transcript The Relationship between the Political and Legal Environment

Should the UK join the Euro zone?
Yes
No
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
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
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.
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
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?
Government Intervention Starter
How does the Government
intervene in the UK
Economy
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
 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
Government Policies
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Supply Side Policies
Direct & Indirect Taxation
Fiscal policy
Monetary Policy
Privatisation
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.
Key points in the
2015 Budget
 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.
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 to
support CSR?
Visit www.hrmc.gov.uk and
search each type of direct and
indirect tax. Write a definition
and see if you can find up-to-date
tax rates for each one
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?
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
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 competition with pan-European takeovers and
 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
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
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 advantage
 Infant industries need time to develop against big
multinational companies
 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
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.
Government Economic Policies
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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
For your company what would be the impact of a significant interest rate rise?
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
Health and Safety
Consumer
Protection
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.
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.
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?
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?
 New environmentally friendly production
ACTIVITY
Using the Internet, research the Environmental
Protection legislation shown on this page.
Explain how they might impact on a firm of
your choice
Just when you thought it was safe
to go in the water!
 New products that meet higher environmental
standards
 Greater use of recycling
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!
Office Health and Safety
Health and Safety in the hotel
industry
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.