Section 7 - Prospects for the town of Bowton

Lesson objectives To be able to discuss how business might be affected by changes in the level of government spending To be able to discuss how business might be affected by changes in the level of the rate of interest To be able to discuss how business might be affected by changes in the level of employment To be able to answer quiz questions based on the case study

Starter Read section 7 – highlight/ circle or underline any key economic terms Target – find five!

Unemployment The text says: “During the period from 2008 to the end of 2013 unemployment rose by 6000” in Bowton. “Some jobs have been created. However most of these were low paid, part- time jobs and some businesses are still laying off workers”. Watch this short 4 min video on unemployment made by Tupton Hall school

How would rising unemployment affect Holden plc and Bowton? Section 7

Effects of rising unemployment on Holden plc Large pool of applicants when they open the factory May be able to pay minimum wage and still attract lots of candidates for each job vacancy Council grant more likely to attract them to locate in Bowton and create jobs Effects of rising unemployment on Bowton Large numbers out of work and claiming benefits Young families start to leave area to look for work House prices fall as there is no employment nearby to sustain a mortgage Shops and other local businesses forced to close due to lack of demand

Recession The text tells us: “A recent article in the Bowton Times considers how Bowton has been affected by the recent economic recession.”

Recession defined Recession is a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters. 'Gross Domestic Product - GDP ' The monetary value of all the finished goods and services produced within the UK in a year

How would the recession affect Holden plc and Bowton? Section 7

Effects of the recession on Holden plc Need to move back to the UK to take advantage of the skilled labour force to improve quality Need to become a Fairtrade manufacturer to gain competitive advantage in difficult trading times Effects of the recession on Holden plc Need to move back to the UK to take advantage of the skilled labour force to improve quality Need to become a Fairtrade manufacturer to gain competitive advantage in difficult trading times Effects of the recession on Bowton Closure of many local businesses Need to support independent retailers such as Bromley Furnishings Economic downturn reduces demand from consumers for goods and services in the area

Interest rates Video 3 mins

Interest rates The text says: “ A further boost to the local economy is that interest rates are predicted to stay low which will help businesses in Bowton.” The text says: “ A further boost to the local economy is that interest rates are predicted to stay low which will help businesses in Bowton.”

How will the low interest rates affect Holden plc and Bowton? Section 7

Effects of low interest rates on Holden plc Cost of borrowing is cheaper so Holden plc will be able to borrow to finance the building of the new factory or the rental of the old factory If Holden do borrow to finance their move back to the UK they will pay low interest rates on their loans or mortgages, which means more profit and more dividends for shareholders Effects of low interest rates on Holden plc Cost of borrowing is cheaper so Holden plc will be able to borrow to finance the building of the new factory or the rental of the old factory If Holden do borrow to finance their move back to the UK they will pay low interest rates on their loans or mortgages, which means more profit and more dividends for shareholders Effects of the low interest rates on Bowton Customers in the area may be encouraged to borrow money so they can continue to demand goods and services from local businesses Customers are less likely to save while rates are low which stimulates the local economy

Government spending Every year we pay tax; income tax, VAT, corporation tax, etc This money adds up to about £700 billion that the government can spend. They spend this money on: – Welfare (109billion) – Pensions (150billion) – Healthcare (NHS) (130billion) – Education (90billion) – Defence (45billion) Some of the money is given as funding to councils like Bowton. They raise the rest through council tax which will vary depending on the area.

How would government spending cuts affect Holden plc and Bowton? Section 7

Effects of government spending cuts on Holden plc The grant for the new factory may not be given as the council cannot afford the grants This may mean that Holden has to look for other areas that will award a grant – it depends if they need the money to help the set up. The case does not tell us. Effects of government spending cuts on Holden plc The grant for the new factory may not be given as the council cannot afford the grants This may mean that Holden has to look for other areas that will award a grant – it depends if they need the money to help the set up. The case does not tell us. Effects of government spending cuts on Bowton This may mean that Bowton cannot attract new business into the area Unemployment will not improve Economic growth will continue to stagnate (be slow)

Inward investment In the text it states “The trend for business to relocate abroad has slowed and there has been some inward investment and more is expected.” Inward investment is an injection of money from an external source of a country. For example when a Japanese company locates a car building plant in the Midlands.

Video on inward investment 3 mins

Grants In the text it says “Bowton council is considering whether or not to give grants to businesses which locate in the Bowton area. Some of the councillors say that because of government spending cuts, the council cannot afford to give grants. Others believe that giving such grants will be self-financing.

What is a grant ? Every year local councils are given a budget to spend by government on local issues A grant is money that is given (and not expected back) to a business; – To support projects that generate increased business turnover and job creation in the area – To encourage private sector businesses to locate in the area – To promote business opportunity in an area – To offer financial and advisory support to innovative businesses locating in that area Every year local councils are given a budget to spend by government on local issues A grant is money that is given (and not expected back) to a business; – To support projects that generate increased business turnover and job creation in the area – To encourage private sector businesses to locate in the area – To promote business opportunity in an area – To offer financial and advisory support to innovative businesses locating in that area Visit this website to look at some of the grants on offer

Quiz on section 7 1.Where was the article published? 2.What is Holden plc moving back from China to Bowton an example of? 3.How many new jobs will the Holden plc relocation create? 4.What is the difference between the number of start-ups and the number of closures? 5.How much have incomes fallen by on average?

Answers to section 7 quiz 1.The Bowton Times 2.Inward investment start ups – 42 closures = 27 less businesses in the area 5.7%