3.5.4 The impact of government and the EU How many of the member states can you name? 3.5.4 The impact of government and the EU 3.5.4 The government and the EU

Government Intervention in the Economy Government Taxation Governments tax individuals and firms to pay for the supply of goods and services from the state e.g. education and health. Income tax is a direct tax on people’s income and means that they have less money to spend on goods and services. Demand will fall. Corporation tax is put on the profits of a business. This means less money is available for dividends and for reinvestment. 3.5.4 The government and the EU 2

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 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 3.5.4 The government and the EU 3

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. Legislation Employment Law Consumer Protection Health and Safety Environmental Protection 4

Legislation affecting businesses Employment Law Those laws that impact on the rights of the individual in the workplace 1999 National Minimum Wage Act – a minimum hourly wage rate introduced across the UK. This has increased costs for those businesses that employ low paid and unskilled workers. In October 2012 the minimum wage for those over 21 was £6.19; 18-21 £4.98; 16-18 £3.68. Maternity Rights – new mothers are entitled to up to 52 weeks leave with up to 26 weeks on 90 per cent pay and a further 26 weeks on half pay. Paternity Rights – new fathers are entitled to 2 weeks leave with up to a further 26 weeks if required Employment law increases costs for a business. They will have to pay wages during leave and also find a replacement to cover the position. It is unlikely that the replacement will have the same skills and experience. 3.5.4 The government and the EU 5

Legislation affecting businesses Health and Safety Law These laws look after the health and safety (H&S) of employees in the workplace 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 3.5.4 The government and the EU 6

Legislation affecting businesses – Red Tape Businesses often complain about ‘red tape’ – the rules and regulations that hinder the business from running operations in the way that they want. Red tape increases costs with time and money spent on legal requirements that have been set by the government. Discuss the impact on a business if the government were to remove all regulations. 3.5.4 The government and the EU 7

EU decisions affecting UK businesses 3.5.4 The government and the EU The Enlargement of the European Union (EU) – the process of admitting new states into the EU Benefits of EU enlargement Free movement of labour providing cheaper, mainly Eastern European, labour in the UK Opportunities to sell into new EU markets 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 Disadvantages of EU enlargement Increased competition with pan-European takeovers and foreign firms and workers undercutting the UK Diseconomies of scale as UK firms face communication and coordination problems as they expand across Europe New languages and cultures are more difficult to target Accuracy of market research becomes less predictable for new member states 8

3.5.4 The government and the EU Question time In October 2012 the Government raised the National Minimum Wage by 11p to £6.19. Many employers saw this as a further example of ‘red tape’ believing that they should be allowed to choose their own wage rates for employees. With a lack of demand in the economy they believed that the pay rise could severely impact on their costs, even putting the survival of some businesses at risk. However, some workers believed that the pay rise would not provide enough for a reasonable standard of living. With rising fuel, food and travel costs many people struggled to meet day to day expenses. What is meant by the term ‘minimum wage’? (1 mark) State two other forms of remuneration used by businesses. (2 marks) Discuss whether employers are right in their belief that they should be allowed to set their own wage rates. (6 marks) 9