Government Policies and Actions Economic policy Growth Full Employment Inflation / Deflation Surplus / Deficit Competitiveness Equality Government Business Ownership

The Government Policies and Actions Government policies and actions affect business in many different ways Government spending on a particular activity can help a business be successful The Government also regulates business by setting out rules that businesses have to follow

Government policy affects business through these areas: Policies and Actions Government policy affects business through these areas: Growth Employment levels Inflation Surpluses Competiveness Equality Government business ownership

Policies and Actions The Economy

Government Economic Policy Policies and Actions Government Economic Policy Economic policy is designed to provide the best possible economic environment for each of the 4 groups There is overlap between all 4 groups – they aren’t isolated but interact and can have multiple roles For example a business is also a consumer if it buys products or services from another business

Growth Policies and Actions Government policy try’s to grow the economy Growth refers to increases in the total number of goods produced The more goods that are produced, the more people are employed. They earn more income. They spend more. Etc. Growth is measured by Gross Domestic Product (GDP) GDP = The total value of goods produced in a country in a given year

Growth in the UK, 2007 - 2010 Policies and Actions Source: Office for National Statistics

Government and Growth Policies and Actions The Government encourages growth in different ways The Bank of England can keeps interest rates low so businesses invest in new technology and consumers will borrow more £ to buy expensive items The Government can provide incentives for workers to train and to improve skills Tax rates are kept low so more people start businesses and consumers have more disposal income to spend The Government can spend money on new projects

Government and Growth Policies and Actions The Government works closely with business to try and create policies for growth Examples include making sure that taxes are not to harsh for small business and providing grants Local government seeks to encourage growth of local business Examples include creating new business development and providing business advice to small businesses

Full Employment Policies and Actions Full employment exists in an economy when everyone who wants a job is employed The availability of jobs is closely linked to the growth of the economy Full employment acts to keep benefit costs low for the tax payer The Government can encourage employment by Making it difficult to receive benefits long term Getting the unemployed to go on training courses Providing incentives for industries to take on new workers in a recession

Unemployment in the UK, 2008 - 2010 Policies and Actions Unemployment in the UK, 2008 - 2010 Source: Office for National Statistics

Effect of unemployment Policies and Actions Effect of unemployment As people lose jobs there is an impact on the economy Less money is spent as unemployment rises, which can lead to businesses not making enough money to survive and then to more job losses High unemployment does mean that businesses have a large pool of people to choose from for jobs

Inflation / Deflation Policies and Actions Inflation refers to general increases in price levels in the economy and can be measured in different ways The UK Government tracks inflation using the Consumer Price Index (CPI) Price rises can be bad for business as it means that the costs of business are higher (i.e. raw materials, fuel) During periods of inflation, employees demand higher wages One of the Government targets is to keep inflation under control and this is done through policies and with the Bank of England who set interest rates The reverse of inflation is deflation The ideal situation is when prices are rising very slowly in a predictable way

Keeping Inflation Low Policies and Actions Reduce consumer demand and spending by increasing interest rates to encourage people to save more in banks Increase taxes to reduce disposable income Award public sector jobs only small wage rises

Prevent Deflation Policies and Actions Reduce tax so people spend more Reduce interest rates to people get less back from the banks and are more likely to borrow from them instead Increase government spending

Inflation in the UK, 2008 - 2010 Policies and Actions Source: Office for National Statistics

Surpluses and Deficits Policies and Actions Surpluses and Deficits The Government influences the economy through the Budget The Budget is a plan that the Government makes each year (or more often if needed) The plan sets out how the Government will raise money and how it will spend money The main way of collecting money is through taxes Government spends money on different things (police, schools, hospitals and so on)

Surpluses and Deficits Policies and Actions Surpluses and Deficits When the Government spends more than it collects then it will run a deficit When the Government spends less than it collects then it will run a surplus Government surplus/deficit effects business When the Government runs a deficit it puts more money into the economy so everyone has more to spend

Surpluses and Deficits – The Recession Policies and Actions Surpluses and Deficits – The Recession The last Labour Government tried to deal with the recession through spending and they created a deficit by doing this The problem with spending is that it can increase inflation rates so the Bank of England has kept interest rates very low to try and stop this The new Con-Dem Government is cutting spending as it tries to pay back the deficit and eventually create a surplus

Competitiveness Policies and Actions It is important for UK business as a whole to competitive Competitive businesses are able to sell their goods and services overseas and at home in the face of competition from foreign firms

Competitiveness Policies and Actions The Government supports competitiveness in a few ways: By providing fast-moving motorways and train services By supporting the development of a new IT structure, including increasing broadband speed Through education and training initiatives The Government is committed to creating a skilled workforce in order to make the UK more competitive in World Markets

Competitiveness Policies and Actions The Government supports competitiveness in a few ways: By providing fast-moving motorways and train services By supporting the development of a new IT structure, including increasing broadband speed Through education and training initiatives The Government is committed to creating a skilled workforce in order to make the UK more competitive in World Markets

Equality Policies and Actions In Britain there is a substantial difference between the rich and the poor Governments have claimed to close this gap but the gap has grown in the last 20 years A Government policy to reduce inequality is to tax people on high incomes more than those on low incomes Some people argue that high taxes discourage businesses as they raise costs

Government Business Ownership Policies and Actions Government Business Ownership The Government owns a number of businesses (i.e. Royal Mail, the BBC) There are private-public partnerships which involve government and business working together (i.e. school Academy’s) Some government departments provide services and act as a business (i.e. The Prison Service) The Government can take over failing businesses (i.e. RBS)