Topic 4.3 – The political and legal environment Candidates should be able to:  assess the effect of government intervention  assess the effect of government economic policies  assess the effect of political decisions  assess the impact of legislation  evaluate responses of business

Topic 4.3 – The political and legal environment Economic policy Governments want to try to control the economy in order to achieve various economic objectives:  encourage e__________ growth (2 to 2.5%)  control i__________ (CPI of 2%)  maintain a satisfactory level of e____________  achieve a satisfactory balance of payments

Topic 4.3 – The political and legal environment Macroeconomic policy refers to the ways g_______________ can attempt to influence the economy as a whole. They can use monetary policy, fiscal policy (or a mixture of both) or supply side policy. NOTE: Fiscal policy is also known as budgetary policy.

Topic 4.3 – The political and legal environment Monetary policy is a way of managing the economy by controlling the m_____ supply and interest rates. Remember that the UK government no longer control interest rates – this is now the responsibility of the _____. The MPC can alter interest rates and the government can try to influence the attitude to lending by financial institutions. E.g. in times of very low inflation the MPC may lower interest rates and the government may encourage b_______ etc to lend money.

Topic 4.3 – The political and legal environment Fiscal policy involves the use of government expenditure and taxation to manage the economy. E.T. So the government can alter the amount they spend on s______, roads etc. They can also change the range and levels of direct tax (e.g. income tax or corporation tax) and/or indirect tax (e.g. _____). Counter-cyclical policies are when the government expands demand during a recession etc.

Topic 4.3 – The political and legal environment Fiscal policy Income tax in the UK (2014 – 2015) Tax free allowance £ Basic rate % £10,001 - £ Higher rate % £ - £150,000 Additional rate % over £150,000

Topic 4.3 – The political and legal environment Fiscal policy In 2012 – 2013: The higher rate was lowered from 50% to 45%. Corporation tax was lowered from 30% to 24% (2014/5 lowered to ) Duty on alcohol, tobacco and fuel was

Topic 4.3 – The political and legal environment Supply side policies are designed to make markets operate more e___________. The government can:  set up t_________ schemes;  reduce regulations or restrictions;  privatise organisations;  d__________ (remove regulations);  reduce power of trade unions.

Topic 4.3 – The political and legal environment The timing is a key factor as there is usually a time lag between a government identifying a problem and deciding on appropriate policies and then the policy having an e_________.

Topic 4.3 – The political and legal environment Intervention versus laissez-faire An interventionist government approach is based on the belief that g______________ should exert a strong influence on the economy, rather than allowing market forces to dictate conditions. The idea is that the free market would result in problems such as high u________________ and inequalities in certain areas.

Topic 4.3 – The political and legal environment Intervention versus laissez-faire Examples of interventionism:  support new firms by offering g______  rescue packages for large m__________  l_________ to protect workers  encourage wage councils  protectionism – use tariffs and/or q_______ to restrict imports. This helps firms but can lead to retaliation and/or inflation if imports are necessary.

Topic 4.3 – The political and legal environment Intervention versus laissez-faire Laissez-faire government policy is based on the belief that the free market will m_________ business efficiency and consumer satisfaction. It therefore tries to a__________ interfering in the running of business or any other part of the economy. The role of the government is limited to providing the r_____ environment for businesses to flourish.

Topic 4.3 – The political and legal environment Intervention versus laissez-faire The UK is a mixed economy which means that both the state and the market allocate resources. The public sector is typically responsible for the supply of public goods (e.g. street lighting) and merit goods (e.g. e____________). The private sector supplies private goods (e.g. c__________ and mobile phones)

Topic 4.3 – The political and legal environment In an area of high unemployment, what would a laissez-faire government do/say?

Topic 4.3 – The political and legal environment In an area of high unemployment, what would an interventionist government do/say?

Topic 4.3 – The political and legal environment How can firms affect government policies? 1. L________ – persuade MPs / government ministers, who then vote on legislation 2. Access to the m________ – get press/TV interested and hence gain publicity 3. Public p___________ - e.g. hauliers blocking petrol stations 4. Could threaten to move a______ (or close down), this only works if it’s a very large firm But, overall there is not much individual firms can do!

Topic 4.3 – The political and legal environment Legislation: there are various areas you need to know about: 1. E__________ law 2. C___________ protection 3. E____________ protection

Topic 4.3 – The political and legal environment Legislation Laws are needed to:  improve i_________ r____________  prevent e______________ of staff  prevent exploitation of c_____________  protect the e________________

Topic 4.3 – The political and legal environment Employment legislation  Disability Discrimination Act 1995  Minimum Wage Act 1998  Employment Relations Act 2004  Health and Safety at Work Act 1974  The Enterprise Act 2002

Topic 4.3 – The political and legal environment Consumer legislation  Sale of Goods Act 1979  Consumer Protection Act 1987

Topic 4.3 – The political and legal environment Environmental protection legislation  The Town and Country Planning Acts 1947 and 1990  The Environmental Protection Act 1990

Topic 4.3 – The political and legal environment Legislation: laws can have a positive impact on firms

Topic 4.3 – The political and legal environment Laws can have a negative impact on firms

Topic 4.3 – The political and legal environment Firms can adopt various strategies in response to changing laws:  introduce changes in advance to gain c_____________ a______________ (e.g. safety standards)  e___________ legal requirements to attract customers or staff  relocate a________ where the regulations are less stringent

Topic 4.3 – The political and legal environment The European Union is a group of _____ countries who have the objective of removing all trade barriers between member states. This is an example of free trade and it means that the factors of production (l____, l_______, capital and enterprise) can move freely between EU countries. It accounts for ______% of the world’s GDP and is the largest exporter of goods and services in the world.

Topic 4.3 – The political and legal environment Advantages for businesses

Topic 4.3 – The political and legal environment Disadvantages for businesses

Topic 4.3 – The political and legal environment EU policies : The Common Agricultural Policy Guarantees farmers a price for their produce BUT:  o___________ (EU buys and stores surplus)  higher p______ (than the market would set)  e________ for the EU to buy excess supplies (£34 billion per year, approx half of the EU’s total budget) and only benefits a small sector of the economy  p__________ non EU countries competing  u_____ as wealthy land owners get subsidies

Topic 4.3 – The political and legal environment EU key policies – The Social Chapter Aims to standardise working conditions and give workers basic rights SO:  better motivated workers => more e______  improved industrial relations => fewer s____ BUT:

Topic 4.3 – The political and legal environment EU key policies – The Regional Development Fund and the European Social Fund Provide money to reduce u________________ especially in areas which are struggling E.g. the UK will receive €6.2 billion (£5.084 billion) in to provide significant investment in innovation, business, skills and employment to help growth and jobs

Topic 4.3 – The political and legal environment The single European currency (Euro) The following countries have adopted the euro: They are sometimes referred to as the eurozone. The European Central Bank based in Frankfurt sets the i_________ rate for the eurozone.

Topic 4.3 – The political and legal environment Benefits of the Euro

Topic 4.3 – The political and legal environment Drawbacks of the Euro  costs of conversion e.g.  more competition – t___________ prices  impact of ECB interest rates and monetary policy reflect the  (loss of control over ‘own’ currency)

Topic 4.3 – The political and legal environment Effects of the Euro on non-members  some exporters/importers/tourist firms/multi- nationals have a________ the euro  reduced u___________ when dealing with EU and some reduction in transaction costs  UK firms may be d____________ compared to competitors in the eurozone  competitiveness depends on o______ currency against the euro  mergers in the eurozone can make it harder to c_________  can switch borrowing from sterling to e______

Topic 4.3 – The political and legal environment Implications of the expansion of the EU

Topic 4.3 – The political and legal environment World Trade Organisation (WTO)  This is an international body set up in 1995 with the aim of promoting f_____ t_______ between members (____ countries) and reducing protectionism.  Advantages of the WTO are that UK firms can compete in export markets on equal terms with locally based firms  Disadvantages are that the UK markets are