A well written, detailed assignment which meets the criteria for P2 M1 - Unit 38 Business and the Economic Environment. BTEC Level 3 Extended Diploma in Business. P2 - Identify how government policies impact on a selected business. M1- Analyse the implications of government policies for a selected ...
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Unit 38 - Business and the Economic Environment
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Conor Cunningham P2 M1
Introduction
This report will identify and explain a range of current government policies which have a
significant effect on Tesco. An analysis will also be carried out on the implications of these
policies as well as the changes in them and an explanation on how Tesco may react to them.
The findings of this report are below.
Findings
There are a range of different government policies which affect Tesco in many different
ways. When the government introduces such policies, Tesco have to react to them to
ensure they operate legally. Furthermore, if a policy changes Tesco also have to react.
The government introduces such policies to help fulfil many of their aims which include;
Economy growth
Full employment
Controlled inflation/deflation – the rate of inflation being 2%
A healthy Balance of Payments
Care of the environment – reduced CO2 emissions in line with the United Nations
Compact
A good welfare state so that everyone is provided for
A sustainable energy policy
Different policies the government has in place will be looked at below.
Economic Policy
Economic policy refers to the actions that the government takes in the economic field. This
covers the systems in place for setting levels of taxation, government budgets, the money
supply and interest rates. Most factors of economic policy can be divided into fiscal policy
which deals with the government actions regarding taxation and spending or into monetary
policy which deals with central banking action regarding the money supply and interest
rates.
The government does many different things to improve the economic environment in which
businesses such as Tesco operate. These include policies to control inflation such as
changing taxes and interest rates, to increase employment, to encourage new businesses by
giving more money to help new businesses to start up such as Invest NI, giving help to
businesses to grow their exports and to help improve the exchange rate.
Corporation tax - An increase in corporate income taxes has a direct effect on a business
such as Tesco. A tax increase on business profits hurts a company’s overall financial
,Conor Cunningham P2 M1
performance. Some corporations and small businesses argue that businesses should pay less
in taxes, not more. The companies maintain that with a lower tax base they can boost the
economy by investing more money in the business, resulting in more jobs. When business
tax rates increase, Tesco may respond by raising prices on goods and services.
National Living Wage - A country’s economic policy could also affect wages. Increases to a
national minimum wage benefit workers by allowing them to earn more money for the
same work. That’s usually good for the workers, but it can be challenging for Tesco because
it increases costs. Labor costs are usually a company’s greatest expense. Some corporations
argue that they cannot compete against companies located in countries offering a much
lower minimum wage. That can result in a company transferring many job functions to
foreign countries such as Tesco responding by sourcing products from countries such as
China and sourcing their clothing stock from places such as India.
Government spending - More spending by the government may help certain businesses. For
example, a business such as Tesco benefit when the government uses taxpayers money to
spend billions on new roads, bridges and airports. This benefits Tesco as they have a wider
access to different and possibly cheaper distribution channels to source their products and
deliver products to consumers. This is why businesses such as Tesco spend time and effort
trying to affect economic policy decisions. Usually, a government cannot increase spending
in one area without taking away from something else. A government with an economic
policy dictating more money spent on defense may have to reduce support for building
more schools, for example. That could result in less work for construction firms, forcing
companies in that industry to reduce staff or freeze open positions. This has implications for
Tesco as more people are unemployed and so less people are buying their products so their
sales and subsequent profits will decline. The government must ensure they give different
policies equal attention as changing one will ultimately change another and this has
implications for Tesco such as having to decrease their prices of their products and services
so that people can afford to buy them.
Health Care Spending - Some economists believe that rapidly rising health care spending
lowers GDP and overall employment, while raising inflation. Tesco is affected by inflation in
many ways. Inflation means that the costs for Tesco will increase. For example, they will
have higher energy bills, higher transport costs, higher costs for raw materials and higher
cost of services such as internet services and insurance. Due to these increases in costs,
Tesco must react to them by either passing on these costs to consumers in the form of
higher prices for products and services which may lead to a decrease in demand, or by
absorbing the increase in costs and not passing them on to the consumer. This means that
profits for Tesco will fall so they must find other ways of trying to reduce costs. As costs are
rising, Tesco must react by reducing their costs of production or the price they pay for goods
and services to suppliers to be able to compete with competitors such as ASDA and
Sainsbury’s and survive.
Youth Unemployment Policies - In the UK, around 40% of the unemployed are under 25.
Tesco’s first response to a period of recession is to stop recruiting new staff rather than to
lay off their existing, experienced and knowledge workforce. Only when Tesco is in a state of
financial stress does it normally make people redundant. The young trying to move from
education into the workforce are then most exposed to the disappearance of new
vacancies. The government’s strategy to tackle the high levels of youth unemployment has
, Conor Cunningham P2 M1
been coherent but may be poorly delivered and lacking in scale. Noting that most youth
unemployment occurs between leaving full-time education and finding work, the
government has not only got to extend education and training participation as part of its
economic policy, but also try to increase recruitment of the young into jobs through offering
some work experience or apprenticeships if they are not making successful transitions
quickly. This has implications for Tesco as they may have to take on less skilled individuals
who the government have put into working schemes alongside Tesco. Tesco’s productivity
may decrease as a result of poorly skilled staff and they may react by cutting out
apprenticeship schemes within the company and put all prospective-workers through the
application process like everyone else.
Competition Policy
The main aims of competition policy are to promote competition, make markets work
better and contribute towards improved efficiency in competitiveness of UK businesses
within the European Union (EU). Competition policy aims to ensure;
Technological innovation which promotes dynamic efficiency in different markets
Effective price competition between suppliers
Safeguard and promote the interests of consumers through increased choice and
lower price levels
Competition plays a vital role in helping businesses grow and win new customers.
Competition law exists to make sure businesses compete on a level playing field. It prevents
their customers (other businesses or consumers) from losing out.
Competition Act 1989 - This is government policy towards increasing competition in the
market. It includes;
Deregulation means opening up the market and allowing new entrants into it for
example, airline industry, energy industry and mail industry
Relaxing rules and regulations and administration in order to encourage new
businesses to set up and compete with existing businesses for example, new airlines,
new banks, new private schools, new private health clinics and new energy
providers.
Policy to eliminate anti-competitive practices and cartel agreements ensure that one
or two businesses do not dominate a market and that competition is as fair as
possible for example supermarkets such as Tesco, airline industry, energy industry,
oil industry.
Competition policy will therefore impact on an organisation such as Tesco directly and
indirectly. Directly because it will control their ability to merge or take over other businesses
without government intervention and their case may even be referred to Europe for
approval. It will also impact Tesco indirectly because of this government intervention to
encourage and promote competition, there will be more competition in the such industries
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