BTEC Level 3 Business Studies: Unit 1 Exploring Business - Assignment 2
The Effects of the Environment on a Business
The Body Shop
The Body Shop is an international British cosmetic, skin care and perfume company that was founded in
1976 by Anita Roddick in Brighton. The Body Shop has a range of over 1,000 products such as perfumes,
body creams and face masks that are sold in 3,000 stores in over 65 countries, made up of shops owned by
the company and franchised outlets. The company is a Subsidiary of Brazilian cosmetics company Natura
whom purchased The Body Shop International Limited from L’Oréal for £880 million. Their headquarters
are based at London Bridge in England. The company’s reported revenue in 2020 was £893.5m.
External Environment (PESTLE)
A PESTLE analysis is used to analyse key external factors affecting a business. PESTLE is an acronym of these
factors which are Political, Economic, Sociological, Technological, Legal and Environmental. PESTLE analyses
are important to business owners because it allows them to identify potentially changing external factors
which may affect their business. It also allows them to plan how they are going to expand their business
strategically and taking into consideration the external factors that may affect business growth and
expansion. It also helps owners decide where they need to allocate money and resources within the
business to potentially combat or work with these external factors.
Political Factors
The current party in charge of the British Government is the Conservative party. They were voted in in
2010 and have remained the leading party since. The party visions include keeping taxes and VAT low and
establishing a financially stable British economy. This would have a positive impact on large businesses
such as The Body Shop because they have less money being paid out to the government. As a result of this
they won’t need to increase prices to cover tax increases, and avoid losing customers to competitors who
may offer better prices for their products.
The current government have made multiple changes that affect all businesses. Firstly, both the National
Minimum and National Living Wage have increased in the last two years. The National Living Wage is what
all employees over the age of 23 are entitled to, this has increased 6.6% to £9.50/hour from April 2022.
The National Minimum Wage has also increased for all age groups increasing 4.1% for 16–17-year-olds and
18–20-year-olds. Whilst, the minimum wage for 21–22-year-olds has increased by 9.8%. This affects The
Body Shop because this increase means they have to increase their employees’ wages in the UK and this
therefore means their outgoings will increase, potentially meaning they will have to increase the price of
their products to cover increasing wages along with increasing costs of inflation.
Government support
The current UK government provides multiple forms of support for businesses. For example, the
government provide grants for businesses to start up, particularly businesses that may benefit
, BTEC Level 3 Business Studies: Unit 1 Exploring Business - Assignment 2
The Effects of the Environment on a Business
communities such as pharmacies. These grants are to help a business get off the ground by giving them the
capital to buy assets stock, equipment and premises. The government do this because having successful
businesses in communities contributes to local economy and in turn the national economy. The
government also provide low-interest loans to businesses who are in financial trouble, known as bailing
out a business. There’s been multiple examples of when businesses that are deemed too important to fail
have been bailed out by the government. For example, from September 2007 to December 2009, the UK
government conducted multiple financial interventions to support the UK banking sector. The cost of this
support was £137 billion. Two banks in particular, Bradford & Bingley and The Northern Rock were taken
into public ownership and nationalised by the government.
Governments offer different types of support for businesses of all sizes. During the Covid-19 pandemic the
Coronavirus Large Business Interruption Loan Scheme came into action. Firms with a turnover of more
than £250m could borrow up to £50m from lenders. This scheme was introduced to help businesses that
were affected by the Covid-19 pandemic with the intent of making sure businesses can continue to handle
the costs of their outgoings in a time where sales and income may have dropped due to the pandemic. A
large business such as The Body Shop could benefit from this. The money could be used to continue paying
employees’ salaries and cover business costs in an environment where income and revenue fell. Loan
schemes such as this allowed businesses to continue trading during the pandemic without potentially
serious financial difficulties and it would also allow them to keep staff on rather than making staff
redundant and shutting down stores and offices.
Government Taxes
In March 2021, the UK government announced that businesses that turn over a profit of more than
£250,000 will have their tax rate increase from 19% to 25% from the start of the 2023 financial year. This is
still the lowest in the G7 but this is a noticeable increase for most big companies. This will affect The Body
Shop as the company turns over a profit significantly higher than £250,000. On top of this VAT registered
businesses need to charge 20% VAT on top of the prices of their goods. Any business with more than
£85,000 taxable turnover a year need to be VAT registered. As a result of VAT, The Body Shop needs to add
20% on top of the value of their goods which can make them appear more expensive than they are, and
can potentially mean customers choose to shop with smaller companies who do not charge VAT.
European Union
The European Union is an economic and political association formed of countries across Europe that offer
free internal trade and common external tariffs. Countries pay a proportion of their national income to the
EU budget to be a member of the union. Any countries that are members of the union have free trade
within the EU as well as trading links with EU partners. The EU also has its own currency called the Euro,
which they employ to try and establish to create a common currency across Europe but not every member
uses this currency.
On the 31st January 2020 the UK left the European Union. This affected UK businesses across the country,
particularly those that traded in the EU, mostly negatively. As the UK are no longer members of the EU
businesses in the UK do not benefit from EU trading links and the cost of trading from the UK into the EU
, BTEC Level 3 Business Studies: Unit 1 Exploring Business - Assignment 2
The Effects of the Environment on a Business
increased. In March of 2019, The Body Shop announced that there would be a risk of possible
redundancies and store closures as a result of Brexit, this was the case for many businesses. Up to 20 jobs
were at risk at its West Sussex distribution centre. This was a result of The Body Shop beginning to put a
greater focus on its new distribution centre in Frankfurt, Germany. This is the result of uncertainty around
how its trading in the EU would be affected by the UK leaving the European union, and by moving their
distribution operations to Germany could benefit from the trading laws in the EU which UK businesses such
as The Body Shop would no longer be eligible for.
Economic Factors
Fiscal and Monetary Policies
Fiscal policy relates to the use of the government’s revenue and spending and how this is
used to influence economic conditions. It typically involves manipulating the levels and
allocations of taxes and government expenditure. The main aim of fiscal policy is to
maintain full employment, to achieve high economic growth and to stabilise inflation of
wages and prices.
Fiscal policies affect businesses in multiple ways. Firstly, some policies include an increase
of taxation. This of course affects the revenue of a business because the business pays
more to the government, and consumers also have less money to spend. If taxes were to
increase then businesses may then need to increase their prices to account for increased
taxation.
Monetary policy is a set of tools that can be utilised by a country’s central bank. Monetary
policy is used to control money supply and to encourage economic growth, it typically
involves changing the requirements of bank reserves or revising interest rates. The current
interest rate in the UK is 2.25% which I fairly average.
Monetary policy affects businesses in multiple ways. Firstly, increasing interest rates means
that borrowing money becomes a lot more expensive for businesses, especially larger
businesses such as The Body Shop who would be taking out substantially large loans if they
needed to borrow money, meaning they’d be paying substantial interest. This then impacts
a business’s customers also. Not just business loan interest increases but also personal
