Abdulalah Al-Jobore
Unit 38 - Business and the economic environment
P4 M2
P4 explain how both fiscal and monetary policy decisions have affected a selected
business
M2 analyse the effects of fiscal and monetary policies for a selected business in terms of
the market it operates in
Introduction
In this assignment, I will be describing how both fiscal and monetary policy decision have affected
Jaguar Land Rover as well as analysing the effect of fiscal and monetary policies on Jaguar Land
Rover in the UK.
Fiscal policy
Fiscal policy is the way or approach that the government uses to control its spending and taxation in
order to influence the economic conditions of the country, including demand for goods and services,
employment, inflation and economic growth. The fiscal policy approach was first developed by the
British economic, John Maynard Keynes, who provide the government with the idea that they could
stabilize the business cycle, control and regulate the economic output by adjusting the spending and
tax policies. From the government point view, the fiscal policy is generally focus on the impacts of
the changes and fluctuations in the government budget on the overall economy. As any simple
changes in taxes or spending by the government may affect the aggregate level of output by
changing the incentives that businesses or individuals face.
Fiscal policy can have a great impact on businesses in general, and practically Jaguar land Rover, as it
affects the economic measurements/ indicator, with the goal to increase GDP level and aggregate
demand in suitable manner. Therefore, it affects Jaguar Land Rover by three main factors: business
tax policy, the government spending and individual taxes. Any change in these factors will influence
Jaguar Land Rover positively and negatively. For example, if the government decided to raise the
business taxes such as Corporation Tax or VAT, then Jaguar Land Rover will have to pay more taxes
and therefore have less profit. However, the positive side of it, that the government may be able to
spend and invest more on the automotive industry, which will benefit Jaguar Land Rover.
Direct and indirect taxation
Direct and indirect taxes are the main types of taxes levied by the government as a way of
generating revenue/income. Direct taxation is the type of taxes in which the individual or business
have to pay it direct to the government on their income or profits, and the main direct taxes in the
UK are:
Income tax is a tax that an individual pays on his/her income. They do not need to pay taxes on
all type of incomes, only on specific type of income. Once your earning go above your personal
allowance ( income) which is at the moment £12,500, you must pay tax on the on the following
sources of income:
Income from employment
Income from pensions
Interest on savings
Rental income
Employment benefits
Income from a trust
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, Abdulalah Al-Jobore
Unit 38 - Business and the economic environment
P4 M2
Most people in the UK get a personal allowance of tax-free income. As of April 2019, the UK
residents are entitles to £12,500, which is the amount of income you do not have to pay tax on.
The amount of money you will need to pay will depend on the tax ban in which your income falls
within. According to UK Government Website, 2019, the income tax bands are as the following:
https://www.gov.uk/income-tax-rates
National Insurance contributions (NIC) is another form of income taxes that individual have to
pay it. It entitles people to claim certain benefits if they were in need and the State of Pension
once they retire. Both employee and employer will have to pay the National Insurance
Contribution. You are required to pay NIC once you earn more than £166 a week. In addition,
the employer in this case Jaguar Land Rover, will have to make a secondary contribution of
13.8% of earning above £166 a week. (The Money Advice Service, 2019)
Therefore, any rises or reduction in the Income Taxes as well National Insurance Contribution
can affect the general level of spending in the economy. This could affects Jaguar Land Rover
positively or negatively. This is because for example, if the government decreases income taxes,
more people will have money to spend and this will increase the demand of Jaguar Land Rover’s
products and service. However, increasing income taxes will mean people will have to pay higher
tax payment, meaning there will be less amount of money that people can spend. Although this
might suggest that, there will be less demand on goods and services, but the government will
have enough money to cover public spending.
https://www.moneyadviceservice.org.uk/en/articles/tax-and-national-insurance-deductions
Corporation tax is a certain type of taxes that is practically focuses on the company’s profits. UK
limited companies or any other foreign companies within a UK branch or Office, club, co-
operative have to pay Corporation Tax on their profit. Unlike Income Tax for companies,
Corporation Tax is different, as companies does not have a personal allowance. This means as
soon as the business starting making profit they have to pay Corporation Tax. According to UK
Government Website, 2019, the Corporation Tax rate for company profits is 19%. Again, this
type of taxes could have a great impact on Jaguar Land Rover, as they must pay 19% of their
profits to government, which could mean they may have less profit at the end of the year.
Although this is a negative impact on Jaguar Land Rover, however they the government uses this
type of taxes to improve the economic conditions as well as improving the industries and
practically the automotive industry. In order for Jaguar Land Rover to avoid paying the whole
amount of Corporation Tax, they try to reinvesting back into their company for the future using
this amount of money.
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