Government Policies Affecting Businesses

BUSS4 Political and Legal

The European Union (EU) Britain is a member of the EU The EU is a community of

countries that form a single market

There are laws on the free movement of people, goods & services, and capital between all of these countries

At this time there are 27 members with 500 million people generating over 30% of the world’s economic activity

EU ExpansionThere are advantages

to the UK from the enlargement such as

A larger market to export to without paying import taxes or customs duties

The EU is a huge market (500m)

Compare this to the US which is a market of 300m giving the US a competitive advantage

EU Expansion Freedom of movement

of people gives businesses a source of labour that is often cheaper and skilled Gives the economy an

opportunity to grow in the long term (more factors of production)

This is often argued as a disadvantage because it puts downward pressure on wages but this does help to prevent wage inflation

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Single European currency The UK does not want to move

from the pound to the Euro The main reason for this is that

they would lose their main tool to combat inflation

This means that UK Businesses have to worry about changes in the exchange rate

The pound is relatively weak compared to the Euro

This means imports are expensive (WIDEC)

Companies like Majestic Wine that import a lot of European wine will find their profit margins changing as the exchange rate fluctuates

Free Trade The EU is part of the World Trade

Organisation which seeks to promote free trade

If EU starts a trade war with any other country this will affect UK businesses

China is currently being accused of dumping cheap solar panels in the UK which is damaging EU competitors

The EU placed an anti dumping tariff on China which makes their panels more expensive

China retaliated by putting a tax on wine

Who knows what they could decide to put a tax on next

The UK recently tripled its business with China to GBPb15.9bn

LegislationUK businesses have to

abide by laws set by the UK government and the European parliament

There are four main areas that these laws affectEmploymentConsumer protectionEnvironmental protection Health and Safety

Employment Legislation Employment legislation often

creates extra costs for businesses It is designed to give rights to fair

pay, sick leave, maternity and paternity leave , relationships with trade unions, rights to sack or make staff redundant

It is meant to protect workers Just keeping up with the law costs

money and then there are the administrative costs

A Business may need to pay for advise

Legislation takes flexibility away from businesses which often means they are paying higher wage bills than they would like

See video - http://www.bbc.co.uk/news/business-12949382

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Consumer Protection Legislation Consumer protection legislation makes

sure The product does what it says it does The products are correctly labeled and

measured The products meet safety standards The consumer has the right to return or

exchange faulty goods It tries to prevent unfair competition by

firms that take short cuts or use unsafe and cheaper materials to gain a competitive edge

Environmental protection legislation Perhaps more than others

these laws are seen to add cost without having an upside

It is difficult when you compete with other countries that have less stringent environmental laws ; their costs will be lower and hence prices may be lower

Health & Safety Legislation This is designed to ensure

the safety of employees and customers

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Evaluation Legislation seeks to ensure that

all firms compete on a level playing field

This is a noble goal but with increased international trade this legislation can affect costs and make firms uncompetitive; global laws are never going to be identical

There is a lack of evidence to show that market forces will drive out unscrupulous firms and therefore government should not intervene