PESTLE: Political Factors

The Political Environment

• Government policy has a direct impact upon firms and their decisions

What are the main aims of the Government?

• Low and stable inflation

• Low levels of unemployment

• Economic growth (GDP)

• A balanced budget

What is Economic Stability?

• One of the key roles of any government is to create the conditions for economic and political activity

  
  

• Instability means businesses are likely to delay investment (unpredictable returns) and this is harmful to economic growth

Benefits of Economic Stability

• Job creation

• Business Confidence

• Higher Consumer Spending

• Economic Growth

• Higher Tax Revenue

Business Start-Ups

• Government seek to promote enterprises (tax breaks/grants/advice) within the economy as this creates new jobs and wealth

• Penetrates new tax revenue streams and they increase levels of competition within the market

What is a Patent?

• A patent is proof an idea belongs to a particular business

• Lasts up to 20 years and gives exclusive rights to use/make licence/ even seek the invention

What are the Problems of a Patent Law?

• Only valid for the country in which they have registered

• Expensive

• If the patent is challenged then this might require an expensive court battle

What are the Benefits of a Patent Law?

• Patent encourage business investment in R&D

• A patent holder can licence it’s idea to others for a fee

• Protection against a rival businesses copying your ideas and allow you to generate higher levels of profit

What is the Competition Law?

• Competition encourages investment and improved levels of efficiency

• It drives down prices and provides greater choices for consumers.

Government and Market Power

• Competition and Markets Authority (CMA) investigates and assess any industry that they believe to be acting against consumer interests——> (e.g higher prices)

• The takeover and merger of firms is also investigates by the CMA if it is feared that they might become too large and exploit market power.

Deregulation of Markets

• The removal of rules and regulations that prevented competition

  —>e.g only one bus service is provided might have been allowed to separate on a specific route

  
  

• Prices, choices and efficiency is improved for the consumer

Is Deregulation Always Right?

• The Financial Crisis of 2008 was seen by many economists as a direct result of financial mismanagement brought about through a deregulation of the financial markets

Why do Governments Legislate?

• Child Care Seats

• Smoking in Public Areas

• Sugar Tax on Soft Drinks

• Surcharge on Plastic Bags

Environmental Legislation

• Encourages businesses to modify their economic activity so that they take more account of the wider environment (minimise pollution and environmental wastes)

Pressure Groups

• Pressure groups and their lobbying of MP”s can modify business and government behaviour

—> e.g: the ban on smoking in pubs and clubs from 2007

Government and UK Trade

• Despite the UK’s vote to leave the EU in 2019, the European Union remains a key market for UK Trade.

Negatives of Leaving the EU

• Trade barriers and increased costs

  
  

• Customs bureaucracy e.g Red Tape: All imports and exports now need customs declaration, leading to delays, staff time lost, workload and compliance costs

  
  

• Supply Chain Disruption: Tariffs and non-tariff barriers extra checks caused by logistical delays

  
  

• Investment Slump: driven by uncertainty

  
  

• Labour and Skills Shortages: decline in the EU worker inflows essentially in health, hospitality, transport and regulations

  
  

• Less negotiating power for UK

Benefits of Leaving the EU

• Streamlined regulations— can reduce the EU regulations the UK has to follow

• Global trade expansion— the UK can create trade deals independent of the EU (e.g India,Australia)

• Don’t have to use EU suppliers

• Less affected by EU shocks (e.g Greece)

The Government and Taxation

• These are two main types of tax that government are able to apply to influence economic activity

The Effects of Taxation

• Lower rates of taxation help to encourage economic growth as consumers have more disposable income that they spend in shops and businesses

• Raising taxes suppresses demand and prevent large rises in the rate of inflation

• Any rises in taxes on businesses= Higher Prices for Consumers

What are Subsidies?

• Money granted by the government to help an industry business keep costs and therefore prices low and encourage competition

—> e.g: solar panels, child care, car scrappage scheme

Why do Governments Subsidise?

• Financial assistance to poorer families (e.g free school meals, child care for under 2’s)

• Support infant industries (e.g 3D Printing)

• Political motive to protect jobs

What is a Monetary Policy?

• The use of interest rates and manipulation of the money supply to influence levels of consumer spending/demand

• To create a stable economic environment by maintaining low rates of inflation and avoiding recession

• This is controlled by the Bank of England

How Monetary Policy works?

Business and Monetary Policy

• If interested rates rise = more expensive mortgages/loans for consumers= consumers have less money available to spend.

• Businesses will also experience a rise in their costs as they are likely to hold loans on which they pay interest

What is Fiscal Policy?

• Changes in the government spending or taxation in order to influence levels of demand and economic activity

What are the Main aims of Fiscal Policy?

• To stimulate economic growth

• Maintain low and stable rates of inflation

• Provide economic stability avoiding “boom and bust” economics

Expansionary Fiscal Policy

• Increasing spending and cutting taxes

• This increases consumer spending because they have more disposable income

• This means additional revenue for businesses and increases demand, encouraging firms to hire more staff and push forward with investment as confidence levels increase

Contractionary Fiscal Policy

• Decreases spending and raises taxes in an effort to suppress economic growth

• Higher taxes decreases consumer spending spending

• Businesses might also see their taxes rise and this increase in their costs and a loss in demand

Fiscal Policy and Business

• The impact depends upon the sizes of the changes to government spending and taxation rates

• Governments have to consider their own levels of borrowing and this can determine fiscal policy

  —>e.g: the period of austerity (tightening spending) in the UK since 2010

Government and Private Sectors

• With over £100 billion worth of private sector goods and services purchased annually by the government they are a key customer for many businesses in the UK

—>e.g: UK defense contractors, shipbuilders, and some road builders

Competitive Tendering

• Used to try and ensure value for money for the UK taxpayers.

• Sealed bids are submitted for contracts by interested suppliers

• Allows new entrants to the market competition

Government Services

• Private sectors businesses also now have the opportunity of supplying services that had previously been provided by the state ( e.g academy schools and prisons)

  
  

• The aim is to increase levels of competition and so drive down prices

• Whilst this has provided some services more cheaply, it has also led to accusations of low quality and necessary cost cutting as private firms are driven by a profit motive