The task is to evaluate the ways in which current UK Government polices impact upon your chosen organisation. You should choose 1 or 2 of the following areas of government policy: A. Fiscal Policy
B. Monetary Policy
C. Competition Policy
D. Environmental Policy
E. Labour Market Policy
There are a few reasons why governments may decide to intervene in the economy. The decisions governments take are called government policies and these may have a positive or negative effect on business operations. Governments put these policies in place with an overall aim to achieve an increase in income, encourage economic growth within the country and control aggregate demand. For example, governments may decide to take over manufacturing in order to maximise outputs or put stricter control and rules on protecting the environment. Other policies they can put in place can be to do with lowering employment within an economy by reducing benefits to encourage people who are willing and able to work to find jobs or controlling transport systems. Besides working towards the overall social and economic benefit of the country, there will always be pluses and minuses to government intervention on the economy. One of the main problems of government intervention is that decision-making is centralised. This may mean decisions are solely conducted from an authoritative source without much input from other levels of hierarchy. Maintaining public finance or what economists would call fiscal policies focus on government taxation and spending. Gillespie (2010) describes fiscal policies as ‘changes in government spending, and the taxation and benefit system, to affect aggregate supply and demand in the economy’. On the other hand, monetary policies focus more on ‘interest rates and control over the amount of money in the economy’ to influence consumer spending and aggregate demand (AD). During the recession in 2008-9, the UK government used quantitative easing as part of the monetary policy. (Please see appendix 2) This was to increase the money within the banks for lending with an overall aim to increase aggregate demand. Governments’ perspectives differ in terms of the effectiveness of these two policies but in order to see how these policies affect business operations we can look at Tata Steel as an example and the steel industry in which it operates. In order to find a balance, governments may decide to employ elements of both fiscal and monetary policies. Taxation will always affect businesses in one way or another. Taxation is important for governments because it’s a large source of income for them. UK resident companies are subject to corporation tax and this is where they are taxed on profits. Changes or increases in corporation tax rates will have an impact on businesses as they adversely put businesses under pressure to increase costs. The UK Government introduced the Finance Act 2003 which meant the basis of taxation rules changed for non-resident companies operating within the UK. Tata Steel's operations are headed in India, but it has operations within the UK. (Please see appendix 3) Non-resident companies are subject to UK taxation if they trade through permanent establishment. The government's decision to increase interest rates will raise costs of borrowing for businesses or discourage borrowing completely. Being a private entity, Tata Steel relatively relies on borrowing. Besides corporation tax the government can introduce green taxes where business operations have a negative impact on the external environment. Environmental tax can take effect on operations which emit large amount of carbon for example which cause pollution. These operations generate social costs which are not directly linked to the production process itself and when these costs are greater this is called negative externality. (Gillespie A. 2010) On the other hand, operations which benefit society but do not dire...