The impact of Government and the EU on business Unit 23

Objectives Understand the impact of regulation and taxation on business. Appreciate the benefits and drawbacks of minimum wage, maternity and paternity rights and health and safety regulations on stakeholders and business.

The European Union Can you list all the countries in the European Union? You have 2 minutes.

The European Union

The UK Government and the EU The EU (European Union) has 27 member states, growing over time from its beginnings in 1957, there are also more countries in negotiations to join, so it may still grow. Being part of the EU means that some of the decisions that used to be made at national level are now made at European level – remember the tariffs and quotas in Economic issues affecting international trade, limiting the number of imports? There are also EU product safety regulations that apply to all product and MANY EU regulations that affect businesses. The EU has helped to create a single or common market where goods can be traded freely between member countries – there are no tariffs or quotas between countries……

The UK Government and the EU This means that it should be as easy for a business in England to sell its products to a supermarket in London as to one in Rome or Paris. It should also be easy to hire a worker in London to work in Lancashire as to hire the same worker to work in Poland. The EU is still changing. For example most member states use the same currency, the Euro. At the moment a few member states, like the UK, still use their own currency. But…. In the long term it is likely that all member states will use the same currency.

Taxation The tax rates are set by individual governments in the EU. For example the tax rate on profits (Corporation Tax in the UK) is different in the UK than in Ireland or France. Taxes affect both businesses and consumers in the EU. This is done in two ways

Taxation affecting business and consumers Taxes reduce the amount that consumers and businesses have to spend. EG’s Businesses will have less money to pay shareholders in dividends. They will also have less to keep back to invest in the business. Increases in income tax reduce the take home pay of the workers – less disposable income, less to spend! Taxes like VAT on goods increase the price of the goods and mean that businesses sell fewer than if there was no tax or lower tax

Taxation affecting business and consumers Taxes affect the way in which businesses and consumers behave. EG’s. Taxes on employing workers (Employers National Insurance NIC’s in the UK) discourage businesses from employing workers. Very high taxes on Petrol may put people off driving, a high tax on ‘take away’ food would stop people buying as much ‘fast food’.

Sooo…… Some companies have located themselves in Ireland to take advantage of low taxes on business profits (Corporation Tax). Some companies have moved from Germany to Eastern Europe because the taxes that German companies have to pay for employing workers is so high

Regulations All businesses have to deal with government regulations. Sometimes government regulations are called red tape – because they tie thing up and are sometimes difficult to complete – and many businesses dislike them! The following are examples of some government regulations:- 1.Businesses have to submit accounts, audited by independent auditors, to companies house each year. 2.All its vehicles have to be insured 3.Products sold must confirm to the Trade Descriptions Act, 4.Waste disposal must conform with waste disposal regulations 5.Businesses must only use buildings that have bee designated for commercial use by the Planning regulations.

Regulations Regulations are designed to protect different stakeholder groups in a business. EG’s Accounts have to be published and are publicly available to protect both businesses that buy and sell to the company and shareholders. Vehicle insurance is to protect ‘third parties’ who may suffer loss will be compensated. Waste disposal regulations protect the environment. Complying with the regulations can be a costly business.

SOOOOO Without the regulations there would be cheaper ways of doing business. Some complain that businesses in developing countries have an unfair advantage as regulations are nowhere near as strict as they are in Europe or the US! Dumping toxic waste in to a river is way cheaper than having to dispose of it properly following the regulations!! Some regulations are the same through out the EU and some are not. Businesses can take advantage of these differences in regulations by moving around.

Minimum Wage One regulation that affects businesses is the minimum wage regulations Minimum wage is the lowest wage that can be legally paid to a worker. Most countries in the EU set a minimum wage, however, the level of the minimum wage is not set by the EU, it is set by each national government. In 2009 the minimum wage for working 40 hours a month in the UK was approximately £1000, in Slovakia it was £250! Minimum wage tends to reflect the average wage levels in a country – in the UK they are higher than Slovakia or Poland, the higher the average wage – the higher the minimum wage!

Minimum Wage The difference in the minimum wage presents an opportunity for businesses to exploit. Some businesses can locate production in areas where the minimum wage is low – reducing production costs, It is also a threat to businesses that are located in higher wage areas – there are higher production costs – lower profits. Pressure groups representing businesses say that minimum wage is too high, however, Trade Unions are try to persuade governments to raise the minimum wage. WHY?

Maternity and Paternity Rights EU regulations give all workers the minimum maternity rights. The minimum maternity leave is 14 weeks for working mothers. Some EU countries, like Sweden, have much more generous maternity rights. There are no EU rights for fathers, but some countries also have regulations for Paternity leave – for fathers. Presure groups for businesses tend to argue that maternity/paternity leave should not be extended, while trade unions argue that maternity/paternity should be extended. Businesses can be disrupted, especially small ones, where someone is on maternity leave. The business has to get a temporary worker to cover and they are often not as good.

Health and Safety Regulations All countries in the EU have Health and Safety Regulations. These are set down standards for the working environment. There are regulations about:- 1.How long employees can be made to work for without a break 2.The storage of dangerous chemicals 3.The level of heating in a workplace 4.The amount of ventilation in a factory Health and Safety regulations impose costs on a business. As with the Minimum wage and Maternity and Paternity Rights, business pressure groups say they are costly and too often have little impact whilst Trade Unions say they are very important to keep workers safe.

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