Government and the UK Economy

Starter: Think of three words that you would use when talking about the UK economy – what do they mean? Hopefully by the end of this lesson you will have lots more! Be prepared to share them.

The trade cycle When employment is rising and consumer incomes are also on the increase we call this a period of economic growth. When employment levels are decreasing along with falling consumer incomes we call this a period of recession.

The trade cycle

Government spending and its effect on business The government can change the way businesses work and influence the economy either by changing its own spending. For example: – Extra government spending can result in more demand in the economy and lead to higher output and employment.

What do you think the Government spends its money on? Write a list – lets see how many you get right. e.g. benefits

Task In your table decide on the following: – 3 areas you think the government are spending too much on. – 3 areas you think the government are not spending enough on. – Be able to justify your views.

Government taxation and its effect on business HM Revenue & Customs collects tax to pay for public services. Each year the Chancellor's Budget sets out how much it'll cost to provide these services and how much tax is needed to pay for them. Key taxes that individuals may have to pay include: Income Tax, Capital Gains Tax, Inheritance Tax, Stamp Duty, Value Added Tax and certain other duties.

VAT – for business The standard rate of VAT increased from 17.5 per cent to 20 per cent on 4 January For any sales of standard- rated goods or services that you make on or after 4 January 2011 you must charge VAT at the 20 per cent rate. BBC analysis of the VAT rise 4 mins Has the VAT increase Pushed up the cost of living?

Interest rates Base rate set by Bank of England. Interest rates is the cost of money. How much you will pay to borrow or earn by saving. What is the current base rate? What are the government looking to achieve by this?

Interest rates and inflation Interest rates up Demand for good is reduced Cost of mortgage or borrowing will go up May effect a business’s plan to mass produce – will make it more expensive as more interest has to be paid back A business may have to increase prices A business may have to make staff redundant Interest rates go down Demand for goods increases (everyone wants more stuff because it costs less) People can take on more debt because it costs less to borrow Businesses will see increased sales Businesses will be able to take more staff on to cope with demand – think of unemployment impact!

Rising and falling consumer incomes and its effect on business Lower consumer incomes – less money coming in to the house – May be down to unemployment – May be down to paying increased tax Less disposable income – Each household buys less stuff (demand falls) – Businesses sell less because people are buying less – Business forced to cut costs

Disposable income What a family has left after they pay for this... And this....

Unemployment Statistics indicate the economic health of the country Unemployment increases in a recession – lack of demand for good leads to businesses shedding jobs to cut costs – to survive

Unemployment Video Watch the video: what is happening in the public and private sector?

Levels of employment and its effect on business BBC site: 3 videos, article and some great statistics

Unemployment – as at Jan 2015 Current rate of unemployment 0.82 million (claiming jobseekers) How does that compare with previous years? (stats no use on their own)

UNEMPLOYMENT – INTERACTIVE GRAPHIC Click the link on the left top go to an interactive UK Unemployment Graphic Drag the blue bar over the timeline to watch it change and click on the white circles for more information

Changes in the population and its effect on business Play Flash population interactive Life expectancy is on the increase People living longer will need a range of products to help them take care of themselves and stay in their own home - increased demand for services (like cleaner, Gardner etc) 1.3 million people aged 85 or over! UK population density increased may rise to 70 million in 2 decades, will put a strain on housing and public services e.g Doctors

More about population 1in 10 people in the country were born in another country and have come to live here 1 in 4 births are to women who were born in another country Population baby boom mainly due to number of migrants who are women of child bearing age – what would you sell? Sky news on the baby boom

Supply Issue: Increasing foreign competition Question: How can UK firms increase their chances of success now it is easier than ever for businesses from abroad to trade in the UK?

Supply Inward investment When a business sets up in the UK they may inwardly invest meaning that they may buy materials and supplies from within the UK and they may employ UK citizens. This creates a multiplier effect. Question: What is a multiplier effect?

Supply See the table provided to show how the government can help UK business compete better.

Supply To improve the supply of goods and services the UK can focus more on education and training. How do you think this will help make UK firms more competitive?

Supply Immigration can have a positive effect on UK firms being able to supply their goods and services. How do you think this will help make UK firms more competitive? What cost does it come at?

Supply With people living longer in the UK what impact is this having on the supply of goods and services?

1.What are your new words and phrases? 2.How many have you got? 3.How does that match with the class average? 4.Can you talk about Holden and the UK economy now?