1. Assessing Changes in the Business Environment The Relationship between the Political and Legal Environment
Lifestyles around Europe are converging, but tastes are not. Nicholas Colchester A government which robs Peter to pay Paul can always depend upon the support of Paul. George Bernard Shaw
BUSS4.3 Political and Legal

2. In this topic you will learn about:
Assessing the effects of:
Government intervention in the economy
Government economic policies
Political decisions affecting trade and access to markets
The impact of legislation relating to businesses
Evaluating responses of businesses to a changing political and legal environment
Monty Python - political choreographer
Party political broadcast
BUSS4.3 Political and Legal

3. The AQA specification states
Consideration might be given to the provision of products by the government, government regulation and legislation and other forms of intervention such as tax and subsidy. Monetary, fiscal policy and supply side policies should also be considered.
Political decisions should include issues such as: the enlargement of the European Union and moves towards greater freedom of trade.
Legislation affecting businesses should include: employment law, consumer protection, environmental protection and health and safety legislation on businesses. A broad understanding of scope and impact is all that is required.
BUSS4.3 Political and Legal

4. Government Intervention in the Economy
The UK is a mixed economy – individuals and private organisations (Private Sector) and the Government (Public Sector) provide goods and services
The Private Sector provide goods and services in order to make a profit
The Government provide goods and services that the market does not adequately provide:
Merit goods are those that the Government deem to be necessary for a fair society e.g. education and health
Public goods are those that the Private Sector would not provide because everyone would benefit from them without having to pay for them e.g. street lighting
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5. Government Intervention in the Economy
The provision of products by the Government
The Government spend money on a range of goods and services – healthcare, education, transport, housing etc.
Private Sector firms will benefit from this, many UK businesses have some form of government as a customer e.g. a private building firm may provide services to rebuild a school
Firms may deliberately target the Public Sector – the government outsource work to the Private Sector
Prescott on rail nationalisation
Is it right to have some services offered both in the Public Sector and the Private Sector e.g. education and hospitals?
Do you think the Railways should be in the Private Sector or the Public Sector?
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6. Government Intervention in the Economy
Government Regulation and Legislation
Government Regulations and Legislation (Laws) are legal restrictions used to control markets. They occur for a number of reasons:
Monopoly power – e.g. the water companies
The Government may intervene to stop the public being exploited
Merit goods and public goods – forcing companies to provide a service that the market would not provide
De-merit goods – to stop or restrict the provision of goods that do not benefit society e.g. drugs
Health and Safety – safeguarding employees in the workplace
Employment Law – safeguarding employee rights in the workplace
Consumer Protection – protection from exploitation by firms
Competition Law – increasing competition to provide greater choice and quality at lower prices to the consumer
Should the government intervene or is it just good business?
Coca Cola hit with monopoly fine
The biggest anti-monopoly fine in Mexican history has been handed down against Coca Cola, its distributors and bottlers.It was a victory for the owner of a small shop in an impoverished area. Claire Marshall reports from Mexico City
Cameron pledge to cut back quangos
Is it right for the government to devolve power?
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7. Government Economic Policies
Monetary Policy - aimed at controlling the demand for money in the economy, mainly through the use of interest rates
In 1997 the Government handed the control of interest rates to the Bank of England (BOE). The BOE Monetary Policy Committee (MPC) has a remit to try and keep the inflation rate as close to 2% as possible
The MPC use interest rates to control inflation. It has nine members who vote on the interest rate on a monthly basis. If the inflation rate is above 2% they are likely to put up the Base Rate of interest
UK rates expected to rise
UK interest rates are widely expected to rise to a five-year high of 5% after the next Bank of England meeting.Evan Davis explains how the bank's Monetary Policy Committee decides whether to make an increase
In this video clip Evan Davis explains how the MPC decides whether to raise interest rates. See if you can redraw or re enact this explanation to explain how they would decide whether to lower interest rates in current economic climate.
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8. Government Economic Policies
Monetary Policy – the Interest Rate Process
Banks normally borrow money from other banks if they have short term liquidity problems. The BOE is known as ‘the Lender of Last Resort’ and can be used instead of other banks for borrowing purposes. The Base Rate is the rate at which the BOE lend money to other banks.
Banks borrow money from the BOE on a short term basis (Officially known as the Repo Rate).
If the BOE raise the Base Rate all banks will have to pay more to borrow money.
The banks pass this increase in ‘the price of money’ on to their customers e.g. in the form of higher mortgages.
People have to pay back more in the form of loans and mortgages due to higher interest rates. Disposable income falls, demand falls and demand pull inflation starts to come down.
In summary: High interest rates encourage saving and discourage spending
BUSS4.3 Political and Legal 8

9. Government Economic Policies
Fiscal Policy – Government Taxation, Expenditure and Borrowing
Governments tax individuals and firms to pay for the supply of goods and services from the state e.g. Education and health. If income from tax is lower than spending the Government will borrow the difference.
Each year in April the Chancellor of the Exchequer delivers the Budget – detailing Government spending plans and how it will pay for them.
Research the key points in this year’s budget and discuss their impact on businesses. What strategies can businesses adopt to respond?
Contractionary fiscal policy occurs when the Government reduces expenditure or increases tax. This might occur because of too much inflation in the economy or if borrowing is too high.
Expansionary fiscal policy entails increasing government expenditure and lowering tax. This might occur to ‘kick-start’ the economy as an impetus to economic recovery.
BUSS4.3 Political and Legal 9

10. Government Economic Policies
Government Taxation
Government Taxation is a financial charge on an individual or firm. Direct taxes apply to income earned or capital gained. Indirect taxes apply to expenditure on products.
Why Tax?
To fund Government Spending
To redistribute income in the economy
What new tax would you introduce?
DIRECT TAX
Income Tax
Corporation Tax
Inheritance Tax
Capital Gains Tax
National Insurance Contributions
INDIRECT TAX
Value Added Tax
Corporation Tax
Excise Duties
Monty Python - Tax Thingie
Visit and search each type of direct and indirect tax. Write a definition and see if you can find up-to-date tax rates for each one
BUSS4.3 Political and Legal 10

11. Government Economic Policies
Supply side policy - Government Subsidies
Government Subsidies are financial assistance given to individuals, firms and industries to provide a good or a service.
Why subsidise?
To provide goods and services thought to be socially desirable
To protect jobs
To protect ‘infant industries’
Wind farms not on windy sites
Government subsidies are supporting underperforming wind farms located in areas without enough wind.
Can subsidies promote inefficiency?
BUSS4.3 Political and Legal 11

12. Government Economic Policies
Supply Side Policy – increasing the supply of goods and services to the economy. At their heart supply side policies have the key intention of freeing up markets to operate efficiently in order to improve the quality and increase the quantity of output.
Privatisation of Britain in the 1980s
Types of supply side policy include:
Privatisation is the process of transferring state owned organisations (Public Sector) to the Private Sector (normally becoming Plcs). The idea is to increase efficiency
Deregulation involves removing obstacles that stop firms joining an industry, these obstacles are known as barriers to entry
Public-Private Partnerships (PPP) are any collaboration between public bodies and private companies that are created to improve public services by utilising the skills of private industry
Private Finance Initiatives (PFI) occur where the Government get private companies to pay for and construct buildings such as schools and hospitals and guarantee that they will rent these premises back from the private sector over a period of time
Labour market reforms have seen a reduction in the power of trade unions and an increase in the flexibility of firms in dealing with their employees. The Government have also created incentives for unemployed workers to return to work
Privatisation in Britain during 1980's under Mrs Thatcher
BUSS4.3 Political and Legal 12

13. Political decisions affecting trade and access to markets
The Enlargement of the European Union (EU) – the process of admitting new states into the EU
"A gradual and carefully managed enlargement process creates a win-win situation for all countries concerned." Olli Rehn, European Commissioner for Enlargement – 2008
By 2009 the EU had 27 member states and a population of almost 500 million.
How many of the member states can you name?
Benefits of EU enlargement
Free movement of labour providing cheaper, mainly Eastern European, labour in the UK
Opportunities to sell into new EU markets
Economies of scale as the firm grows across EU
Pan European marketing strategies can be used
Cheaper raw materials from new low cost EU countries such as Eastern Europe
Increased size of free market providing protection from tariffs and quotas
Disadvantages of EU enlargement
Increased competition with pan-European takeovers and foreign firms and workers undercutting the UK
Diseconomies of scale as UK firms face communication and coordination problems as they expand across Europe
New languages and cultures are more difficult to target
Accuracy of market research becomes less predictable for new member states
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14. Political decisions affecting trade and access to markets
Greater freedom of trade
Free trade occurs when there are no barriers to trade between nations. Comparative advantage is the theory that countries produce what they are good at because they can produce these products cheaply and more efficiently and then trade with other countries for products that they are not good at producing. This creates better quality products at a cheaper price.
The EU is a free trade area where member states do not have to pay tariffs (a tax on imports) or meet quotas (a limit on the volume of imports).
Arguments for Free Trade
Comparative advantage
Trade creation as new markets are created
Economies of scale
Competition leading to greater choice and efficiency
An increase in world economic growth
Arguments against Free Trade
Infant industries need time to develop against big multinational companies
Diversification of an economy so that a country does not rely on certain products for income e.g. agriculture where prices might fluctuate
Protection of jobs in the UK from cheaper foreign workers, although this is likely to lead to retaliation
BBC
Protectionism 'extremely damaging'
Finance ministers at a G7 meeting in Italy have pledged to avoid protectionism as they battle the global economic crisis.
Alistair Darling on dangers of protectionism
BUSS4.3 Political and Legal 14

15. Legislation affecting businesses
Legislation involves creating and enacting laws in order to protect individuals, firms and society as a whole. Laws are passed through UK Acts of Parliament and the UK is subject to EU law.
The AQA specification specifically looks at four main areas of legislation. Candidates require a broad understanding of these areas.
Legislation
Employment Law
Consumer Protection
Health and Safety
Environmental Protection
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16. Legislation affecting businesses
Employment Law
Laws relating to employment can be sub divided into individual labour law and collective labour law
Individual labour law guarantees certain rights for individual employees:
1970 Equal Pay Act – both sexes should be treated equally at work
1975 Sex Discrimination Act – this outlawed discrimination based on gender for recruitment, promotion, training or dismissal
1976 Race Relations Act – illegal to discriminate based on colour
1995 Disability Discrimination Act – illegal to discriminate against disable people and made provision to assist the employment of disabled people
1998 Working Time Regulations – employees cannot be forced to work more than 48 hours a week
1999 National Minimum Wage Act – a minimum hourly wage rate introduced across the UK
BBC
Age discrimination law looms
A new law on age discrimination in the workplace in Britain will come into force at the beginning of October.It will mean that someone's age can no longer be a factor in both recruitment and training. Hugh Pym reports.
Quick guide: Age discrimination
Laws banning age discrimination in the workplace come into effect on 1 October 2006.
ACTIVITY
Using the Internet, research the Employment Law shown on this page. Choose 2 laws and explain how they might impact on a firm of your choice.
As a class it would be a good idea to make sure between you all the laws are covered.
2006
Laws banning age discrimination
BUSS4.3 Political and Legal 16

17. Legislation affecting businesses
Employment Law
Laws relating to employment can be sub divided into individual labour law and collective labour law
Collective labour law guarantees certain rights, and places certain restrictions, on groups of employees e.g. trade unions:
1980 Employment Act – ‘Secondary picketing’ outlawed.
1984 Trade Union Act – a secret ballot required before strike action
1990 Employment Act – outlawed closed shops (where all workers belong to a single union)
1993 Trade Union Reform Act – unions must give employees at least 7 days notice of industrial action
1999 Employment Relations Act – right to recognition of a union in the workplace if 50% belong to a union
YouTube
The Simpsons - Union Strike Song and Classical Gas
ACTIVITY
Using the Internet, research the Employment Law shown on this page. Choose 2 and explain how they might impact on a firm of your choice.
As a class it would be a good idea to make sure between you all the laws are covered.
Much of this legislation has served to reduce union power
BUSS4.3 Political and Legal 17

18. Legislation affecting businesses
Consumer Protection Law
These laws protect the consumer from firms with regards the quality of goods or services sold
1968 Trade Descriptions Act
1974 Consumer Credit Act
1979 Sale of Goods Act
1986 Weights and Measures Act
1987 Consumer Protection Act
1990 Food Safety Act
1998 Competition Act
2007 Consumer Protection from Unfair Trading Regulations
Why do we protect consumers?
In order to maximise profits some firms would unfairly exploit consumers if they were not protected
‘Consumerism’ places the interests of the consumer as the most important factor in the exchange process.
What is the impact on the firm?
Consumer Protection legislation ensures that firms must take into account the consumers’ requirements – if not they can be taken to court. In particular, this will increase cost.
These laws safeguard the reputation of UK and EU firms.
BBC
Consumer law to be simplified
The government is to simplify consumer protection laws to offer shoppers better protection as sales staff in stores do not understand the legislation, it has been claimed.
YouTube
Monty Python - Crunchy Frog
Are consumer laws too complex?
ACTIVITY
Using the Internet, research the Consumer Protection legislation shown above. Choose 3 laws and explain how they might impact on a firm of your choice..
Do you read the labels?
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19. Legislation affecting businesses
Environmental Protection Law
These laws help to ensure that firms do not have a negative impact on the environment
Why do we have environmental protection law?
In order to protect the environment from the harmful consequences of a firm’s production e.g. Pollution, litter etc.
To force firms to pay for the negative externalities that they create but do not have to pay for e.g. neither the firm nor the consumer pay for pollution caused by a factory but it effects people living in the area
What is the impact on the firm?
New environmentally friendly production
New products that meet higher environmental standards
Greater use of recycling
1990 Environmental Protection Act
Firms must improve the control of pollution arising from industrial and other processes
1995 Environment Act
A firm must clean up any contaminated sites that it owns. The Act also established the Environment Agency in order to oversee environmental protection
BBC
xperts assess sewage leak
Environmental protection officers have begun an assessment after a major sewage leak into the Firth of Forth.
ACTIVITY
Using the Internet, research the Environmental Protection legislation shown on this page. Explain how they might impact on a firm of your choice
Just when you thought it was safe to go in the water!
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20. Legislation affecting businesses
Health and Safety Law
These laws look after the health and safety (H&S) of employees in the workplace
1974 Health and Safety at Work Act
A firm must provide a safe working environment with free safety equipment and clothing. There must be a H&S policy and union safety representatives are allowed to inspect the workplace
The Health and Safety Executive was set up by the Government to oversee this
1981 Health and Safety Regulations – to provide adequate first aid provision
1992 Health and Safety Regulations – rules for Display Screen Equipment (Computers) including free eye tests
1996 Health and Safety Regulations – employers must consult with employees on any H&S changes in the workplace
2007 Corporate Manslaughter and Corporate Homicide Act – a firm can be found responsible for manslaughter or homicide. Not a H&S Act but it does put real pressure on firms!
Why do we have health and safety law?
In order to protect employees from exploitation and the consequences of poor H&S e.g. Illness and injury
To maintain high standards in the UK workplace
What is the impact on the firm?
There are significant costs associated with H&S e.g. safety inspections and training
Firms can now even be charged with murder. The impact of a firms policies is closely associated with the boardroom
ACTIVITY
Using the Internet, research the Health and Safety legislation shown on this page. Choose 2 laws and explain how they might impact on a firm of your choice.
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21. ACTIVITY – Banks to face tougher regulations
Watch the video clip of Alistair Darling outlining the Government’s plans to enable tougher regulations on banks.
Read the article linked to the video clip and annotate all aspects of business studies theory
Draw a table to record arguments for tougher regulations and against tougher regulations of banks
Carry out some independent research to identify the views of the current coalition government.
Reach a justified conclusion
Should the Government intervene to force tougher regulations on banks?
BBC
Banks to face tougher regulation
Alistair Darling: "We've got to make sure the regulators have the right tools to do the job".
UK banks will face tougher regulation and consumers will get more protection, under reforms to the financial system proposed by the chancellor.
Youtube
Grumpy old men The Nanny State parts 1-3
Grumpy Old Men – The Nanny State!
BUSS4.3 Political and Legal

22. Essay
The enlargement of the EU has created more threats than opportunities to UK firms. With reference to businesses you have studied to what extent do you agree with this statement?
BUSS4.3 Political and Legal