Government Policy

Question 1

Fiscal policy (high tax rate)

Answer 1

• If business taxation increases it means less profit for the business and may curtail its growth plans
• Due to less profits because of higher tax rates lower dividends will not please shareholders who may choose to sell shares thus impacting the market value of the organisation
• Increase in income tax reduces disposable income so the demand for goods and services reduces
• As a result of reduced demand the business may have to increase amount spent on advertising to attract customers/make cutbacks such as
redundancy etc
• Increases in VAT and excise duties increases the price the customer pays and organisation may not wish to pass the increase onto customers thus reducing their profits

Question 2

Fiscal policy (low tax rate)

Answer 2

• Decrease in government spending due to reduced tax
collected will negatively impact on the ability to provide a quality service by public sector organisations for example NHS and state schools
• Customers may have more money available which fuels demand for luxury products or things like brand new houses and cars instead of purchasing used items

Question 3

Monetary (high tax rate)

Answer 3

• Increase the cost of borrowing for an organisation, which may mean it will be unable to invest in product development.
• This may result in a loss of the firm’s competitive edge, customers and market share
• Will encourage individuals to save, which will reduce consumer spending
• Firms may try to reduce dependency on borrowed funds eg by selling more shares,
or retaining more profit to finance capital expenditure
• Bank of England pump money into economy to boost spending (quantitative easing)

Question 4

Monetary (low interest rate)

Answer 4

• Lower interest rates make borrowing cheaper so businesses have more funds available to fund growth plans
• Will increase consumer borrowing and therefore spending and consumer purchasing

Question 5

Legislation (health and safety at work act 1974)

Answer 5

• a safe place of work (this includes carrying out regular inspections and fixing faulty equipment in a timely manner)
• safe and competent people working alongside you (due to training being carried outand checking staff competencies), because employers are also liable for the actions of their staff and managers
• informing workers fully about all potential hazards associated with any work process, chemical substance or activity, including providing instruction, training and supervision
• appointing a ‘competent person’ responsible for health and safety (competent persons, such as a head of health and safety, oversee day-to-day safety management, oversee safety inspections, and liaise with staff safety reps)
• consulting with workplace safety representatives (if a union is recognised, your employer must set up and attend a workplace safety
committee if two or more safety reps request one)
• providing adequate facilities for staff welfare at work such as clean water and toilet facilities

Question 6

Legalisation (employment legislation)

Answer 6

• Working Time Directive reduces firm’s flexibility by preventing firms’ requiring their employees to work more than 48 hours a week
• Redundancy used only if a job ceases to exist and compensation must be given which increases costs in the short term (Employment Rights Act 1996)
• Recent extension of maternity leave to one year means firms have to keep jobs open and find temporary replacements. This can impact quality and continuity of service that customer receive
• Employment Rights Act (1996) states employees must receive a written
contract of employment, as well as pay slips detailing their earnings and deductions. Employees must also be provided with notice before being dismissed