Political Factor Flashcards
Political factors impact?
Political factors affecting organisations arise from decisions made and actions taken by the government, either local or national level. This can be changed in laws and legislation, or alterations to a government’s fiscal policy which impacts upon spending in an economy by altering tax rates and levels of public spending.
What are some political factors?
- Changing laws and legislation
- Changing income tax rates
- Changing VAT rates
- Changing Corporation tax
- Public spending on infrastructure
Impacts on changing laws and legislation?
Positive:
- The government could introduce environmental protection laws and policies such as ‘Zero waste Scotland’ and, by complying, organisations will be seen in good light. This is good PR and can attract potential customers.
Negative:
- The government could increase the minimum wage so that organisations have higher wages costs. This will result in a lower profit for the year.
Impacts changing income tax rates?
Positive:
- The government could reduce taxes (money collect by the government to fund public spendings), such as income tax. This will give customers a higher disposable income. This means customers will be more likely to buy products.
Negative:
- The government could increase income tax. This will give customers a lower disposable income. This means customers would be less likely to spend money on a business’s products, unless its essential. This will reduce sales overall.
Impacts changing VAT rates?
Positive:
- The government could lower VAT (value added tax). This is tax on goods and services. Reducing the VAT rate will make products more affordable for customers, increasing sales for a business.
Negative:
- The government could raise VAT. This will increase the selling price which could put customers off purchasing products and reduce sales.
Impacts changing corporation tax?
Positive:
- Many types of businesses, such as limited companies, have to pay a tax on their profits (corporation tax). The government could lower the rate of corporation tax which would mean less money is taken from the business and given to the government, which would increase profits.
Negative:
- The government could raise the rates of corporation tax which means more money would be taken from the business and given to the government, which would reduce the profit for the organisation.
Impacts on public spending on infrastructure?
Positive:
- The government could decide to fund the development of infrastructure. Examples, include building new motorways, car parks, tram networks, and so on. This will increase the likelihood of attracting customers for businesses in these areas.
Public spending also creates jobs, which gives people wages and enable them to spend money on other goods and services.
Negative:
- Public spending is a contentious issue as it only improves certain areas. For example, the Edinburgh tram network greatly improved Edinburgh’s infrastructure, however, businesses in Glasgow saw no benefit. This is known as ‘opportunity cost’ i.e. the cost of spending money on one area is that it can’t be spent in another.
What is the competition policy?
In 2014, the Competition and Market Authorities (CMA) was launched by the UK government. Its aim is to investigate markets and enforce competition policy in order to promote competition for the benefit of consumers.
Reasons for promoting competition?
- Prices are kept low for consumers
- Products and services are high quality
- Customer service is good
- Entire markets improve and grow, creating jobs and raising GDP
- Healthy markets can attract foreign investment
Impacts of competition policy - What are Cartels?
Organisations cannot in cartels. This means colluding with other organisations to fix prices to make higher profits. If found guilty of participating in cartels, owners or management can be fined or even sentenced to prison.
Impacts of competition policy - What are Mergers?
The CMA can block mergers if it is likely to lead to a ‘substantial lessening of competition’ in any market. The CMA can also impose conditions that must be met for a merger to be given the green light.
Impacts of competition policy - What are Anti-competitive behaviour?
Organisations cannot use their dominant position in the market to charge drastically low prices, pay lower prices to suppliers or control the supply of goods to the detriment of the market.
Impacts of competition policy - What are Consumer protection?
Consumers have rights and are protected from unfair practices such as hidden charges and poor customer service.
