Political System Uk and Impact of External Factors on Business

The UK political system The UK is a constitutional monarchy.

It means that the official head of the state is monarch but his or her powers are limited by the constitution. More recently, devolved administrations have been set up for Scotland, Wales and Northern Ireland. These formal institutions, laws and conventions form British Constitution. British Constitution is not written down in any single document, as are the constitutions of many other countries. It is based on custom, tradition and common law.The head of state is the Monarch, executive power is exercised by the Government and legislative power is vested in both the Government and Parliament (House of Commons and The House of Lords). 1. 1 Monarch Full title of the British Monarch, Queen Elizabeth II.

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, is Her Most Excellent Majesty Elizabeth the Second, by the Grace of God of the United Kingdom of Great Britain and Northern Ireland and of her other Realms and Territories Queen, Head of the Commonwealth, Defender of the Faith). Her surname (if she had any) would be Windsor. The Queen has reigned since her father’s death in 1952.

Prince Charles, the Prince of Wales, her oldest son, it the heir to the throne. Although it is more probably that the heir to the throne will be, son of Prince Charles, Princ William. But in reality, the Queen acts only on the advice of her ministers. The monarch? s power of veto, which is not clearly defined, has not been used for over two hundred years, and so it has become a tradition that the royal power of veto doe not really exist at all. Today, the monarch’s role is largely ceremonial and mostly restricted to state functions and appearing on stamps and banknotes.

But the monarch still retains formal powers and opens parliament each year. 1. 2 The UK Government and Parliament The system of government is a parliamentary democracy. The head of the UK Government is a Prime Minister (D. Cameron) who forms a Government and is most likely member of the House of Commons. The UK is divided into 650 parliamentary constituencies and at least every five years voters elect their Member of Parliament (MP) in a general election.

MPs are elected through a system called ‘first past the post’. In each constituency, the candidate who gets the most votes is elected.All of the elected MPs form the House of Commons. Most MPs belong to a political party and the party with the largest number forms the government. Members of the House of Lords are not elected.

It is usually the less important of the two chambers of Parliament. It can suggest amendments or propose new laws, which are then discussed by the House of Commons. The House of Lords can become very important if the majority of its members will not agree to pass a law for which the House of Commons has voted. The House of Commons has powers to overrule the House of Lords, but these are rarely used. . 3 Political Parties British politics has been dominated by two parties, the left-wing Labour party and the right-wing Conservative party.

A third party, the centrist Liberal Democrats, usually picks up around 20% of votes but wins far fewer seats because it is squeezed between the two main parties. Parties from Scotland, Wales and Northern Ireland also send small numbers of lawmakers to Westminster. The current Prime Minister (D. Cameron) is a leader of the Conservative Party, who was appointed by Queen Elizabeth II.

on 11 May 2010 following the UK General Election on 6 May 2010.It also means that Britain has its first coalition government since World War II. David Cameron has changed Gordon Brown from Labour party who was The Prime Minister for three years. New Government has brought unpopular changes and cuts such as higher VAT (it was 17,5%, now 20%), tuitions fees are due to rise in a maximum of ? 9,000 a year from the present level of ? 3,290… etc.

1. 4 Central Government The Central Government is led by Prime Minister and Cabinet. It is responsible for more general areas such as Health, Education, Transport, Defence, Industry, Law and Order, Social Security, Environment and Agriculture.The main roles of The Central Government are to provide services (NHS, free education, Job centres etc. ), to make income by taxing goods and services (VAT), income and wealth, to coordinate income to provide a reasonable level of living for all, and stabilize economy and reduce high inflation, income and employment. 1. 5 Local Government The Local Government is led by a Mayor or Councillor. It is responsible for specific areas such as local schools, social services, licensing collecting council taxes, street cleaning, police force, council houses, refuse disposal etc.

The Local Government is funded by The Central Government, Council tax and business rates. The main role of The Local Government is to manage running of services within area. 1. 6 Impacts on businesses of central and local government 1. 6. 1 Central government Central government powers include: fiscal policy (e.

g. changing VAT – higher prices can affect consumer spending which is linked to business income, corporation tax, PAYE and national insurance), inflation, law e. g. Money Laundering regulations – Money Laundering is a way for criminals to hide the cash proceeds of their illegal schemes.

There are many way how to hide it.They include shell companies, small bank deposits, and regular, consistent bank deposits. The goal of a money laundering operation is usually to hide either the source or the destination of money. The prevention of laundering money would be training of employees, register with the OFT and stay vigilant, other regulations such as Companies Act or Environmental legislation, spending on areas as education (if government spend more money on education it would be benefit for business because there would be high skill works), monetary policy and power to rescue business (e.

g. RBS bank). 1.

6. 2 Local governmentLocal government can affect business by setting council rates (e. g. high council tax would led to less spending that would affect demand which would decrease), collecting business rates (e. g. high business rates can force business to move to another location which would not be right, generally business loss), spending on crime prevention (e. g.

business usually tend to be set up in security areas) or spending on local services (e. g. spending on local transport would be benefit for business, it can bring more qualified people to work). ____________________________________________________________ _______________ http://news. bbc. co. k/1/shared/election2010/liveevent http://www.

direct. gov. uk/en/Governmentcitizensandrights/UKgovernment/index.

htm The Home Office – Life in the UK Advisor, Life in the United Kingdom: A journey to Citizenship, 2nd edition, 2007, TSO 2. An analysis of how the external factors can affect business 2. 1 The trade cycle The trade cycle means recurring fluctuations in economic activity consisting of recession and recovery and growth and decline. These periods affect all the business activities – production, consumption, exchange and distribution and as all these business activities change, employment, prices, incomes and production change too.We are now in period of recession. The recession impacts on business: * Consumer spending decrease * Higher competition * Costs increase * Interest rates might come down as The Government will want to boost the economy * Unemployment rise up * Less business profits Some businesses are hit more by recession than others. For example companies producing luxury goods (luxury cars, jewellery, 5 star hotels) will be affected more than companies producing basic necessities.

When the consumer spending increase, employers start hiring and inflation rate growth, it is an indication that economy is in boom and businesses start make profit. 2. 2 Globalization Globalization is a process of interaction and integration among the people, companies, and governments of different nations, a process driven by international trade and investment and aided by information technology. This process has effects on the environment, on culture, on political systems, on economic development and prosperity, and on human physical well-being in societies around the world.Globalization will have more of an impact on larger businesses and has various aspects which affect the business in several different ways.

* Business compete for customers by low price, this make pressure on business to keep down costs which lead to shift productions to locations where workforce or materials are cheaper. This is typical for companies which product clothes (Next, Zara), automobile industry (Volkswagen, Hyundai) or electronics (Phillips, Panasonics). * Modern transport, logistics and storage systems delivery e. g.

resh fruit and vegetables to UK stories in two or three days after they are picked up on an African, or Thailand farms (Tesco) and make companies more competitive in offer of exotic goods and more attractive for customers. * Competitive pressure for quality and innovation force businesses which want to dominate the global market to find and use the best technology. Technology and science are increasingly international (Apple – iPhone, iPhone3G, iPhone3GS, iPhone4 or iPad, iPad2, or HTC, Dell) * Increase in market size * Competition in a global job market.Companies move the jobs to locations that have the lowest wages, least worker protection and lowest health benefits (China, Bangladesh). On the other hand business can employ individuals to work in UK from almost any part of the world. Typical examples are footballers (Manchester United) or lack of skilled doctors and nurses (NHS) or hiring people from other countries who are willing to work from minimum wages. It can mean lower wage costs or skilled employees make business more competitive. * Global market in economic context brings freedom of exchange of goods and capital.

However it means that countries are become more dependent on other countries and it also mean that an economic collapse in one country can impact other country (crisis in USA had impact on UK and Europe and later on other countries on East as well). 2. 3 Exchange rates The exchange rate is the price of one currency expressed in terms of another. Changes in exchange rates have significant impact on larger business who trade abroad.

If a UK business exports goods and services abroad, it wants to pay in pounds. Foreign traders have to change their currency into pounds to make the payment.If a UK business imports goods and services from abroad, the foreign traders expect to be paid in their currency. The UK business has to change pounds into their currency. The demand and supply of currencies on the foreign exchange markets are constantly changing that is the reason why it is complicated for business to plan ahead if they do not know what the exchange rate is going to be at that time, changes affect the demand for imports and exports because they change the price and in addition in accounts, all figures have to be convert into pounds. For example: Exports: UK business sells for ? 10, the exchange rate is ? 1 = 2Euros, foreign traders have to pay 20 Euro. However if the exchange rate will change ? 1 = 1 Euro, foreign traders need to pay only 10 Euro. It means if the Euro is strength linked to the pound demand for UK exports is going to increase to the EU.

If the Euro is weak, demand is going to decrease. * Import: UK business buys for 10 Euros, the exchange rate is ? 1 = 2Euros, UK business have to pay ? 5. However if the exchange rate will change ? 1 = 5Euros, UK business need to pay only ? 2.It means if the Euro is strength linked to pound demand for UK imports it is going to decrease to the EU. If the Euro is weak, demand is going to increase. 2.

4 Interest rates Interest rate = the price of money. It is what we pay when we borrow money and what we are paid when we lend money to someone else. The current rate of interest is now very low 0.

5% to comparison to 8th October 2008 when rate of interest reached 4. 5%. Cutting interest rates is one of the main tools of Monetary policy available to The Government as it attempts to support economy in the face of recession.Interest rates are cut to encourage spending and discourage savings as a result to support demand for goods and services and promote economic growth. There is a variety of ways in which interest rates affect the business: * If interest rates are higher, customers tend saving money than spend. It means reducing sales for the business.

* If interest rates are higher, customers less likely borrow money to spend. It means reducing sales as well. * If interest rates go up, mortage rates may change too.Higher mortage rates mean for household higher outgoings and households may adjust their spending on other things as a result. It means reducing sale again. * If the business has loans, the higher interest rates will mean higher payments and reducing profits.

* The interest rate is an important determinant of investment. If interest rates increase, it is less likely to go ahead with investment. 2. 5 Inflation Inflation is a general rise in prices, or a fall in the value of money.

It is not only prices of food in shops but also prices of raw materials, prices of insurance or tuition fees.The current UK inflation rate is 4. 0529%. (released in April 2001 for March 2011).

The measure of inflation rate is CPI (the Consumer Price Index). The CPI is collected information more than 650 prices of products and services from 150 different areas and published every month. The UK current CPI for March 2011 is 118. 1 (released to date 2011). The opposite of inflation is deflation – falling prices.

Inflation can affect business many way: * It is difficult to plan ahead because inflation affect not only profit from sales but also high of costs. Inflation has impact on spending as wages do not increase * Savings fall in value if the interest rates are lower than inflation * The high inflation affects business which sell product or services abroad. It is harder to sell goods or services as they are less competitive * Inflation causes insecurity which leads to higher risk. Higher risk means less investment to business * The value of fixed incomes ( e. g. pensioners) falls and others get pay rises to compensate of inflation 2.

6 Market structures, demand and supply The demand for products and services is depend on various factors.The most important of these are the tastes, customs, and preferences of the target market, the consumer’s income level, the quality of the goods or services being offered, and the availability of competitors’ goods or services. All these elements are important in determining the price that a business can command for its products or services. The supply of goods and services in the market is predicated on some factors as well, such as production capacity, production costs (including wages, interest charges, and raw materials costs), and the number of other businesses engaged in providing the goods or services in question.

Of course, some factors that are integral in determining supply in one area may be inconsequential in another. When we are willing and able to buy more, demand rises and prices growth up as well. Also the mechanism works in reverse. If incomes fall, so does demand, and so does price. Supply can also dwindle as a result of other business conditions, such as a rise in production costs for the producer or changes in regulatory or tax policies. And of course both supply and demand can change at the same time.The outcome can be higher or lower prices, or even unchanged prices, depending on how the new balance of market forces works out.

2. 7 Social factors, demographics and cultural factors Diet trends – trend towards healthier eating affects mainly business like fast food (King Burger King, Subway, McDonalds), producers of pre-packed or frozen food (McCain) etc. The healthy trend forces this type of business to think more about healthy option in their menu to do not loss customers who are affected nowadays fit trend and it can be also efficient tool how to increase demand.Fashion trends – the fashion is very fast changeable, there are changes over time (older items come back in fashion) changes in taste of customers Ethics – customers are now more ethnically aware and prefer buying fair-trade items, so business can charge more for these items and still have demand Demographics – this is the study of the population looking at factors such as age, gender, income, race etc. Business can even use Census 20011 which can give information to help make right decision.

2. 8 Legal factors and regulatory influences Legal factors relate to new laws, directories or recommendation governing how business behave.This can be in relation to other business, costumers or the environment. The United Kingdom, as member of the European Union, is not bound only by the laws and directives of the UK but the EU too. There are different categories includes: * Consumer laws The main laws and directories in this area includes: The government’s Food Standards Agency has recommended that firms put ‘traffic light’ labels on food to help understand what they are buying and to help them make the right choices. In the UK, advertising of products is supervised by a voluntary body within the advertising industry.It is called the Advertising Standard Authority (ASA).

The ASA sets out that all adverts must be: legal, decent, honest and truthful. The Food Safety Act – covering the way in which food is prepared and served The Trades Description Act – which states that goods and services must be exactly as described. The Weights and Measure Act – governing such aspects as giving the right weight and packs The Unsolicited Goods Act, The Consumer Credit Act, The Sale of Goods Act, The Consumer Protection Act, Sale and Supply of Goods to Consumers..

. and others.By keeping these laws and directories as a standards business can get the biggest share of the total market, increasing sales, satisfying customers but also making profit for shareholders and avoid fines and penalties. For instance, McCain is known as one of the companies with higher standards which it is the main reason why it has become one of the largest frozen foods companies on the world. * Environment laws One of many areas which are affected by Environment laws is transport business. For example: bus transport – First, National Express, or train transport – Virgin, National Railways etc.

Many changes in Environment law come from government policy and many of these are Europe – wide such as the standards for bus transport emissions. It means that organizations have to be sure that all their means of transports meet these requirements. For example: First has set out ambitious targets of reducing its CO2 emissions from its bus and rail divisions by 25% and 20% respectively by 2020. This gives First a clear advantage over its competitors. * Competitions laws * Employment laws The Equal Pay Act The Sex Discrimination Act The Race Relation Act The Disability Discrimination ActThe Employments Right Act The Data Protection Act * Health and safety legislation * And other 2. 9 E business and technological factors E-business (electronics business, internet business) might be classified as: * Business to business (wholesalers to retailers, IBM, Curry, Comet, PC World) * Business to customers (Asda, Next) * Business to employee * Business to government ( security or cleaning services, office equipments) * Government to business * Government to government * Government of citizen (local government to public, recycling, public transport) * Consumer to consumer (Ebay) Consumer to business Generally E-business make business quicker. In short term the costs might be higher.

It causes by initial costs but in long term e-business decrease costs. Technology: Since technological is so rapid, there are important impacts for business. It can change production and providing of services. The new technology can increase the speed of production, improve the quality of the product and reduce costs. Keeping up to date with the latest technology increases sales and helps to be not behind competitors.



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