Essay On Government Policy

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Recent government policy decisions have created more opportunities than constraints for businesses in the UK. To what extent do you agree with this statement?
Government policies can influence businesses and their strategic decision making. They can also open up new opportunities for business’s but also constraints. The monetary policy of low interest rates at 0.5% is an example of a policy that affects many businesses, such as Jaguar, in a positive way. This is strengthened with the fiscal policy of reducing taxes on consumer’s saving leading to increased productivity and disposable income. However, another monetary policy implemented by the government meant that wages increased increasing cash outflows of a business. Recent government policy decisions have led to a vast amount of opportunities for businesses in the UK. This is shown through the monetary policy which enforced record low interest rates at 0.5%. This percentage has been maintained for 6 consecutive years giving businesses the advantage of investing at a lower price. This could lead to businesses exploiting the opportunity by possibly implementing new strategies such as low cost (porters) which could be used to give businesses a competitive advantage. This is strengthened with the fact that with low interest rates comes lower unit costs meaning a business could implement cost minimisation to gain a competitive advantage or Ansoff’s product development in order to appeal to larger segments and expand their market share. Jaguar has benefited from low interest rates as they have used the undertaken product development and developed the F type. This is due to them having lower costs of production and therefore a healthier cash flow. There is also a low risk of a rise in interest rates any time this year have been put on hold with consumer price index inflation at zero meaning that if Jaguar were to undertake a loan, they would not be struck with high interest rates in the future. Also, with inflation and interest rates remaining low it indicates that consumers are getting better value for money and therefore have more disposable income. This is beneficial for Jaguar as this will lead to higher levels of demand for firms and therefore higher profit margins with the profits from the new model already up by 15%. This could lead to them increasing their market share which is currently at 2.8%. To manage the increase in demand they could adopt expansion strategy in order to produce more products on a larger scale. By increasing the size of the firm, they can benefit from economies of scale and then be able to employ more specialised workers. Therefore, I believe that the monetary policy of low interest rates has created more opportunities than constraints for UK businesses.
Fiscal Policy is the use by the government changes in tax rates or government spending to manage the economy. The government recently released a new personal savings allowance of £1000 which will be introduced in April next year, removing the first £1000 of savings incomes from income tax. This is beneficial for UK businesses as the reduce in taxes will mean that there is increased consumer confidence due to higher disposable income meaning that they will spend more and sensitivity to price will be reduced. Due to this, business’s will experience more demand for goods and services which will increase the GDP of the UK and give opportunity’s for more growth in the economy, which grew by 2.8% in 2014. This means that there are low barriers to entry meaning more new businesses can exploit this to enhance their reputation. The Fiscal policy meant that they would also no longer deduct 20% income tax automatically from savings held outside an Isa. Employees will be more motivated to work or do overtime knowing their money in savings will not being taxed, making it more worth well if they are increasing their disposable income. This creates opportunities for the business as they have more
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