Other government policies that could impact on businesses are:
- Environmental protection
- Water Quality
- Animal Testing
- Child Labour
- Minimum Wages
- Social Welfare and Health policies
Government economic objectives are:
- Stable prices i.e. low inflation
- Full employment
-
Economic Growth (2 1/5%)
- Balance on the balance of payments - want to export more than we import - oil keep us on the balance
Child Labour Protests Animal rights campaigners Health policies
The measures the government takes to control the economy and how it affects UK businesses with examples:
- Interest Rates, the cost of borrowing money can be varied by the government in order to stimulate or restrict the economy e.g. the government counteracted a slowdown in economic growth over the last year by reducing the interest rates which allowed consumer confidence to grow therefore stimulating the economy.
- Tax e.g. the conservative government of the 1980’s and 1990s has reduced the rate of income tax (direct tax), which in turn increases the amount people have to spend. The same government has cut the taxes on business profits, which gives the owners more spending money. On the other hand the government has increased VAT (indirect tax), which reduces the amount people can buy for their money, and has reduced certain personal allowances.
- Bringing in competition to keep prices down and trading fair such as the deregulation of the utilities e.g. when telecommunications were deregulated NTL was created as competition for the existing BT monopoly.
- Regulating competition and counteracting anti competitive practice e.g. the recent sale of Bass breweries to Interbrew led to government investigation over fears of the rise of the price of a pint.
- The government ensures fair and honest trading e.g. OFGAS is a government body, which regulates the gas industry.
-
Protects customers e.g. Sale of Goods Act 1979 (amended with Sale and Supply of Goods Act 1994) which states that goods must fit the description used in any advert, label, or packaging etc that relates to them.
- Regulates the adoption of new products e.g. strict standards laid out for drug companies for the introduction of a new drug.
- Protects and encourages new industries, offering tax incentives and grants e.g. Substantial sums of public money used to attract Hyundai to Scotland in the 90’s.
TD Travel Group is affected by government decisions either directly or indirectly by all of the above some specific examples include:
- The Government gives tax relief on bad debt; so for example if one of TD Travels larger accounts were to go bust the government would offer tax relief on the debt.
- Interest rates affect TD because if consumer spending decreases less people travel, with lower interest rates to stimulate the economy, more people travel.
- Manchester chamber of commerce states that Trade Missions have to be spread between all agents.
- Competition in travel is very high therefore prices are kept down protecting customers and keeping trading fair.
- The Civil Aviation Authority has proposed that money from shops and other commercial activities should no longer be used to keep landing charges down. These charges then have to be passed on to customers through the airlines and through the agent – TD.
- How has the decision to allow expansion of Manchester Airport impacted on the local economy and the implications for TD Travel Group?
"The airport is already acknowledged as the economic motor of the region,”
said Councilor Graham Stringer, Chair of the Board of Manchester Airport.
"The second runway is the biggest post-war economic boost to the region. It
will create 50,000 new jobs - the equivalent employment potential of ten
Nissan car plants. In ten years time the extra people employed, either
directly or indirectly through the second runway development, would be
enough to create a near capacity crowd at Old Trafford football ground. The
second runway will guarantee Manchester's place as a major world hub for air
travel.
The expansion of Manchester airport has had a large impact on the local economy, including TD Travel Group. Some of the benefits include:
- High worldwide profile
- Creation of jobs
- Good location for new businesses
- Bringing more airlines and destinations to Manchester Airport
- Economic stability for the region
- Ability to host major events i.e. Commonwealth games
- The whole areas infrastructure is improved i.e. Manchester Piccadilly station
Disadvantages would include:
- Congestion
- Noise and Air pollution
- Destroying of the countryside
For TD Travel Group it has had many beneficial points such as:
- Being able to offer more local flight departures
- Offering more flight destinations
- Opportunities for increased business
Manchester Airport
- SECTION 2 – EXPLORING THE SIGNIFICANCE OF THE EUROPEAN DIMENSION FOR UK BASED ORGANISATIONS
The European Union [EU] was formerly known as the European Economic Community [EEC], as laid down by the treaties of Rome and Maastricht. The EU member states cover 3,235,000 square kilometers. The USA is around 3 times larger than the EU. Japan is 11.7% the size of the EU. The total population is 370,452,000 this is over 40% more than in the USA and 3 times as much as Japan. The member states are; Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden and the UK. Other states hoping to join are Hungary, Poland, and the Czech Republic.
The European Commission is the executive of the EU. The main tasks of the commission are:
- To ensure that community rules and the principals of the common market are observed
- To make policy proposals to the council of ministers
- To enforce the implementation of legislation
- To administer community expenditure.
The UK has certain obligations arising out of its membership of the EU. European law is now as important as our own domestic law. We are obliged to obey European law in the same way, as we have to comply with UK law.
It is important to understand the basis of the UK’s membership of the EU because EU legislation is of great importance to all business decisions and operations. This is because the EU is essentially economic in nature. The objective of a single European market will require harmonisation of laws relating to business and trade.
There has been a steady increase in the importance of the European Union Directives, which are incorporated into British Law, arising from the UK’s membership of the EU. This process has continued as a consequence of the decision to implement the single European Market at the end of 1992. The fifteen member states of the EU now form one economic region in which goods, services, people and capital may move freely. The necessary legislation was introduced as a result of the passing of the Single European Act in 1986. All the European Union Countries flags
4.1 The types of European Union policy decisions which have impacted on businesses in member states, and how businesses have been affected.
The EU makes policy decisions, which can impact on businesses in all member states. The types of policies include:
- Working time directive – A European Union directive, limiting the number of hours that employees may work and establishing statutory rights to breaks and holiday. The regulations say people should have at least eleven consecutive hours away from work in every twenty-four hours. They also guarantee full-time workers an entitlement of three weeks' annual leave. The directive, which has gradually been applied in the EU since 1993, has been criticized by British employers' organisations for imposing new costs and extra administration. Large groups of workers in essential services are excluded from the directive. This has affected businesses in many ways e.g. hotel chain, Forte, has urged all its employees to voluntarily give up the rights granted to them in the Working Time Directive. The health industry would not be able to cope if junior doctors were only allowed to work 48 hours a week compared to the average of about 70. Chairman of the British Medical Association said 6,000 new doctors would be needed to cope with the additional workload and waiting lists would increase.
-
Human rights legislation – The Human Rights Act (1998) introduced the European Convention on Human Rights into British law, of which the UK was one of the primary authors. What this means in practice is that people who wish to bring cases where they believe their rights have been violated, they will now be able to do so through the British courts, rather than having to spend years pursuing the case at the European Court of Human Rights. The Act makes it unlawful for any "public authority" to act in such a way that is "incompatible" with a right under the Convention.
One of the EU policies that affect TD Travel is the EU legislation for package travel. In the UK this is regulated through the CAA (Civil Aviation Authority), which states that any agent selling more than one part of a holiday i.e. flights and accommodation or flights and car hire etc must have an ATOL (Association of Tour Operators License) License. The EU also regulates monopolisation by airlines. For example, BA are not allowed to offer UK agents incentives for selling only their product, the same would go for Lufthansa in Germany and KLM in Netherlands.
4.2 Arguments for and against the UK joining the European monetary union and the implications for TD Travel Group.
Advantages of a single currency:
- No exchange rate risk in euro zone transactions - probably the biggest advantage of joining the euro is the fact that our exchange rate will be stable against the other eleven members forever more. Over half of UK exports and imports come from trade with the EU. The stability for these exporters will enable them to plan more easily and investment is likely to rise. It will also encourage further trade between these countries, which should lead to further economies of scale.
-
No currency conversion costs - If we share a currency with the rest of Europe, there will be no need to pay transaction costs of changing currencies when you go on holiday. This ‘convenience’ factor is probably the one that impresses the non-economist the most. This is a bigger advantage for businesses whose transaction costs are inevitably higher, as it includes the costs of hedging against huge currency swings.
- Easier to compare prices throughout the EU - If the UK was part of the euro, all prices would be expressed in one currency. Prices would be transparent. A British consumer could easily compare the price of a car here to one in euroland. This will force firms to be more price competitive, unable to hide behind a changing exchange rate. This should result in lower prices for all consumers.
- More power given to buyer through clearer comparisons.
- More stable interest rates for those in the euro zone - The seventeen-member council of the ECB come from eleven different countries with varied vested interests, so consensus, and therefore a decision on interest rates, tend to be less frequent than with the UK
- Better conditions for firms making long-term decisions to invest in Britain
Disadvantages of a single currency:
- Short term higher costs for new price lists etc
- Initial costs of converting to the Euro could be expensive especially for small shops
- If the UK joins the euro, it loses control over interest rates, which are set for the whole eurozone by the European Central Bank (ECB) in Frankfurt. On the ECB's council, the Bank of England would have just one vote - like the central banks of all other member states. One currency means one interest rate. Even those who are in favour of the euro would have to admit that the interest rate set by the EBC for the whole of Euroland will not be ideal for all eleven countries. The classic example is Ireland, who joined the single currency at its inception with domestic interest rates at 6% (like the UK) and the economy growing well without inflation (like the UK). On entering the single currency, their interest rate had to be set at the ECB rate, which, at the time, was 3%. So Irish interest rates fell from 6% to 3% overnight. If that had happened in the UK there would have been a boom followed by inflation and then recession. Ireland is at the beginning of that cycle, with inflation rising very quickly.
All of the above advantages and disadvantages affect TD Travel Group. Other factors specific to TD are that we would have less currency to order as 50% of business is to European destinations therefore 50% less currency would be needed due to the common denomination. TD’s software suppliers such as Elgar, Galileo and Traveledge would have to update computer systems, which should not cause chaos to the smooth running of the business. The arrival of the euro as a cash currency should provide a boost to the tourist industry, with travel across Europe much easier - and less costly - than before.
Many of Britain’s larger retailers like M & S, Debenhams and Virgin, have said that they will be able to accept euros over the counter and for those hotels and retailers and tourist attractions that can take euros will have a lead over those that don’t. After all, 13 million visitors from the euro-zone come to Britain every year spending £4 billion - and now their pockets will be full of euros.
4.3 The effects on UK businesses if the European Union were to expand.
Enlargement is one of the most important opportunities for the European Union at the beginning of the 21st century. It is a unique, historic task to further the integration of the continent by peaceful means, extending a zone of stability and prosperity to new members.
In March 1998 the EU formally launched the process that will make enlargement possible. It embraces the following thirteen applicant countries: Bulgaria, Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Romania, Slovak Republic, Slovenia and Turkey. Before they are allowed in the countries need to modify legislation to fit in with the EU 's three basic principles, of human rights, democracy and market economics, as well technical issues including subsidies, environment and commercial standards.
For over half a century now, Europe has been at peace. Along with North America and Japan, the Union forms one of the three most prosperous parts of the world. As a result of mutual solidarity and fair distribution of the benefits of economic development, moreover, the standard of living in the Union's weaker regions has increased enormously and they have made good much of the disadvantage they were at.
Advantages of EU expansion to UK businesses include:
- Easy access to an even larger market.
- No barriers to trade - easier export regulations therefore less paperwork.
- More freedom of movement for people and capital - with no barriers you can live, work and move money anywhere in the EU with no restrictions.
- Economies of scale - more cost effective as larger market and smaller cost.
- Access to a wider range of supplies.
Disadvantages of EU expansion to UK businesses:
- More competition.
- Costs of membership - annual subscription, are the benefits going to outweigh the costs?
- Loss of flexibility - having to follow European rules and be good Europeans
- Grants Available - from the EU mainly for economically deprived areas such as Stoke or Liverpool for regeneration. If weaker countries join they are more likely to get grants.
- CONCLUSION
The first part of this report has investigated the key features of the local and national economy in which organisations operate. To do this it has looked at the role of the state in business organisations and the implications for businesses of the measures taken by government to control the economy. It has also discussed the advantages and disadvantages of the expansion of Manchester Airport, and how this has impacted on local economy and businesses.
The second part of the report was exploring the significance of the European dimension for UK-based organisations. This has been done by discussing policy decisions of the EU and how they have impacted on businesses in member states. It has also looked at the European monetary union giving the arguments for and against the UK joining and the implication for UK businesses. The report has also discussed the enlargement of the EU considering the effects on businesses in the UK.
- BIBLIOGRAPHY
HNC Business course book
Core unit 4 Organisations, Competition and the Environment
The organisation in its environment
J Harvey
The Hutchinson Encyclopedia
Millennium Edition
- APPENDICIES
See over page.