Income Tax
Income tax involves charging on incomes earned by individuals as employees through the Pay as You Earn (PAYE) system, and earning from self-employment. This tax is paid straight to the Inland Revenue. This is called ‘direct tax’. Income tax can be progressive; this is where the percentage of income taken in tax rises and income rises.
Valued Added Tax (V.A.T.)
Valued Added Tax (V.A.T.) is charged on the value added by each business in the supply chain as the good changes hands. This tax is first collected by the seller and then transferred to the Customs and Excise. This tax can be proportional; this is where the percentage of income taken in tax stays the same, as income rises.
Corporation Tax
Corporation tax is charged on profits of businesses. This tax is paid direct to the Inland Revenue and is a tax on income. Corporation tax is progressive tax.
If there is an increase in supply, the corporation tax is decrease. As a result, businesses have more money to spend on certain thing such as, investment and supply.
Inheritance Tax (I.H.T.)
Inheritance tax is charged on inheritance money and assets above a certain value. This tax is paid direct to the Inland Revenue.
The government can change direct taxes and indirect taxes. For example, if the government increase taxes, households and organisations will have less money to spend. This can decrease demand and slow down economic activity. So, if the level of taxation is lowered, the demand will increase.
Interest Rates
Interest rate represents the cost of borrowing money and is a key point in economic policy.
If interest rates increase, it will have the following impact on businesses:-
- There will be an increase in the cost of borrowing
- Interest cover will decrease
- Profit will decrease
- Exchange rates will decrease
- Disposable income will increase
- Households will have less disposable income
- There will be a slow progress in the housing market
The Bank of England is concerned that if interest rates increase, it can lead to unemployment. This is where monetary policy comes in, to balance out high inflation and high unemployment. Monetary policy was introduced by the government to deal with supply of money flows in the economy, interest rates and exchange rates.
If interest rates decrease, it will stimulate the demand of goods and services. This will cause the prices to rise.
Legalisation
The government can influence the supply and demand by compulsion. This means that, the government has the power to pass certain laws to control organisation behaviour. The following parliamentary Acts can affect the way in which businesses can or can not manage:-
- Trade Description Act (1968, 1972)
- Consumer Credit Act (1974)
- Fair Trading Act (1973)
- Weights and Measures Act (1985)
- Food and Drink Act (1955, 1976, 1982)
- Food Safety Act (1990)
- Consumer Protection Act (1987)
- Environmental Protection Act (1980)
- Monopoly and Mergers Act (1965)
Trade Description Act (1968, 1972)
This Act makes it illegal for a retailer to give false description of something being sold, e.g.:
- Selling goods, which are wrongly described by the manufacturer
- Implied description for example, a salesman had described the tent which you have brought as being suitable for your needs by, showing a picture on the box of the tent in a snowy field
- Other aspects of the goods, including quantity, size, composition, method of manufacture, etc
For example, if the label of a jumper says that it machine washable at 40 degree Celsius, the good must not lose its colour at that temperature.
If you would like to make a complaint, you must inform this situation to the local Trading Standards Officers. The local officers will give a fine (the maximum fine that officers can give is £5,000) to that business.
Consumer Credit Act (1974)
The Consumer Credit Act protects individuals when buying products on credit such as, hire purchase. The Act have a wide range of consumer rights for the consumers such as, a 'cooling off period' of 5 days when people can cancel any credit agreement signed at home. This Act includes:
- The contents of credit agreements
- The rules and guidelines on cancelling credit agreements- this is sometimes called ‘cooling-off periods’
- Withdrawal from the agreement
- Termination from the agreement
All credit organisations have to register to the Trading Standards to obtain an official license. If they want to advertise or sell credit to the consumers, they must follow the conditions and procedures of this Act.
Under the law of the Consumer Credit Act, all retailers must give a copy of the credit agreement to their customers. The agreement must state the interest charge of the good. The interest charge should show the Annual Percentage Rate (APR). All customers have the right to change their mind and cancel the agreement within fourteen days.
Fair Trading Act (1973)
This Act was introduced by the Office of Fair Trading, which has responsibility for referring cases to the Monopolies and Mergers Commission (MMC). The purpose of this Act is to tackle problem of competition.
Weights and Measures Act (1985)
The Weights and Measures Act makes sure that all goods are sold up to that weight or measure. It is illegal for traders to give short weight or measure of its net weight. This Act only allows if the label of a good such as, matchsticks states the ‘average contents’ of the box. Weights and Measures Inspectors and the Trading Standards Officers enforce the Act.
Food and Drink Act (1955, 1976, 1982) & Food Safety Act (1990)
These two Acts makes it offence to sell products which are unhealthy for human use. All foods must meet the food safety requirements. All reasonable precautions in preparation, storage, transport and sale of goods are needed to be carried out, to satisfy human consumption.
Consumer Protection Act (1987)
Consumer Protection was first introduced to the U.K in 1987. Consumer Protection Act protects consumers from producers if goods or services are found to be dangerous or defective. This Act relates to the price and the safety of the goods and services. The Act makes sure that the following doesn’t take place:
- To mislead consumers as to the price of goods, services, accommodation or facilities (e.g. by missing out the VAT when quoting the price)
- To mislead consumers over sale prices and claim price reductions
- To supply goods which are not reasonably safe
An example of this in practise is: if a price of a computer at PC World is advertised as £199.99, this is the expected amount the customer must pay, unless the price of the product is quoted with VAT.
The Trading Standards covers the Consumer Protection Act (CPA). It is a crime not to co-operate with local officers during any investigation.
Environmental Protection Act (1980)
This Act regulates industrial pollution. This Act involves controlling on land, air and water. It covers certain areas such as, noise pollution, public nuisance caused by litter, and disposable of waste which could be dangerous and hazardous to health and the environment.
The Integrated Pollution Control (IPC) covers the Environmental Protection Act. IPC aims to regulate all pollution even it is on land, air or water. This Act is enforced by the Inspectorate of Pollution.
Monopoly and Mergers Act (1965)
In 1999, the Monopolies and Mergers Commission (MMC) had replaced the Competition Act 1998, which was established by the Competition Commission. The purpose of this Act is to cause market structures that encourage competitive behaviour.
There are other many laws which every organisation must obey such as, employment law, competition law, environmental law, and health and safety law.
These laws can increase production costs and will shift the supply curve to the left. It will have a same effect if, there is an increase in taxation on a particular product or service (S2 to S1).
Grants
The European Union (EU) can provide various ways of assistance:-
- The European Regional Development was introduced in 1973, to funds to help infrastructure projects such as, roads and job opportunities in farming
- The European Social Fund offers money for training to solve difficult labour market problems
- The European Investment Bank provide cheaper loan to those businesses in depressed areas
If there is an increase in grants, households and the businesses will have more money to spend. This will cause the demand curve to shift to the right (D1 to D2).
Subsidies
Government subsidies are used to protect industries. There are many benefits for subsidies:-
- Producer do not tolerate all of the costs (e.g. production costs)
- All goods becomes inexpensive to produce
- All goods are supplied to a particular market at a minimum price
Sometimes, government subsidies are only applied to the car industries of Eastern European countries, and U.K. agricultural items under the European Union (EU) agricultural policy.
