Government and the UK Economy OCR GCSE A293
Starter: Think of three words that you would use when talking about the UK economy Hopefully by the end of this lesson you will have lots more! Be prepared to share them at the end
Government spending and its effect on business • The government can change the way businesses work and influence the economy either by changing its own spending. • For example: • Extra government spendingcan result in more demand in the economy and lead to higher output and employment.
What do you think the Government spends its money on? Write a list – lets see how many you get right. e.g. benefits
Government taxation and its effect on business • HM Revenue & Customs collects tax to pay for public services. • Each year the Chancellor's Budget sets out how much it'll cost to provide these services and how much tax is needed to pay for them. • Key taxes that individuals may have to pay include: Income Tax, Capital Gains Tax, Inheritance Tax, Stamp Duty, Value Added Tax and certain other duties.
VAT – for business The standard rate of VAT increased from 17.5 per cent to 20 per cent on 4 January 2011. For any sales of standard-rated goods or services that you make on or after 4 January 2011 you must charge VAT at the 20 per cent rate. BBC analysis of the VAT rise 4 mins Taxes for business Business Link Has the VAT increase Pushed up the cost of living?
Interest rates • The main policy tool of the Bank’s Monetary Policy Committee is the official short-term interest rate, known officially as Bank rate but often also referred to as the base rate. • Other things being equal, a rise in base rates will tend to lower demand. • A fall in rates will boost demand, and so put upward pressure on the inflation rate.
Interest rates and inflation Interest rates up Interest rates go down Demand for goods increases (everyone wants more stuff because it costs less) People can take on more debt because it costs less to borrow Lathom’s will see increased sales Lathom’s will be able to take more staff on to cop[e with demand – think of unemployment impact! • Demand for good is reduced • Cost of mortgage or borrowing will go up • May effect Lathom’s plan to mass produce – will make it more expensive as more interest has to be paid back • Lathom’s may have to increase prices • Lathom’s may have to make staff redundant
Rising and falling consumer incomes and its effect on business • Lower consumer incomes • less money coming in to the house • May be down to unemployment • May be down to paying increased tax • Less disposable income • Each household buys less stuff (demand falls) • Businesses sell less because people are buying less • Business forced to cut costs
Disposable income What a family has left after they pay for this... And this.... And this.... And this....
Unemployment • Statistics indicate the economic health of the country • Unemployment increases in a recession – lack of demand for good leads to businesses shedding jobs to cut costs – to survive
Unemployment Video Watch the video: what is happening in the public and private sector?
Levels of employment and its effect on business BBC site: 3 videos, article and some great statistics
Unemployment – as at Jan 2011 • 16-24 years olds out of a job: 965,000 • 16-24 that have NEVER had a job 650,000 • Current rate of unemployment 1.46 million (claiming jobseekers) • How does that compare with previous years? (stats no use on their own)
UNEMPLOYMENT – INTERACTIVE GRAPHIC • Click the link on the left top go to an interactive UK Unemployment Graphic • Drag the blue bar over the timeline to watch it change and click on the white circles for more information
Changes in the population and its effect on business Life expectancy is on the increase People living longer will need a range of products to help them take care of themselves and stay in their own home - increased demand for services (like cleaner, Gardner etc) 1.3 million people aged 85 or over! UK population density increased may rise to £70 million in 2 decades, will put a strain on housing and public services e.g Doctors Play Flash population interactive
More about population • 1in 10 people in the country were born in another country and have come to live here • 1 in 4 births are to women who were born in another country • Population baby boom mainly due to number of migrants who are women of child bearing age – what would you sell? Sky news on the baby boom
What do the population changes mean to Lathom’s? • Rising age of the population – what should they produce? • More babies what should they produce then? • More people in the UK – where should they look to trade?
What are your new words and phrases? How many have you got? How does that match with the class average? Can you talk about Lathom’s Dairy and the UK economy now?