2.5 External Influences

• economic influence


  when a business is impacted in any way by economic factors - inflation, exchange rates etc
• annual rate of inflation

  how much higher or lower prices are compared with the same month a year earlier

  indicates changes to our cost of living
• inflation rate

  the rise in the price of goods in the UK economy

  target for inflation - 2%
• consumer price index (CPI)


  looks at the prices of hundreds of things we commonly spend money on and track how these prices change over time - measures inflation

  rate at which the prices of goods and services brought by households rise and fall

  movements in CPI indices represent the changing cost of the shopping basket
• interest rates

  the cost of borrowing money

  the Bank of England is responsible for deciding what the interest rate should be in the UK - uses this to try hit its inflation target

  • increase in interest rates - increases costs for business (businesses usually have some type of debt, overdraft/loan)
• exchange rate


  price of one currency in exchange for another

  currencies can change in value due to the demand and supply of a currency - floating exchange rate
• depreciation


  a fall in the pound

  pound can buy less of other currencies
• taxation

  UK government requires its citizens and businesses to pay a variety of taxes

  used to pay for public services - education in state schools, armed forces, emergency services, NHS, local councils

  increase in taxation - increases cost of a business - decreases profitability - increases unemployment

  decrease in taxes - increases demand in economy - increases output - increases employment
• sole trader taxes

  • income tax - taken off an employees/business owners salary
  • vat (if earning above £82,000) added to goods and services - increase in vat increases prices
  • business rates (unless they work from home)
  • national insurance contributions - made by employee and employer
• Ltd's and PLCs taxes

  • corporation tax - 20%
  • vat - 20%
  • business rates on business premises
  • national insurance contributions to employees
• direct taxation


  tax on your wealth and income

  income tax and national insurance
• indirect taxation


  tax on goods and services

  vat and excise duty
• excise duty

  paid by customers on products considered to have negative effects on society (a "sin" tax)

  fuel, tobacco, beer, wine, spirits
• government spending

  taxes that the government collects goes into a central pot - spent on various things for the benefit of the UK society

  Chancellor of the Exchequer makes decisions about tax and how to spend it
• PESTLE analysis

  any of these factors can influence of affects businesses through changing their costs, methods, operation of consumer behaviour or markets

  • political
  • economic
  • social
  • technological
  • legal
  • environmental
• political factors

  government stability

  political ideology

  political risks
• economic influences

  macroeconomic factors - gdp, inflation, interest rates, unemployment rates, exchange rates

  microeconomic factors - supply + demand, market structure, elasticity of demand, cost of production, government policies
• socio-cultural factors

  demographics

  cultural norms and values

  social treds
• legal framework

  laws and regulations that govern business activities
• technology

  innovation and competitiveness, operational efficiency, market reach and customer engagement, disruption and industry transformation
• environment

  sustainability and corporate social responsibility

  regulatory compliance

  consumer preference and green demand

  risk management

  innovation and green technologies
• basic economic rule of thumb

  growth and inflation

  economic growth means rising income

  increase in income increases prices

  if inflation is above 2% the Bank of England increases interest rates

  increase in interest rates decreases demand
• government spending

  mainly spent on:

  • social protection - welfare payments (pensions, jobseekers allowance etc - approx. £245 billion)
  • healthcare - NHS - approx. £148 billion
  • education - schools and university - approx. £102 billion
• legislation


  the process of making/enacting laws through a formal procedure established by a legislative body - parliment

  involves the drafting, debate, amendment and approval of proposed laws (bills) which are enacted and enforced as statuses or regulations (acts)

  serves as the primary means by which governments establish rules, regulations, and legal frameworks to govern society, address societal issues, protect rights, and maintain order
• statutory rights


  rights given to you through acts of parliment
• statutory responsibilities

  responsibilities placed on business organisations
• common law

  system of law that develops through judicial (courts) decision and precedent rather than through legislation

  legal principles and rules are established and refined over time b judges through the interpretation of prior causes and application of legal reasoning

  flexible and evolve to adapt changing societal norms and circumstances
• precedent


  plays a significant role as decisions made in earlier cases serve as guidance for resolving similar disputes in future cases
• legislation falls into 5 categories

  1. consumer protection
  2. employee protection
  3. environmental protection
  4. competition policy
  5. health and safety
• consumer rights act 2015


  protects consumer rights when they buy goods or services

  consumers have legal rights if the item you brought is:

  • broken/damaged (not of satisfactory quality)
  • unusable (not fit for purpose)
  • not what was advertised/doesn't match sellers description
• consumer rights act

  under this act, a business must not give false/misleading information about products and the must be "fit for purpose"

  unhappy consumers can claim a refund, replacement, repair or price reduction through the retailer

  businesses try to avoid this by:

  • claiming you need to contact the manufacturer
  • offering you "store credit" - having to spend on something else in store
• employee protection

  acts to make sure the UK workers get paid when they are sick, gets paternity and maternity pay, is not discriminated against, gets a fair wage and is treated equally
• minimum wage act 1998

  applies to nearly all workers and sets hourly rates below which pay must not be allowed to fall

  increases costs for a business

  impacts on their profit margins and profitability

  failure to do so can result in fines/prosecution
• environmental protection act 1990

  attempts to control pollution in terms of business waste that is disposed of in the air, land and sea
• you can't just 'fire' employees - you need a legitimate legal reason:

  competency, discipline, misconduct, redundancy, not fit for work
• competition policy

  legislation in place by the government designed to prevent collision - price fixing by businesses getting together and agreeing a price to charge for their products

  CMA - Competition and Markets Authority - independent regulations that aim to 'promote competition for the benefit of consumers' - investigate mergers that restrict competition
• Health and Safety at Work Act 1974


  Employers have a duty to ensure the health, safety and welfare of employees
• Employers duties with the health and safety at work act

  • Provide a safe system of work
  • Provide a safe place of work
  • Consult staff on any decisions that involve health and safety
  • Provide understandable information on safety arrangements
• Employers duties with health and safety at work act

  • Must carry out risk assessments
  • Take reasonable steps to prevent any identified harms
• Safe system of work and safe place of work

  Extends to any contractors working on their site