How Government Influences Local Business

1. How Government Influences Local Business Unit 1 P4

2. “We may have the best service, the best staff, the best marketing, the best prices but if the price of Oil goes up we lose customers”

3. Government Influences On Local Businesses • A business' success or failure does not always depend on the decisions made by its owners. • There are many external influences that can contribute to how well or poorly a business performs. • These external factors include: • >> Employment • >> Inflation • >> Interest Rates • >> Government Policy • >> Business Cycle

4. Employment • Local employment is affected by local, regional, national or international conditions (e.g. global downturn, recession) • If there is less money in the economy, sales drop and people are unemployed • If there is more money in the economy, sales go up and more people are employed • Government can help unemployment in an area by: • Pushing new industries into unemployment areas • Increasing support for local apprenticeships • Allowing planning applications through e.g. Tesco in Amesbury

5. Inflation • This is the general rise in the level of prices of goods or services • The government controls inflation (as best it can) and aims for about 1.5 to 2% of inflation per year. • GOOD INFLATION = healthy demand / increase the output • HIGH INFLATION = raw materials / wages go up and companies/regions/nations become uncompetitive • How government helps business: • Good economic policy like keeping stable currency exchange rates so prices stay stable (too high no one buys them) • Local tax, business tax either increased or decreased to control inflation

6. Interest Rates • For businesses interest rates are very important for investment and loans • They are controlled by the banks and influenced by the government • HIGH INTEREST RATES = Businesses have less money as their repayments are higher • LOWER / FAIR RATES = Businesses can cope better and have money to manage growth, better wages and R&D • How Government helps: • Direct support for local business projects by very low interest rates (better than banks) • Investment advice from professionals

7. Government Policy The government helps local businesses by: • GRANTS / SUBSIDIES / TAX BREAKS • Governments provide money in the form of grants, subsides and tax breaks (paying less tax than you should) to encourage businesses in certain areas of the economy. • Enterprise Zones • aim to attract businesses to inner city areas. • Local Support • Governments also provide support through advisory bodies coordinated by the Department of Trade and Industry, especially for small businesses. • Chambers of Commerce. • This organisation represents businesses in a local community, acting as a source of advice from the experiences of other businesses and exploiting the connections within these businesses.

8. Business Cycle • The government and the national economy are like a business • Like all businesses the economy grows and declines: • BOOM: A period of fast economic growth. Output is high due to increased demand, unemployment is low. Business confidence may be high leading to increased investment. Consumer confidence may lead to extra spending. • SLUMP: A period when output slows down due to a reduction in demand. Confidence may begin to suffer. • RECESSION: A period where economic growth slows down and the level of output may actually decrease. Unemployment is likely to increase. Firms may lose confidence and reduce investment. Individuals may save rather than spend. • RECOVERY: A period when the economy moves between recession and a boom • The affects local business because

9. Summary • These external factors include: >> Employment >> Inflation >> Interest Rates >> Government Policy >> Business Cycle

10. How Government Influences Local Business (Unit 1 P4) Negative Positive Inflation Negative Negative Positive Employment Government Influences Interest Rates Positive Policy Business Cycle Negative Positive Negative Positive