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
WHICH ECONOMIC ISSUES MIGHT
LATHOM’S DAIRY BE INTERESTED IN?
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 spending
can 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
Download this PDF here – government spending
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 standardrated 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 small business
Interest rates and inflation
Interest rates up
•
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
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!
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?
1. What are your new
words and phrases?
2. How many have you
got?
3. How does that match
with the class average?
4. Can you talk about
Lathom’s Dairy and the
UK economy now?