bussines and economy

BUSSINES AND ECONOMY


1. Sector of Industry of Government in United Kingdom
- Agriculture, Hunting, Forestry, and Fishing
Agriculture is intensive, highly mechanized, and efficient by European standards, producing about 60% of food needs with less than 2% of the labor force (477,000 out of a total workforce of 31,598,000, 3rd quarter of 2007). It contributes around 2% of GDP. Around two-thirds of the production is devoted to livestock, one-third to arable crops. The main crops that are grown are wheat, barley, oats, oilseed rape, maize for animal feeds, potatoes and sugar beet. New crops are also emerging, such as linseed for oil and hemp for fibred production. The main livestock which are raised are cattle, chickens (the UK is the second largest poultry producer in Europe after France) and sheep. Agriculture is subsidized by the European Union's Common Agricultural Policy.
The UK retains a significant, although vastly reduced, fishing industry. Its fleets, based in towns such as Kingston upon Hull, Grimsby, Fleetwood, Great Yarmouth, Peter head, Fraser burgh, and Lowest, bring home fish ranging from sole to herring.
- Mining and Quarrying
The Blue Book 2006 reports that this sector added gross value of £21,876 million to the UK economy in 2004.
- Manufacturing
In 2003, manufacturing industry accounted for 16% of national output in the UK and for 13% of employment, according to the Office for National Statistics. This is a continuation of the steady decline in the importance of this sector to the British economy since the 1960s, although the sector is still important for overseas trade, accounting for 83% of exports in 2003. The regions with the highest proportion of employees in manufacturing were the East Midlands and West Midlands (at 19 and 18% respectively). London had the lowest at 6%.
Although the manufacturing sector's share of both employment and the UK's GDP has steadily fallen since the 1960s, data from the OECD shows that manufacturing output in terms of both production and value has steadily increased since 1945. This is a trend common in many mature Western economies. Heavy industry, employing many thousands of people and producing large volumes of low-value goods (such as steelmaking) has either become highly efficient (producing the same amount of output from fewer manufacturing sites employing fewer people- for example, productivity in the UK's steel industry increased by a factor of 8 between 1978 and 2006) or has been replaced by smaller industrial units producing high-value goods (such as the aerospace and electronics industries).
Engineering and allied industries comprise the single largest sector, contributing 30.8% of total Gross Value Added in manufacturing in 2003. Within this sector, transport equipment was the largest contributor, with 8 global car manufacturers being present in the UK – BMW (MINI, Rolls-Royce), Tata (Jaguar-Land Rover), General Motors (Vauxhall Motors), Honda, Nissan, Toyota and Volkswagen (Bentley) with a number of smaller, specialist manufacturers (including Lotus and Morgan) and commercial vehicle manufacturers (including Leyland Trucks, LDV, Alexander Dennis, JCB, the main global manufacturing plant for the Ford Transit, Manganese Bronze and Case-New Holland) also being present. The British motor industry also comprises numerous components for the sector, such as Ford's diesel engine plant in Dagenham, which produces half of Ford's diesel engines globally.
A range of companies like Brush Traction and Hunslet manufacture railway locomotives and other related components. Associated with this sector are the aerospace and defense equipment industries. The UK manufactures a broad range of equipment, with the sector being dominated by BAE Systems, which manufactures civil and defense aerospace, land and marine equipment; VT Group, one of the world's largest builders of warships; and GKN and Rolls Royce, who manufacture aerospace engines and power generation systems. Commercial shipbuilders include Harland and Wolff, Camel Laird, Abels, Barclay Curle and Appledore. Companies such as Fairline Boats and Sun seeker are major builders of private motor yachts.
Another important component of Engineering and allied industries is electronics, audio and optical equipment, with the UK having a broad base of domestic firms, alongside a number of foreign firms manufacturing a wide range of TV, radio and communications products, scientific and optical instruments, electrical machinery and office machinery and computers.
Chemicals and chemical-based products are another important contributor to the UK's manufacturing base. Within this sector, the pharmaceutical industry is particularly successful, with the world's second and third largest pharmaceutical firms (GlaxoSmithKline and AstraZeneca respectively) being based in the UK and having major research and development and manufacturing facilities there.
Other important sectors of the manufacturing industry include food, drink, tobacco, paper, printing, publishing and textiles. The UK is also home to three of the world's biggest brewing companies: Diageo, SABMiller and Scottish and Newcastle, other major manufacturing companies such as Unilever, Cadbury, Tate & Lyle, British American Tobacco, Imperial Tobacco, EMAP, HarperCollins, Reed Elsevier, Ben Sherman, Burberry, French Connection, Reebok, Pentland Group and Umbro being amongst the largest present.
The Blue Book 2006 reports that this sector added gross value of £147,469 million to the UK economy in 2004.
Manufacturing is an important sector of the modern British economy and there is a considerable amount of published research on the subject of the factors affecting its growth and performance. Of late, such things as increases in taxation and regulation have tended to diminish the favorableness of the political-legal environment for UK industry. Within manufacturing, British firms and industries have often lagged behind their overseas competitors in terms of productivity and various other key performance measures. However, Britain – the birthplace of the Industrial Revolution – continues to be one of the most attractive countries in the world for direct foreign industrial investment.
- Electricity, Gas and Water Supply
The Blue Book 2006 reports that this sector added gross value of £17,103 million to the UK economy in 2004. The United Kingdom is expected to launch the building of new nuclear reactors to replace existing generators and to boost UK's energy reserves.
- Construction
The Blue Book 2006 reports that this industry added gross value of £64,747 million to the UK economy in 2004.
The service sector is the dominant sector of the UK economy, a feature normally associated with the economy of a developed country. This means that the Tertiary sector jobs outnumber the Secondary and Primary sector jobs.
- Wholesale and Retail Trade
This sector includes the motor trade, auto repairs, personal, and household goods industries. The Blue Book 2006 reports that this sector added gross value of £127,520 million to the UK economy in 2004.
- Hotels and Restaurants
The Blue Book 2006 reports that this industry added gross value of £33,074 million to the UK economy in 2004.
- Transport, Storage and Communication
The Blue Book 2006 reports that the transport and storage industry added gross value of £49,516 million to the UK economy in 2004 while the communication industry added a gross value of £29,762 million.
- Financial Intermediation
The City of London is the world's largest financial centre. London is the world's largest financial centre, with financial services based around two districts: 'The City' (the City of London) and the Docklands (particularly around Canary Wharf). The City houses the London Stock Exchange (shares and bonds), London Metal Exchange (base metal and plastic futures), Lloyds of London (insurance), and the Bank of England. The Docklands began development in the 1980s and is now home to the Financial Services Authority, as well as several important financial institutions (such as Barclays Bank, Citigroup and HSBC). There are now over 500 banks with offices in the City and Docklands, with the majority of business in London being conducted on an international basis, with established leads in areas such as Eurobonds, foreign exchange markets, energy futures and global insurance. The Alternative Investments Market has acted a growth market over the past decade, allowing London to also expand as an international equity centre for smaller firms.
The United Kingdom had £21bn of financial exports in 2005, contributing significantly towards the balance of payments. The UK has had an expanding export business in financial service, at least partly due to the presence of a regulatory structure now accepted by the Government as inadequate, as well as a highly skilled workforce.
Several other major UK cities have large financial sectors and related services, most notably Leeds, which is now the UK's largest centre for business and financial services outside London, and the largest legal centre outside London, as well as Edinburgh, the eleventh largest banking centre in Europe and home to the Royal Bank of Scotland (the third largest bank in Europe), HBOS (owners of the Bank of Scotland), and Standard Life Insurance. The Blue Book 2006 reports that this industry added gross value of £86,145 million to the UK economy before adjustment of financial services valued at £50,165 million in 2004.
- Real Estate and Lettings
The UK property market boomed for the seven years up to 2008 and in some areas property trebled in value over that period. The increase in property prices had a number of causes: sustained economic growth, low interest rates, the growth in property investment, and planning restrictions on the supply of new housing.
The UK property market initially peaked in July 2004 and was static or falling in the capital and some other areas until late 2005, leading many to worry about the possibility of a house price crash and to predict the end of a major British property bubble. However, the property market strengthened considerably in the first half of 2006, showing particular strength in the capital. This led many analysts to revise previously negative assessments of the market, with most subsequently predicting continued modest growth in prices in the mid-term. However, around September 2007, house prices began to fall consistently, arguably contributing to the negative UK economic growth of the 3rd Quarter 2008.
The predicted house price crash began in late 2008, and is all the more damaging because of record levels of household debt. Increasing numbers of bankruptcies and home repossessions have worried some economists. This has led many to propose that the correction in house prices will lead much of the country into a lengthy recession. In contrast however, first-time buyers who currently have assets not consisting of residential property, but with no way of attaining residential property (in some cases at all, and in others without undertaking unsustainable debt amounting to on average up to 5 times their annual salary), are now better placed to enter the property market.
This sector includes letting of dwellings and other related business support activities. The Blue Book 2006 reports that the lettings industry added gross value of £83,037 million to the UK economy in 2004 while other real estate and business support activities added gross value of £175,333 million.
The paucity of finance available to homebuyers by the self-regulation of the banks following the collapse of the financial system in 2007 continues to contribute to a very much diminished demand for housing in the UK with sales volumes around half of the pre-crash level. With many sellers reluctant to drop their price, there is a chronic over-supply of housing on the market at prices in excess of demand (as of September 2009), leading to the average time on the market for residential property to be over 12 months (well above the long term trend). This situation has arisen partly because of the deferred repayment windows created by the government forcing the courts to delay possession orders. As the regulatory framework of the banks is in concordance with Basel II, then the demand for UK residential property is likely to remain very subdued in comparison to pre credit-crunch lending for many years to come. As the forced sellers in the market increase when the repayment deferrals cease, in combination with other forced sellers (death and divorce), many economists predict that the worst of the crash in UK residential property is yet to be realized. This is in keeping with other major economies that experienced rapid house price growth over the last decade, They have seen larger scale falls in prices that have yet to materialize in the UK, as of September 2009.
- Public Administration and Defense
The Blue Book 2006 reports that this sector added gross value of £55,280 million to the UK economy in 2004.
- Education
The Blue Book 2006 reports that this sector added gross value of £61,786 million to the UK economy in 2004.
- Health and Social Work
The Blue Book 2006 reports that this sector added gross value of £75,817 million to the UK economy in 2004.
- Other Social and Personal Services
This sector includes value added by private households with employees and extraterritorial organizations. The Blue Book 2006 reports that this sector added gross value of £55,543 million to the UK economy in 2004.

2. Industries Privatized
Private Sector
In economics, the private sector is that part of the economy which is both run for private profit and is not controlled by the state. By contrast, enterprises that are part of the state are part of the public sector; private, non-profit organizations are regarded as part of the voluntary sector. A variety of legal structures exist for private sector business organizations, depending on the jurisdiction in which they have their legal domicile. Individuals can conduct business without necessarily being part of any organization.
The main types of businesses in the private sector are:
a. Sole trader
b. Partnership, either limited or unlimited liability
c. Private Limited Company or LTD-limited liability, with private shares
d. Public Limited Company – shares are open to the public. Two examples are:
o Franchise – business owner pays a corporation to use their name, receives spec for the business.
o Workers cooperative – all workers have equal pay, and make joint business decisions.
In countries where the private sector is regulated or even forbidden, some types of private business continue to operate within them. The private sector focuses on the needs of the shareholders.
Private Enterprise
A privately-owned enterprise refers to a business that is owned by private investors, shareholders or owners (usually jointly, but they can be owned by a single individual), and is in contrast to state institutions, such as publicly-owned enterprises and government agencies. Private enterprises comprise the private sector of an economy. An economic system that contains a large private sector where privately-run businesses are the backbone of the economy is referred to as capitalism. This contrasts with socialism, where industry is owned by the state or by all of the community in common. The act of taking assets into the private sector is referred to as privatization. The goal of private enterprise differs from other institutions, the major difference being private businesses exist solely to generate profit for the owners or shareholders. A privately owned enterprise is one form that private property may take.

3. UK Company in the World
A private military company (PMC) provides specialized expertise or services of a military nature. The hiring of professional soldiers is a common practice throughout history. Though these soldiers were once known as mercenaries, such companies prefer to be known as private military contractors, Private Security Contractors (PSCs), Private Military Corporations, Private Military Firms, Military Service Providers, and generally as the Private Military Industry, in order to avoid the negative stigma often associated with mercenaries.
The services and expertise cover those typically found in governmental military or police forces, but most often on a smaller scale. While PMCs often provide services to train or supplement official armed forces in service of governments, they are also employed by private firms. However, contractors who use offensive force in a war zone could be considered unlawful combatants, thereby referring to the "concept" being implicitly mentioned in the Geneva Conventions and explicitly specified by the US Military Commissions Act.
Private military companies supply bodyguards for the Afghan president Hamid Karzai and pilot armed reconnaissance planes and helicopter gunships as part of Plan Colombia. They are licensed by the United States Department of State, they are contracting with foreign governments, training soldiers and reorganizing militaries in Nigeria, Bulgaria, Taiwan, and Equatorial Guinea. The PMC industry is now worth over $100 billion a year.
The Raleigh Bicycle Company is a bicycle manufacturer originally based in Nottingham, UK. It is one of the oldest bicycle companies in the world. From 1929 to 1935 Raleigh also produced motorcycles and three-wheel cars, leading to the formation of the Reliant Company.
Types of UK Companies
There are many different types of UK companies:
• Public Limited Company (PLC)
• Private company limited by shares (Ltd, Limited)
• Company Limited by Guarantee
• Unlimited company
• Limited liability partnership (LLP)
• Limited partnership (LP)
• Societies European (SE): pan-European Union company structure
• Royal Charter (RC)
• Community interest company
• Industrial and Provident Society (IPS)
The British Broadcasting Corporation (BBC) is the largest broadcasting network in the world. The BBC is a public service broadcaster that operates under a Royal Charter. Within the UK, it is funded principally by an annual television license fee, which is charged to all United Kingdom households, companies and organizations using equipment capable of recording and/or receiving live television broadcasts, the level of the fee is set by the UK Government and agreed by Parliament. The BBC's main responsibility is to provide public service radio, television and internet broadcasting within the United Kingdom, Channel Islands and Isle of Man.
Outside the UK, the BBC World Service has provided services by direct broadcasting and re-transmission contracts by sound radio since the inauguration of the BBC Empire Service in December 1932, and more recently by television and online. Though sharing some of the facilities of the domestic services, particularly for news and current affairs output, the World Service has a separate Managing Director, and its operating costs are funded mainly by direct grants from the UK government. These grants are determined independently of the domestic license fee.
The Corporation's 'guaranteed' income from the license fee and the World Service grants are supplemented by profits from commercial operations through a wholly owned subsidiary, BBC Worldwide Ltd. The company's activities include programmed and format sales, magazines including Radio Times and book publishing. The BBC also earns additional income from selling certain programmed-making services through BBC Studios and Post Production Ltd, formerly BBC Resources Ltd, another wholly owned trading subsidiary of the corporation.
4. Share Holders as a Percentage of Adult Population
Shareholder disputes present one of the most prevalent and destructive problems encountered by the privately-owned business.
a. Shareholder conflicts appear to be universal.
b. Minority shareholder allegations against the majority reverberate in courtrooms throughout the world.
c. Common accusations are that the majority has excluded the minority from active participation in the business or has mismanaged or misappropriated assets.
d. Complaints that the majority has taken excessive remuneration or has failed to pay dividends cross geographical barriers.
e. The small business has made great strides in harnessing the benefits of technological advances in our computer age. Yet difficulties abound in the non-technical realm of human business relationships. Indeed, conflicts among shareholders continue to pose among the most difficult challenges to businesses, and in turn, to business law.
f. The United Kingdom and the United States have developed somewhat similar legal remedies for the minority shareholder of the private company. The law in the United Kingdom recognizes an action for "unfairly prejudicial" conduct,
g. While many U.S. state statutes provide the machinery for corporate dissolution in certain situations involving shareholder deadlock or where there has been "illegal, oppressive, or fraudulent" conduct.
h. Under the U.K. company law, the court has broad discretion to make remedial orders if there has been unfairly prejudicial conduct (including orders to regulate corporate conduct or purchase a shareholder's stock).
i. Although a court may order a purchase of a shareholder's stock in an effort to resolve a dispute, the buy-out remedy lies entirely within the discretion of the U.K. court.
j. The remedy of corporate dissolution may be sought under a separate statutory provision pursuant to the U.K. Insolvency Act.
k. The U.S. counterpart to the petition for unfairly prejudicial conduct is the action for corporate dissolution under the Revised Model Business Corporation Act.
l. This model act, adopted by many states, permits a petition for corporate dissolution in the case of shareholder deadlock or illegal, oppressive, or fraudulent conduct.
m. In lieu of proceeding with a corporate dissolution, the corporation (or one or more shareholders) may elect to purchase the stock of the petitioning shareholder within ninety days after the filing of the petition.
n. Under both U.K. and U.S. law, the remedial legislation has generated costly and lengthy litigation and has attracted significant criticism. Both U.K. and U.S. minority shareholders of private companies face similar obstacles when a conflict arises with the majority owners. Under both U.K. and U.S. law, the minority shareholder's investment in a private company is an illiquid asset. In both countries, when a serious and irreconcilable dispute occurs between the minority and majority shareholders, a common legal remedy sought by the minority shareholder is a court order to obtain a buy-out.
o. The purpose of this article is to explore the findings of an extensive study undertaken by the U.K. Law Commission on shareholder's remedies for unfairly prejudicial majority shareholder conduct.
p. The article explores the study's implications for U.K. law and the extent to which the U.K. Law Commission's recommendations might make sense in the context of U.S. corporate law. Given the similarity in the problems faced by U.S. and U.K. minority shareholders of private companies, the U.K. Law Commission's insights on the remedies for unfairly prejudicial conduct may be useful in analyzing comparable remedies under U.S. law.
Examples of a Company Stakeholders
Stakeholders Examples of interests
Owners private/shareholders Profit, Performance, Direction

Government Taxation, VAT, Legislation, Low unemployment

Senior Management staff Performance, Targets, Growth

Non-Managerial staff Rates of pay, Job security

Trade Unions Working conditions, Minimum wage, Legal requirements

Customers Value, Quality, Customer Care, Ethical products
Creditors Credit score, New contracts, Liquidity
Local Communities Jobs, Involvement, Environmental issues, Shares

Shareholder
A mutual shareholder or stockholder is an individual or company (including a corporation) that legally owns one or more shares of stock in a joint stock company. A company's shareholders collectively own that company and are the members of the company by signing the memorandum of association . Thus, the typical goal of such companies is to enhance shareholder value.
Stockholders are granted special privileges depending on the class of stock. These rights may include:
• The right to vote on matters such as elections to the board of directors. Usually, stockholders have one vote per share owned, but sometimes this is not the case.
• The right to propose shareholder resolutions.
• The right to share in distributions of the company's income.
• The right to purchase new shares issued by the company.
• The right to a company's assets during a liquidation of the company.
However, stockholder's rights to a company's assets are subordinate to the rights of the company's creditors. This means that stockholders typically receive nothing if a company is liquidated after bankruptcy (if the company had had enough to pay its creditors, it would not have entered bankruptcy, although a stock may have value after a bankruptcy if there is the possibility that the debts of the company will be restructured).
Stockholders or shareholders are considered one of the best out by some to be a partial subset of stakeholders, which may include anyone who has a direct or indirect equity interest in the business entity or someone with even a non-pecuniary interest in a non-profit organization. Thus it might be common to call volunteer contributors to an association stakeholders, even though they are not shareholders.
Although directors and officers of a company are bound by fiduciary duties to act in the best interest of the shareholders, the shareholders themselves normally do not have such duties towards each other.
However, in a few unusual cases, some courts have been willing to imply such a duty between shareholders. For example, in California, majority shareholders of closely held corporations have a duty not to destroy the value of the shares held by minority shareholders.
Shareholders play an important role in raising capital for organizations. So these figures pose a great opportunity for all those who are looking for a lucrative option to invest money. Companies typically provide all the necessary proofs to shareholders to show that they are investing at a right place. For example, fair and reliable audit figures from income statement and balance sheet are used as evidence of overall performance for the benefit of shareholders.
Maximizing Shareholder Value
This management principle, also known under value based management, states that management should first and foremost consider the interests of shareholders in its business decisions. Although this is built into the legal premise of a publicly traded company, this concept is usually highlighted in opposition to alleged examples of CEO's and other management actions which enrich themselves at the expense of shareholders. Examples of this include acquisitions which are dilutive to shareholders, that is, they may cause the combined company to have twice the profits for example but these bbmight have to be split amongst three times the shareholders.
As shareholder value is difficult to influence directly by any manager, it is usually broken down in components, so called value drivers. A widely used model comprises 7 drivers of shareholder value, giving some guidance to managers:
• Revenue
• Operating Margin
• Cash Tax Rate
• Incremental Capital Expenditure
• Investment in Working Capital
• Cost of Capital
• Competitive Advantage Period
Looking at some of these elements also makes it clear that short term profit maximization doesn't necessarily increase shareholder value. Most notably, the competitive advantage period takes care of this: if a business sells sub-standard products to reduce cost and make a quick profit, it damages its reputation and therefore destroys competitive advantage in the future. The same holds true for businesses that neglect research or investment in motivated and well-trained employees. Shareholders, analysts and the media will usually find out about these issues and therefore reduce the price they are prepared to pay for shares of this business. This more detailed concept therefore gets rid of some of the issues (though not all of them) indicated in the next section (criticism).
Based on these 7 components, all functions of a business plan and show how they influence shareholder value. A prominent tool for any department or function to prove its value are so called shareholder value maps that link their activities to one or several of these seven components. So, you can find HR shareholder value maps, R&D shareholder value maps, etc.
Shareholders submit resolutions dealing primarily with corporate governance, such as executive compensation, or corporate social responsibility issues, such as global warming, labor relations, tobacco smoking, human rights, and animal welfare.
Virtually all shareholder resolutions are non-binding (or "precatory," to use the legal term of art). In this sense the voting on these resolutions more closely resembles a poll than it does a (binding) referendum or plebiscite. Still, media coverage of voting on shareholder resolutions tends to focus on whether the proposal received a majority of votes, which occurs in a very small but increasing proportion of cases. According to SEC rules, defeated resolutions may be resubmitted only if they pass certain election hurdles (percentage of affirmative votes).
Shareholder resolutions have been an important part of activist campaigns in several cases. For example, resolutions were effective at raising public awareness and thereby pressuring corporate management about investments in apartheid South Africa, nuclear power, and labor disputes. Given these results, resolutions have been spearheaded by several coordinating groups, including the AFL-CIO and the Interfaith Center on Corporate Responsibility. Governmental and labor union pension funds also have become involved in supporting and submitting shareholder resolutions.
5. The Government Policy Dealing with Economic Growth
The government’s main economic aims are:
• Economic growth – more goods and services produced in the economy.
• Low inflation – prices that are not rising too fast.
• Low unemployment – as many people employed as possible.
• Fair distribution of income
The main policies used by government to achieve these aims are:
• Fiscal policy – government spending and taxation. Government spending is also known as public expenditure.
• Monetary policy – interest rates (the cost of borrowing money and rewards for saving).
• Legislation – laws that affect the way that a person or business can act.
The UK Government spends over £400bn a year and takes about the same in taxes. It also passes legislation. These affect the way business can act, e.g. what it can produce, how much it costs and who it can employ. It also affects the way that consumers spend their money.
• Taxation
Taxation comes in two forms:
• Direct taxation – taxation on income and profits (income tax, National Insurance and corporation tax).
• Indirect taxation – taxation on spending (VAT, excise duty).
Some examples of UK taxation are shown in the table below:
Example Type of tax/how it works Effects on business if the tax rises
Income tax A percentage of an individual’s income is taken in tax. A reduction in disposable income (money available to spend after tax); therefore households will not be able to spend as much, reducing sales.
VAT A percentage (17.5% currently in the UK) is added to the price of the item. It does not apply to all goods, e.g. children’s clothes. Increases the cost of the product, leading to fewer sales.
Tax on beer (excise duty) An amount is added to the cost of beer. Increases the cost of the product, leading to fewer sales.
Corporation tax A tax on profits made by businesses. Reduces the amount of profit available at the end of the year to be either distributed to the shareholders or to pay for more investment.
National insurance A tax on incomes (like income tax).
BUT also a tax on businesses who have to pay a portion of the tax on behalf of the worker The same as income tax and corporation tax but added to together.

Government Spending
The UK government spends approximately £400bn a year. Over a third of this money goes in welfare benefits such as pensions, unemployment benefit and other forms of income support. The rest is spent on health, education, defence, roads, law and order and on supporting businesses and local communities. Businesses can benefit direct or indirectly from the rest of the spending.
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. A business that is starting out, or is going to provide employment in a depressed area may be able to benefit from such help.
Examples of government assistance are:
• Regional selective assistance that gives help to businesses wanting to set up in areas of high unemployment.
• Enterprise zones aim to attract businesses to inner city areas.
Governments also provide support through advisory bodies coordinated by the Department of Trade and Industry, especially for small businesses. Other bodies also provide information and support such as the Chambers of Commerce. This organization 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.
Businesses can also benefit indirectly because of the huge spending that governments undertake. For instance the increases in health spending will benefit businesses that produce medical products or services to hospital (e.g. cleaning).
Fiscal Policy
The Government’s fiscal policy framework, together with the monetary policy framework, provide the platform of stability necessary for achieving the Government's central economic goal of high and sustainable levels of growth and employment.
Central to the fiscal framework are five principles of fiscal management:
• transparency in the setting of fiscal policy objectives, the implementation of fiscal policy and the publication of the public accounts;
• stability in the fiscal policy-making process and in the way fiscal policy impacts on the economy;
• responsibility in the management of the public finances;
• fairness, including between generations; and
• efficiency in the design and implementation of fiscal policy and in managing both sides of the public sector balance sheet.
These principles were enshrined in the Finance Act 1998 and in the Code for Fiscal Stability, approved by the House of Commons in December 1998. The Code explains how these principles are to be reflected in the formulation and implementation of fiscal policy. The 2009 Pre-Budget Report set out details of how the Government is strengthening the fiscal framework through the Fiscal Responsibility Act.
Evolution of the Fiscal Framework
Since the establish the fiscal framework in 1997 The Government’s fiscal objectives have been:
• over the medium term, to ensure sound public finances and that spending and taxation should impact fairly within and between generations; and
• over the short term, to support monetary policy and, in particular, to allow the automatic stabilisers to help smooth the path of the economy.
The Government adopted two fiscal rules as a means to deliver these objectives, set over an economic cycle to give fiscal policy the flexibility to support monetary policy and smooth the normal fluctuations in the path of the economy:
• the golden rule: over the economic cycle, the Government would borrow only to invest and not to fund current spending; and
• the sustainable investment rule: public sector net debt as a proportion of GDP would be held over the economic cycle at a stable and prudent level. Other things being equal, net debt would be maintained below 40 per cent of GDP over the economic cycle.
Over the economic cycle from 1997-98 to 2006-07, the fiscal framework supported the Government’s delivery of its fiscal policy objectives of sound public finances over the medium term and supporting monetary policy in the short term, and the fiscal rules were met.
In response to unprecedented shocks, the Government adopted the temporary operating rule at the 2008 Pre-Budget Report to allow significant flexibility in the operation of fiscal policy during the recession. It facilitated an effective and necessary response to the downturn, while signaling a clear commitment to fiscal sustainability yin the medium-term.
With economic conditions beginning to normalize and the economy forecast to emerge from recession by the end of the year, the Government believes it is now appropriate to strengthen the fiscal framework. Therefore, the Government announced details of the new Fiscal Responsibility Act alongside the 2009 Pre-Budget Report.
Fiscal Policy and Regulation
National accounting is a method for summarizing aggregate economic activity of a nation. The national accounts are double-entry accounting systems that provide detailed underlying measures of such information. These include the national income and product accounts (NIPA), which provide estimates for the money value of output and income per year or quarter.
NIPA allows for tracking the performance of an economy and its components through business cycles or over longer periods. Price data may permit distinguishing nominal from real amounts, that is, correcting money totals for price changes over time. The national accounts also include measurement of the capital stock, wealth of a nation, and international capital flows.
In economics, fiscal policy is the use of government expenditure and revenue collection to influence the economy. Fiscal policy can be contrasted with the other main type of economic policy, monetary policy, which attempts to stabilize the economy by controlling interest rates and the supply of money. The two main instruments of fiscal policy are government expenditure and taxation. Changes in the level and composition of taxation and government spending can impact on the following variables in the economy:
• Aggregate demand and the level of economic activity;
• The pattern of resource allocation;
• The distribution of income.
Fiscal policy refers to the overall effect of the budget outcome on economic activity. The three possible stances of fiscal policy are neutral, expansionary, and contractionary:
• A neutral stance of fiscal policy implies a balanced budget where G = T (Government spending = Tax revenue). Government spending is fully funded by tax revenue and overall the budget outcome has a neutral effect on the level of economic activity.
• An expansionary stance of fiscal policy involves a net increase in government spending (G > T) through rises in government spending, a fall in taxation revenue, or a combination of the two. This will lead to a larger budget deficit or a smaller budget surplus than the government previously had, or a deficit if the government previously had a balanced budget. Expansionary fiscal policy is usually associated with a budget deficit.
• A contractionary fiscal policy (G < T) occurs when net government spending is reduced either through higher taxation revenue, reduced government spending, or a combination of the two. This would lead to a lower budget deficit or a larger surplus than the government previously had, or a surplus if the government previously had a balanced budget. Contractionary fiscal policy is usually associated with a surplus.
The idea of using fiscal policy to combat recessions was introduced by John Maynard Keynes in the 1930s, partly as a response to the Great Depression.
Methods of funding
Governments spend money on a wide variety of things, from the military and police to services like education and healthcare, as well as transfer payments such as welfare benefits.
This expenditure can be funded in a number of different ways:
• Taxation
• Seigniorage, the benefit from printing money
• Borrowing money from the population, resulting in a fiscal deficit
• Consumption of fiscal reserves.
• Sale of fixed assets (e.g., land).
Funding the Deficit
A fiscal deficit is often funded by issuing bonds, like treasury bills or consols and gilt-edged securities. These pay interest, either for a fixed period or indefinitely. If the interest and capital repayments are too large, a nation may default on its debts, usually to foreign creditors. A fiscal policy decreases spending.
Consuming the Surplus
A fiscal surplus is often saved for future use, and may be invested in local (same currency) financial instruments, until needed. When income from taxation or other sources falls, as during an economic slump, reserves allow spending to continue at the same rate, without incurring additional debt.
Economic Effects of Fiscal Policy
Governments use fiscal policy to influence the level of aggregate demand in the economy, in an effort to achieve economic objectives of price stability, full employment, and economic growth. Keynesian economics suggests that adjusting government spending and tax rates are the best ways to stimulate aggregate demand. This can be used in times of recession or low economic activity as an essential tool for building the framework for strong economic growth and working towards full employment. The government can implement these deficit-spending policies to stimulate trade due to its size and prestige. In theory, these deficits would be paid for by an expanded economy during the boom that would follow; this was the reasoning behind the New Deal.
Governments can use budget surplus to do two things: to slow the pace of strong economic growth, and to stabilize prices when inflation is too high. Keynesian theory posits that removing funds from the economy will reduce levels of aggregate demand and contract the economy, thus stabilizing prices.
Some classical and neoclassical economists argue that fiscal policy can have no stimulus effect; this is known as the Treasury View, which Keynesian economics rejects. The Treasury View refers to the theoretical positions of classical economists in the British Treasury, who opposed Keynes' call in the 1930s for fiscal stimulus. The same general argument has been repeated by neoclassical economists up to the present. From their point of view, when government runs a budget deficit, funds will need to come from public borrowing (the issue of government bonds), overseas borrowing, or the printing of new money. When governments fund a deficit with the release of government bonds, interest rates can increase across the market. This is because government borrowing creates higher demand for credit in the financial markets, causing a lower aggregate demand (AD), contrary to the objective of a budget deficit. This concept is called crowding out; it is a "sister" of monetary policy.
In the classical view, fiscal policy also decreases net exports, which has a mitigating effect on national output and income. When government borrowing increases interest rates it attracts foreign capital from foreign investors in the form of hot money. This is because, all other things being equal, the bonds issued from a country executing expansionary fiscal policy now offer a higher rate of return. In other words, companies wanting to finance projects must compete with their government for capital so they offer higher rates of return. To purchase bonds originating from a certain country, foreign investors must obtain that country's currency. Therefore, when foreign capital flows into the country undergoing fiscal expansion, demand for that country's currency increases. The increased demand causes that country's currency to appreciate. Once the currency appreciates, goods originating from that country now cost more to foreigners than they did before and foreign goods now cost less than they did before. Consequently, exports decrease and imports increase.
Other possible problems with fiscal stimulus include the time lag between the implementation of the policy and detectable effects in the economy, and inflationary effects driven by increased demand. In theory, fiscal stimulus does not cause inflation when it uses resources that would have otherwise been idle. For instance, if a fiscal stimulus employs a worker who otherwise would have been unemployed, there is no inflationary effect; however, if the stimulus employs a worker who otherwise would have had a job, the stimulus is increasing demand while labor supply remains fixed, leading to inflation.
Monetary policy is the process a government, central bank, or monetary authority of a country uses to control
• the supply of money
• availability of money, and
• cost of money or rate of interest to attain a set of objectives oriented towards the growth and stability of the economy. Monetary theory provides insight into how to craft optimal monetary policy.
Monetary policy is referred to as either being an expansionary policy, or a contractionary policy, where an expansionary policy increases the total supply of money in the economy, and a contractionary policy decreases the total money supply. Expansionary policy is traditionally used to combat unemployment in a recession by lowering interest rates, while contractionary policy involves raising interest rates to combat inflation. Monetary policy is contrasted with fiscal policy, which refers to government borrowing, spending and taxation.