Economic Effects on Easyjet

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Coursework Two: Written report evaluating and commenting on the recent developments in monetary, fiscal and exchange rate policy in the UK and abroad and how these impact on easyJet

With the new coalition Government of the Conservatives and Liberal Democrats gaining power in 2010, and almost immediately calling an emergency budget, as the Conservatives promised, declaring their primary objective is to reduce the deficit there have been many changes in fiscal policy and reversal of plans by the Labour Government, there has also been changes in the exchange rate which will have considerable impacts all over the world. Additionally the Bank of England has looked to make use of monetary policy. All of the changes in the UK, and in Europe will have an impact on easyJet (as easyJet only flies in Europe). The objective is to identify the changes in macroeconomic policies in the UK and abroad, using data and information from The Bank of England, the European Central Bank, the Institute for Fiscal Studies, the Budget, the easyJet corporate report and other various economic sources.

  The Main Objectives of Government macroeconomic policy are; sustainable economic growth, stable low inflation, low level of unemployment, and a good position on the balance of payments. It is that final policy that the coalition Government has declared most important. With the deficit growing year on year, with little sight of changing, and as such they have used fiscal policy drastically recently as, especially the Conservatives in the coalition Government, have looked to reduce the budget deficit with across the board cuts (totalling six billion Pounds) in Government spending, this coupled with the various tax rises are extreme measures which seem necessitated by the extreme economic times we are in. Many believe these actions will lead to a double dip recession, one which it could take the UK many years to recover. The Government also increased VAT on the 1st of January from 17.5% to 20% (the highest it has ever been). Although George Osborne (speaking to the BBC on the 4th of January) thinks “targeting VAT is more progressive than increasing income tax or National Insurance” many still believe VAT is a very regressive tax, meaning it is more of a burden on those households with lower income. This graph (compiled by the Institute for Fiscal Studies) shows how the poorest 10% will be hit much harder than the other 90%, seeing a percentage loss of net income more than double that of the richest 10%. This is because VAT is on goods including necessities, which means a rise in VAT will not deter people from purchases of said goods, so VAT will have a large impact on their percentage net income. Although overall a rise in VAT will have cost the richest 10% more, as their net income is considerably larger they have to capacity to cope better with the rise, and will cause a smaller decrease in their net income.

Another rise is in fuel tax, "Given that each penny increase in fuel duty raises an extra £500 million for the Exchequer, it is easy to see why the chancellor is tempted to hike rates," said the foundation's director, Professor Stephen Glaister. The Government have increased fuel duty by 0.76p on petrol and diesel, and the rise in VAT will mean another price increase. The AA estimates that “these increases combined will add approximately 3.5p to the cost of a litre of both petrol and diesel.” According to HM Tresuary budget report 2010 “The most urgent task facing this country is to implement an accelerated plan to reduce the deficit. Reducing the deficit is a necessary precondition for sustained economic growth.” As such another part of the recent fiscal policy changes in the UK was announced in The Budget, that public sector net borrowing would remain at 4 per cent of GDP in five years time, the structural deficit would be 2.8 per cent of GDP by 2014-15, while the structural current deficit would be 1.6...
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