Unit 38 nicky

The aim of the assignment “Business and the Economic Environment” is to identify and understand terms used by many individuals. The terms used may be economy, GDP, recession, growth or even inflation. These terms ultimately have great effect and implications upon a business on its running. The assignment shall also look at different aspects of the United Kingdom’s economic environment and the recent changes that have gone on to affect it. Ultimately the assignment shall seek to link business and the economic environment. The assignment shall investigate the impact of businesses as a result of changes in the economic environment, understand how government spending impacts businesses, understand how policies such as monetary and fiscal can affect spending within the United Kingdom and finally know how the international economy affects United Kingdom businesses and competition.
This assignment shall:
1) Explain the effected of changes in the economic environment on a selected business.
2) Identify how government policies impact a selected business.
3) Identify the impact of government spending on selected business.
4) Analyse the implication of government policies for a selected business.
5) Evaluate the impact of changes in the economic environment upon a selected business.
6) Explain how both Fiscal and monetary policy decisions have affected a selected business.
7) Analyse the effects of fiscal and monetary policies for a selected business in terms of the market in which it operates.
8) Suggest and Justify elements of fiscal and monetary policies that would help a selected business achieve its objectives.
9) Describe the impact of international factors on a selected business.
10) Assess the impact of changes in the global and European business environment on a selected business.
The selected organisation that has been chosen to investigate is Balfour Beatty. Balfour Beatty PLC is a multinational infrastructure group in provision of professional services, construction services, support services and infrastructure investments. The organisation is thus in provision of four different services.
Task 1: Impact on Business of Changes in the Economic Environment:
The business cycle if often known as the economic cycle, the cycle is a concept used by many individuals to predict within what stage the economy is in and thus what effects this may bring upon many organisations. The business cycle ultimately shows and predicts increases falls and increases production, income and expenditure within an economy over a period of time. Predictions made about the economy are often calculated in quarters, within each year there are four quarters each lasting a period of three months. The economic cycle currently is viewed as having four different stages boom, recession, slump and recovery. The government will often implement a variety of policies based on what situation or stage the economy is currently in. The four different stages of the economic cycle in terms of their nature are outlined below:
Boom:
A boom is often seen as the period of the economic cycle within which the economy will prosper it is however worth acknowledging that although during this stage of the cycle the economy will experience high levels of growth, it is ultimately not desirable for any economy. A boom will often occur when levels of aggregate demand in the economy are at high levels an increase in aggregate demand within the economy is desirable however when increases in aggregate demand continue to occur at high levels, inflation can occur which is the overall increase in prices of goods and services over a period of time. Inflation is however not desirable as for consumers the prices of goods and services will increase leading to a fall in consumer spending eventually adding to unemployment within the economy. A boom as a result of increases in aggregate demand within the economy will often see the economy lead to increases in real national output, the total amount of goods and services within the economy an indication of falling levels of unemployment which is desirable within any economy as this indicates a period of strong economic growth.
Recession:
A recession will occur within the economy when aggregate demand in the economy continues to fall over a period of time. A recession will occur when the economy experiences a decline in economic growth for more than two consecutive quarters. A recession is however not desirable for any economy as during this period of time, unemployment will continue to rise as aggregate demand within the economy continues to fall leading to a fall in real national output, the total amount of goods and services produced within an economy over a period of time. A recession will as a result of the falling levels of aggregate demand within the economy lead to deflation within the economy, it is worth acknowledging that this means a fall in the average prices of goods and services within the economy meaning that producer confidence will fall and thus unemployment will occur as businesses begin to close down.
Slump:
A slump will occur within the economy when the economy continues to experience a decline in economic growth up to a point where it is no longer showing any indication of growth. A slump will often show high levels of inflation in many cases as the total amount of goods and services produced falls leading to increases in average prices of goods and services. Although aggregate demand will not be rising but falling indicating deflation as the total supply of goods and services also falls inflation will occur. A slump will also indicate high levels of unemployment which will occur as real national output, the total amount of goods and services produced within the economy will fall. It is worth acknowledging that the fall in real national output within the economy will occur as aggregate demand and supply within the economy fall.
Recovery:
A recovery will occur within the economy when after a recession or slump, the economy experiences signs of recovery resultant through increases in aggregate demand or aggregate supply within the economy. A recovery will occur as real national output rises, the total amount of goods and services produced within the economy. This will occur as aggregate demand rises alongside possible aggregate supply whereby the total amount of goods and services demanded and supplied within the economy increase and thus economic growth will occur within the economy. This will often indicate falling levels of unemployment as consumer and business confidence rise and thus increased activity in the form of spending will occur within the economy. Inflation will also occur within the economy however inflation will not be high as the economy is showing some signs of recovery through increased levels of aggregate demand and aggregate supply within the economy.
Balfour Beatty will be affected in different stages of the economic cycle in a variety of ways. The business will be affected in a number of ways as the economy experiences different levels of aggregate demand and supply within the economy and thus different levels of economic growth will also be experienced by the business. The ways in which Balfour Beatty will be affected in different stages of the economic cycle are outlined below:
Boom:
During a boom, businesses such as Balfour Beatty will be affected in a number of ways. As a result of increased and high levels of economic growth during this stage it is known that consumer confidence will also be high. Aggregate demand during this stage of the economic cycle will be high as it continues to increase contributing to increases in real national output, indicating a fall in unemployment as inflation also rises and thus economic growth will occur during this stage of the economic cycle.
Slump:
During a slump within the economy, businesses such as Balfour Beatty will be affected in a number of ways. As a result of continuous period of economic contraction as economic growth stagnates, business confidence will continue to fall during this period of time and thus businesses such as Balfour Beatty will be affected during a slump. The levels of aggregate demand during a slump will be at a low during a slump which will continuously lead to contractions in aggregate demand. As aggregate demand decreases resultant of decreases in consumption, investment, government spending and net exports, the economy will experience falling levels of real national output. A real national output decreases within the economy, the total amount of goods and services produced within the economy will also fall and thus economic growth will stagnate. The resultant decreases in real national output levels during a slump will increase unemployment levels within the economy and thus consumer confidence will also fall which may also contribute to falling levels of economic growth within the economy. As aggregate demand within the economy continues to fall within the economy during a slump, businesses such as Balfour Beatty will be affected as aggregate demand contractions will lead to deflation within the economy and thus business confidence will also fall causing businesses such as Balfour Beatty to make cuts within the firm as it experiences a fall in profits. There are a number of indicators that businesses such as Balfour Beatty may look out for during a slump, interest rates may fall in order to stimulate economic growth and thus when the amount of loans taken out increase funding increased levels of consumption and thus increasing levels of aggregate demand may be a sign of a recovery that Balfour Beatty may look out for during a slump.
Recovery:
During a recovery, businesses such as Balfour Beatty will be affected in a number of ways. A recovery will occur when the economy begins to experiences levels of economic growth after a period of economic contraction in terms of growth. A recovery will thus occur after a period of time during which the economy was in recession or otherwise a slump. The changing levels of aggregate demand throughout the cycle will be experienced during a recovery as the economy will during this period of time see increases in aggregate demand stimulate economic growth. A recovery will most likely occur when levels of consumption, government expenditure, investment or otherwise net exports increase which will stimulate and allow the economy to enter a recovery. It is also worth noting that as a result of increases in aggregate demand during a recovery a number of other indicators will also be in practice indicating the economy has entered a recovery. As aggregate demand continues to stimulate economic growth as the economy enters a recession, real national output will rise during this period of time and thus the total amount of goods and services produced within the economy will also increase. It is worth noting that as the amount of goods and services produced within the economy increases, unemployment levels will also fall as firms such as Balfour Beatty seek to employ more workers. The increases in aggregate demand levels will not only increase employment levels within the economy which will stimulate consumer confidence, but will also increase the value of goods and services within the economy through rising levels of inflation. As inflation continues to rise and the value of goods and services produced by firms such as Balfour Beatty continue to increase, business confidence will also rise.
Coalition Policies and the impact upon Balfour Beatty:
There have been a number of policies implemented by the current coalition government these policies have come in a number of forms through supply side policy as well as fiscal policy. These policies have impacted and affected many organisations such as Balfour Beatty in a number of ways. The current government has sought to reduce the amount of corporation tax payable by many large organisations such as Balfour Beatty, the level of corporation tax payable by such firms was reduced from 21% to 20% meaning that Balfour Beatty has experienced a reduction in costs and thus has increased its profits. This has impacted the organisation in a positive way as Balfour Beatty has been able to invest within the business in areas such as machinery and has also been able to increase its workforce and has thus helped to cut down on unemployment by employing more workers.
The current government has also proposed a new “high speed rail line” known as HS2. This although however has not begun production it has allowed firms such as Balfour Beatty to become aware of the opportunity within the infrastructure sector which has become available, it is estimated the project will cost the government £40bn and thus means that firms such as Balfour Beatty will be able to expect £40bn in terms of revenue coming in to the business if the project is passed to Balfour Beatty. It is however worth acknowledging that this is a proposed project and has not begun production and thus is a policy implemented by the government which could ultimately in the long term allow organisations such as Balfour Beatty to expand.
The 2013 Budget also has set aside £20bn for new road, rail and construction projects by 2020 with £3bn to be made available for 2015. This will ultimately be beneficial to firms operating in the construction sector such as Balfour Beatty who will know that as a large firm operating on a large scale a vast amount of this investment from the government will go towards such large firms. This will mean that the firm can invest into the construction sector further and may also choose to take on more workers and thus contribute to the United Kingdom employment levels. It may also allow for such firms to expand in the near future within the construction sector and thus help further to stimulate economic growth by adding to real national output levels within the economy.
The coalition government has also sought to target the construction sector as an area for investment in order to stimulate economic growth by addition to real national output levels. As a result of Balfour Beatty operating in the construction sector it shall be affected by the government recent decision to provide interest free loans for homebuyers which would be the equivalent of 20% of a new build properties value. This would ultimately be beneficial to Balfour Beatty as it would enable the firm to gather income at a faster rate. Many individuals may choose to pick up on this scheme such as homebuyers, as a result of Balfour Beatty construction activity many individuals may choose to buy homes build by the firm. Many individuals will be attracted to this new scheme and prospect of obtaining an interest free loan and will thus ultimately invest into a new build property rather than a classic and available home on the market. As a result Balfour Beatty will be able to gather revenue earlier than expected and may continue investment into the construction sector or otherwise employ more workers and thus contribute to employment levels by taking on unemployed workers.
Balfour Beatty currently operates in a number of industries although a business that operates in a market that is dominated by private firms, Balfour Beatty benefits from fiscal policy implementations by the government which fund the sector that Balfour Beatty currently operates within.
As a supplier of a number of services and goods demanded by the government and other bodies, Balfour Beatty is thus subject to funding by the government for a number of its activities. Balfour Beatty currently serves to provide the National Health Service and Highways agency with the construction of buildings in the health sector and the development of infrastructure in the transport sector and thus is funded by the government to carry out such activities. Balfour Beatty currently invests heavily into infrastructure and construction equipment which is primarily a result of government expenditure into the development of the public sector. As a result of Balfour Beatty and its operation within the infrastructure and construction sector as a multinational firm operating on a large scale basis it often obtains contracts from the government to carry out large scale projects.
A recent large scale investment into the work carried out by businesses such as Balfour Beatty is the commitment of £20bn into the development of new road, rail and construction projects by 2020 with £3bn to be made available for 2015. Firms operating in the construction sector such as Balfour Beatty, as a large firm operating on a large scale will be devoted a vast amount of this investment from the government. This will mean that the firm can invest into the construction sector further and is thus funded by the government directly for its activities but is however subject to providing the government with new infrastructure in the form of new roads, rail and construction. It is worth acknowledging that often government expenditure into such sectors will often be carried out by public sector firms such as the Highways agency.
Government expenditure will not only affect firms such as Balfour Beatty but will often affect industries on a large scale basis. Government expenditure on a large scale basis will often benefit industries as a whole if a vast amount of expenditure is devoted to investing and developing such industries in order to provide better quality goods and services. It is worth acknowledging and noting that investment into research and development of goods and services will often increase market competitiveness of a large scale. It is however worth acknowledging that such government expenditure will be a long term investment and thus the rewards for such investments will take a lengthy amount of time to be seen which may ultimately not be desirable. It is also worth considering that government expenditure into one industry will often result in a fall in investment within another sector and thus be increasing the market competiveness of one market will decrease another markets competiveness. It is worth acknowledging that the current £20bn commitment to new roads, rail and construction will benefit firms such as Balfour Beatty but will affect many other industries that may be subject to a fall in investment as a result.
Government expenditure on a large scale basis may ultimately be beneficial to organisations such as Balfour Beatty, but it is worth acknowledging that such government expenditure will only occur if the government is gaining enough income through the form of taxation. In order to fund such large scale investments the government must be aware that it must either make cuts in one sector in order to fund investment into another sector. The government may however wish to increase tax rates in order to fund such large investments although this may increase or decrease government revenues dependant on the tax rate it will often hinder business confidence in a number of other sectors and thus will impact not only a market but may impact the economy as a whole.
Government expenditure into such sectors will often be beneficial to firms currently operating within a specific market, but will often hinder the performance of other markets as a result and thus government expenditure must be thought through prior to committing investment into any sector. Government expenditure as a whole will benefit the economy as a whole but will often be directed towards the public sector, by increasing the size of the public sector ultimately the private sector will be affected and thus in many cases government expenditure will hinder the economy as a whole.
Private Finance Initiatives are means to allow the government to increase spending within a sector often within the public sector alongside businesses operating within the private sector. Private Finance Initiatives involve the awarding of contracts to private sector businesses that will in turn alongside local authorities will provide a service that was previously provided by the public sector. Private Finance Initiatives will allow private firms to take on the full cost of a project and allow the government to pay pack the costs over a period of time usually a number of years if a long term hefty project requiring a large investment.
Private Finance Initiatives mean that assets owned by the government will be transferred to a private firm for a period of time usually until the cost of a project is fully recovered by the private firm and thus the asset will remain in the hands of the private sector. It is however worth noting that assets transferred in such deals usually involve assets that are in use within the public sector within the health or education sector. In order for the government to make use of such facilities the government must pay the private firm in order to lease back the asset for its use and is thus why Private Finance Initiatives are often in place for long term investments. It is however worth noting that Private finance initiatives can be a risky investment for the government as projects handed to the private sector may often be undertaken and completed of a low standard and thus the government may find it hard to recoup all its money altogether and the cost of such projects can be hefty as a result of the lease of government assets. It is however also worth noting that projects undertaken under a private finance initiative can also be risky for the private firm, as a result of changes in government revenues which are increasingly dependent on the economy a firm within the public sector may see the government pull out of such initiatives midway through a project if government revenues fall and see government debt rising. It is however worth acknowledging that the government may pay some form of a fee in such cases but the fee is often less than that of the firms expected amount assuming the project was to reach full completion. Private finance initiatives can however be beneficial to the public sector as a result of the private sector paying the full cost of a project, it can allow the government to invest into other areas for a longer period of time for example into areas such as education. It is also worth noting that the public sector will benefit on many occasions from such long term investments lasting for long periods of time if the cost of such projects is decided prior to passing on the contract to a private sector firm, this is due to the fact that the value of such investments will often see great returns for the public as its value may rise over such periods of time.
The Private Finance Initiatives policy will affect Balfour Beatty in a number of ways, although such policies will mean and allow the government to invest into areas such as Health and Education and thus increase the chances of government investment into such areas, The Private Finance Initiatives policy means that organisations such as Balfour Beatty will take on the full cost of such projects, ultimately although the cost of investment will initially be taken on by firms such as Balfour Beatty they will see a hefty return from the government for such investments. Organisations such as Balfour Beatty have benefited from the Private Finance Initiatives policy as it has increased government expenditure into areas such as construction and infrastructure but however means that firms such as Balfour Beatty will have to wait over a longer period of time to see their returns on such investments. Balfour Beatty has recently benefited from such initiatives as was resultant from previous government commitments to increasing and investing into the education sector through the construction on new buildings. Balfour Beatty has benefited from such investments as under the Private finance initiatives policy it has taken on the initial cost of constructing such building but will however see hefty return from the government from the construction on such buildings under the initiative. It is however worth acknowledging that although this remains a risky investment from such private sector firms, it has increased the chances of government expenditure into such investments. The government has recently committed a vast amount of investment into the development and construction of new roads over a long period of time. Balfour Beatty although will take on the initial cost of investment into such projects will see its returns increase over a period of time as the government will be leasing a asset that will be transferred into the hands of Balfour Beatty as a result of taking on the initial cost of investment into the construction of new roads.
As a result of operating within the construction and infrastructure sector, Balfour Beatty remains a core supplier of goods and services to the government. As a result of operating within such as sector the firm is often subject to large amounts of government investment within the sector into areas of infrastructure such as through the development of roads and the rail network.
Government spending is vital to many organisations such as Balfour Beatty who operate within the construction and infrastructure sector. As a result of the government owning the vast majority of infrastructure within the United Kingdom, its development is dependent upon the governments in terms of its expenditure and investment into the sector. Balfour Beatty thus relies in terms of its day to day operation on the investment which would be dependent on government expenditure levels. As a result of Balfour Beatty operating on a large scale basis it is dependent on large scale investment into a number of projects only resultant of government expenditure which would occur on a large scale. The government thus remains a core demander of the goods and services Balfour Beatty provides to the infrastructure sector as it owns a vast amount of United Kingdom infrastructure sector. Balfour Beatty also remains a core supplier of goods and services within the construction sector and thus will be subject to government investment into the sector. As the government remains and continues to invest into the public sector in order to increase its competitiveness, Balfour Beatty remains a core supplier to many goods and services demanded by the government and thus remain dependant on government expenditure into construction as a result of the size of the public sector.
Government spending levels are vital to firms such as Balfour Beatty in terms of their ability to expand and make profit on a large scale basis over a long period of time. As government expenditure for the development of the public sector is often a long term hefty investment into the construction of buildings, firms such as Balfour Beatty remain heavily dependent on government expenditure levels. It is worth noting that the construction sector often requires hefty investment for the construction of buildings and will thus often mean that goods and services will be demanded by firms such as Balfour Beatty. Government expenditure will often not only affect a sector on its own but will often affect the economy as a whole. An increase into government expenditure into the development of the public sector such as education into the construction of buildings will come under fiscal supply side policy and thus as a long term investment may increase market competitiveness. An increase in government expenditure into such areas will increase real national output levels within the economy as the total amount of goods and services is assumed to increase assuming all other factors are kept the same and thus economic growth will occur. It is however worth noting that the benefits of such investments are long term and will often not be seen for a long period of time. A fall in government expenditure will however affect many firms such as Balfour Beatty as aggregate demand within the economy shall fall, this will lead to a fall in real national output levels as the amount of goods and services produced falls. A fall in aggregate demand will also indicate deflation which may indicate the economy falling into a recession and thus business and consumer confidence will fall resultant of the fall in government expenditure and thus many firms such as Balfour Beatty will be affected by changes in government expenditure.
Changes in the levels and priorities of government expenditure can affect a number of organisations such as Balfour Beatty, it is worth acknowledging that government expenditure levels will often be based upon the current economic climate and thus will affect organisations such as Balfour Beatty for long periods of time and thus managers of such organisations must be able to make decisions reacting to changes in the levels and priorities of government expenditure.
It is worth acknowledging that during times within which the economy is in a boom and thus experiencing high levels of economic growth, as a result of increased government revenues during this period of time through taxation of goods and services being purchased as consumer expenditure is high during this period of time, government expenditure will also be high in terms of investment into a number of different industries and markets. During this period of time governments may be willing to invest into the research and development of and within many different industries and thus may allow firms such as Balfour Beatty to take advantage of such investment opportunities through the provision of goods and services. As a result of Balfour Beatty operating within the construction sector during a boom, government expenditure may rise in terms of investment into the public sector in areas such as health and education, investment may be into the development of buildings within the sector and thus would allow organisations within the construction sector to take advantage of opportunities which may increase the firms revenue. The managers of such organisations during periods within which government expenditure is high into development of such sectors may be able to take advantage of increased revenue by investing such sources of income into the business for expansion in the near future. The managers of such firms may also consider that business confidence will increasingly rise as government expenditure increases forcing aggregate demand within the economy to also rise and thus also increase inflation levels. It is during such periods of time that business start ups will be witnessed and thus managers of firms such as Balfour Beatty may need to increase their competiveness within the market by investing within the business.
During periods of time within which the economic climate is not great and thus the economy is within a recession or slump, the levels and priorities of government expenditure will change. During such periods of time the government will not be in receipt of high levels of revenue through taxation as the economy experiences stagnation in terms of growth resultant of falls in aggregate demand within the economy. This would lead to a fall in real national output levels as the amount of goods and services produced within the economy fall causing the economy to experience deflation and thus decrease business confidence. During such times the government will be in receipt of lower levels of revenue as the amount of goods and services purchased and taxed falls. It is also worth acknowledging that unemployment will rise during this period of time and thus the government will be seeing larger or otherwise increased expenditure into welfare benefits as unemployment levels rise. It is worth taking into consideration that the government may hike taxes in order to fund welfare benefits but it is likely that business confidence will fall and thus the amount of goods and services produced will also fall leading to increases in unemployment levels. Managers of businesses such as Balfour Beatty will react to such changes by making cuts within the firm as government expenditure into the development of a number of sectors falls as the government is a core demander of the goods and services offered by Balfour Beatty. It is however worth acknowledging that during such periods of time the government may seek to lower tax levels in order to encourage business start ups and thus increase employment levels. As tax levels fall, businesses such as Balfour Beatty will experience increases in profit and thus managers of such firms may react to such changes in government expenditure by using the increase in profit levels to fund future investment into business in order to expand within the market.
The Multiplier Mechanism is an economic concept used to refer to the circular flow of income within the economy. The circular flow of income model is used to refer to injections within the model when increased leading to an overall increase in real national output within the economy. The injections within this model are government spending, investment and exports, whilst withdrawals from the model include savings, imports and taxes. The multiplier effect is thus used to refer to increases in government spending, investment and exports leading to an overall increase in real national output within the economy and thus an increase in the total amount of goods and services produced within the economy and thus economic growth within the economy.
Changes in government spending would affect many organisations such as Balfour Beatty, it is resultant of the fact that government spending is a core injection into the circular flow of income and thus any change in government spending would affect the overall resultant change in real national output within the economy.
A fall in government spending would affect many organisations such as Balfour Beatty as the fall in government spending would ultimately result in a fall in real national output, the total amount of goods and services produced within the economy. As the fall in the amount of goods and services produced within the economy would be resultant of the fall in government spending it is likely that there would be a number of other consequences resultant of the fall in government spending, unemployment would occur as aggregate demand within the economy arises and thus economic growth would also stagnate whilst the fall in government expenditure indicating a fall in aggregate demand would also lead to deflation within the economy. The managers of organisations such as Balfour Beatty would react to such changes by making cuts within the firm and decrease the amount of workers within the organisation, as the government remains a core demander of the goods and services produced by Balfour Beatty. It is worth acknowledging that organisations such as Balfour Beatty would experience deflation resultant of the fall in government expenditure, this would ultimately reduce the value of the goods and services produced by the organisation which would ultimately not only lead to reduction in business confidence of Balfour Beatty, but a fall in business confidence would be experienced across the whole economy. The managers of organisations of firms such as Balfour Beatty would react to such changes in terms of government spending by making cuts within the organisation which may lead to increases in unemployment and may also lead to the managers making changes to the organisations future plans for expansion within the market. The managers of such firms may thus not invest into the organisation expanding within the market which would also be another fall in injections into the circular flow of income model. The managers of such firms would thus be making savings rather than undertaking investment within the firm.
A rise in government spending within the economy would be seen as an increase in terms of injections into the circular flow of income model. The increase in injections through the increase in government expenditure would ultimately result in an increase in real national output within the economy and thus an increase in the amount of goods and services produced within the economy would occur. The increase in real national output within the economy would occur as aggregate demand within the economy would increase and thus employment would also rise, the increase in employment within the economy may also increase consumer confidence within the economy. The increase in aggregate demand within the economy resultant of the increase in government expenditure within the economy would also lead to inflation within the economy and thus the overall value of goods and services would increase, the increase in the value of goods and services produced within the economy would thus increase business confidence not only of firms such as Balfour Beatty but also increase business confidence within the economy as a whole. The managers of firms such as Balfour Beatty would react to such changes within the economy as the government remains as core demander of goods and services produced by Balfour Beatty any increase in government expenditure within the construction sector would ultimately result in Balfour Beatty increase the total amount of goods and services produced by the firm, the rise in inflation would also increase business confidence of firms such as Balfour Beatty and thus the managers may invest into expansion of the business in the near future which also as an injection into the circular flow of income would result in an increase real national output within the economy. The managers of firms such as Balfour Beatty would thus resultant of the increase in government expenditure within the economy make investments rather than savings within the firm.
The government current policies have affected organisations such as Balfour Beatty in terms of their plans for expansion in the near future. The government has currently cut the levels of corporation tax payable by a firm on its profits. The current level of 21% has been cut down to 20% meaning that many firms will now be making larger amounts of profit, and thus will be able to use some of the profit to invest into areas of the business. They may also use the extra profit to hire more workers and thus contribute to the employment levels of the United Kingdom. The firm has been experiencing a fall in costs resultant of the fall in corporation tax payable by a firm in terms of its profits, the fall in costs has thus increased the amount of profit made by such firms and thus firms such as Balfour Beatty have been able to use the increase in profits to fund future plans for expansion through investment. The business has been able bring closer plans for expansion resultant of the increase in profits made by the firm, and has also been able to hire extra workers which has thus allowed Balfour Beatty to contribute to the economy by increase levels of employment.
The current government has set aside £20bn for new road, rail and construction projects by 2020 with £3bn to be made available for 2015. This will ultimately be beneficial to firms operating in the construction sector such as Balfour Beatty who will know that as a large firm operating on a large scale a vast amount of this investment from the government will go towards such large firms. This will mean that the firm can invest into the construction sector further and may also choose to take on more workers and thus contribute to the United Kingdom employment levels. The increase in profits which will be experienced by firms such as Balfour Beatty operating in the construction sector will allow the firm to bring forward plans for expansion by using the increase in profits from the current government policy to invest into the business and thus allow the firm to expand within the market in the near future.
The impact of changes in the economic environment have affected businesses such as Balfour Beatty in a number of ways, these changes within the economic environment have been positive and negative in terms of their impact on Balfour Beatty. The changes have impacted and prepared Balfour Beatty for the near future as the business has identified how it may be impacted by these changes in the economic environment in the near future. The changes in the different aspects of the economic environment are briefly outlined below:
1) The Economic Cycle.
2) Government Spending.
3) Fiscal Policy.
4) Monetary Policy.
5) Global Developments and the Impact of the EU.
The Economic Cycle:
The changes in terms of the economy within the economic cycle have impacted organisations such as Balfour Beatty in a number of ways. The United Kingdom has been in a recession for a long period of time which as resultant in contractions in terms of economic growth for two or more consecutive quarters. It is however worth acknowledging that the United Kingdom economy has recently entered a recovery however the impact of the economy in terms of its recovery is not yet known. The United Kingdom which has long been in a recession has impacted Balfour Beatty in a number of negative ways, it is worth acknowledging that the contraction in economic growth has primarily occurred within the economy as a result of the fall in aggregate demand within the economy, the total amount of goods and services demanded within the economy over a period of time. The fall in aggregate demand within the economy has led to a fall in real national output within the economy and thus the total amount of goods and services produced within the economy has decreased. The fall in real national output within the economy has indicated a fall in economic growth and thus the continuous fall in real national output for two or more consecutive quarters have led to the economy enter a recession. The fall in real national output also indicates an increase in unemployment levels within the economy which thus would indicate increases in savings rather than spending as consumer confidence falls. The fall in consumer confidence would thus lead to a fall in the amount of goods and services produced by Balfour Beatty demanded by consumers and thus would lead to Balfour Beatty making cuts within the firm which may further increase unemployment levels. It is also worth acknowledging that the cuts made by Balfour Beatty would also be influenced by the fall in aggregate demand within the economy leading to deflation as the value of goods and services fall within the economy and thus business confidence would also fall. These changes within the economic environment have impacted the firm negatively as the firm has been forced to make cuts and thus make savings rather than investment within the firm which have not allowed the firm to expand within its market.
Government Spending:
Although government spending has been falling for a long period of time within the economy, it is well known that government spending has risen within the construction sector which has benefited firms within the construction sector such as Balfour Beatty. The fall in government spending has impacted not only firms such as Balfour Beatty, but the overall fall in government spending has impacted the economy as a whole. As an injection into the circular flow of income, a decrease in the amount of government expenditure would also decrease real national output within the economy. The fall in real national output, a decrease in the total amount of goods and services produced within the economy would lead to stagnation in economic growth and thus unemployment would occur. It is also worth acknowledging that the fall in government spending would lead to a fall in aggregate demand within the economy which would also further contribute to the fall in real national output within the economy. The fall in aggregate demand would also lead to deflation within the economy which would occur and thus the average value of goods and services would fall within the economy. The fall in real national output in the economy contributing to the rise in unemployment would lead to a fall in consumer confidence and thus savings would rise whilst spending would decrease. The fall in aggregate demand leading to deflation within the economy would also lead to a fall in business confidence and thus many businesses such as Balfour Beatty have been making savings on profits and cutting back on investments. Organisations such as Balfour Beatty have also been making cuts within the organisation as the value of their goods and services fall, which has led to the business contributing to unemployment levels. The cut in the level of corporation tax paid by a firm on its profits from a previous level of 21% has been cut down to 20% meaning that many firms such as Balfour Beatty will now be making larger amounts of profit, and thus will be able to use some of the profit to invest into areas of the business. They may also use the extra profit to hire more workers and thus contribute to the employment levels of the United Kingdom
Fiscal Policy:
The government has been making cuts within the public sector seeking to stimulate economic growth within the private sector they have been seeking to stimulate economic growth within the construction sector and has set aside £20bn for new road, rail and construction projects by 2020 with £3bn to be made available for 2015. This will ultimately be beneficial to firms operating in the construction sector such as Balfour Beatty who will know that as a large firm operating on a large scale a vast amount of this investment from the government will go towards such large firms. This will mean that the firm can invest into the construction sector further and may also choose to take on more workers and thus contribute to the United Kingdom employment levels.
Monetary Policy:
The current base interest rate set by the Bank of England is currently 0.5% which has been the lowest ever, this rate of interest has been set at such a low rate in order to increase borrowing by businesses and thus reduce savings. This is ultimately beneficial to firms such as Balfour Beatty as it will allow the firm to take out loans on low interest rates and thus will allow it to make earlier than expected investments if the amount of interest payable is not to large. This ultimately means that borrowing becomes more attractive rather than saving. For many consumers they will also be able to take out loans on a low interest rate and thus will make investment into construction and thus firm such as Balfour Beatty will see an increase in demand for its services as a result. As a result of operating in the construction sector, often large scale investment is required from individuals. Often individuals will not be willing to take out loans in order to fund such investment as the amount of interest payable would be high as a result. As a result of only gaining low returns on savings many individuals will not be able to make large scale investment into areas such as construction and thus the demand of services provided by firm such as Balfour Beatty will ultimately be in decline and thus would not be beneficial to firms such as Balfour Beatty.

Global Developments and the Impact of the EU:

A number of global developments have occurred across the international economy, which in turn have impacted businesses such as Balfour Beatty. The emergence of the EU in terms of its impact politically has impacted the firm in a number of ways, positively and negatively. Although the EU has removed all trading barriers throughout member states of the union and thus reduced the cost of trading goods and services internationally within the union, many organisations based within the construction sector abroad outside the United Kingdom have affected Balfour Beatty. Organisations within the construction sector based outside the United Kingdom have been able to provide the same goods and services offered by Balfour Beatty to United Kingdom consumers at a cheaper rate which has thus led to a decrease in the amount of sales Balfour Beatty has been able to achieve. It is also worth acknowledging that the fall in sales which has occurred resultant of the European Union and its increasing membership, Balfour Beatty has seen a decrease in its profits which has affected its long term plans for expansion within the construction sector, as the firm has experienced a fall in profits it has not been able to invest into expansion and thus such global developments have impacted the firm negatively. It is however worth noting the EU has positively impacted firms operating within the construction sector as the EU has removed barriers facing the freedom of labour. As labour is now able to move freely within the EU, businesses such as Balfour Beatty have been able to access cheaper labour from abroad, this has thus meant the firm has experienced a fall in its costs as labour has become cheaper for the firm and thus the firm has experienced an increase in its profits which it may seek to use as a means of investment within the firm for its future plans of expansion.

Balfour Beatty has been negatively impacted by other global developments which have occurred across the international economy, the firm has seen a number of emerging economies experience increasing levels of economic growth, which in turn have allowed such economies to demand a number of natural resources such as oil and gas. As the demand for such scarce commodities has increased, the price of such commodities has also increased as they have neared depletion. As a result of the emerging economies demanding more s of such resources in order to expand their economies, many firms outside of these economies have also experienced an increase in their costs of production. As the BRIC economies continue to demand more of such scarce commodities and they near depletion, the price of such commodities will continue to rise. Balfour Beatty has thus experienced an increase in its costs of production and has thus increased the price of its goods and services which has ultimately meant that the emerging BRIC economies alongside industry specific developments have negatively impacted the firm.

A number of positive changes have occurred within the economic environment which has positively impacted Balfour Beatty, it is however worth acknowledging that although a number of positive changes have occurred in terms of the economic environment a number of negative changes have also occurred and impacted Balfour Beatty the most significant of changes are outlined below.

As the United Kingdom economy has been in a recession for a long period of time, the Bank of England has maintained interest rates at 0.5%. This has positively impacted Balfour Beatty as it has been able to bring forward plans for expansion as at such low interest rates, borrowing becomes more attractive in comparison to saving when interest rates are high. This has allowed the firm to borrow large sums of money at a relatively low interest rate and thus minimal interest is paid back on borrowings, although the economic climate is relatively poor, the firms has been able to bring forward plans for expansion as funds to invest into the business become more readily available. It is however worth noting that such low levels of interest have only become available as a means to stimulate economic growth which during a recession has negatively impacted Balfour Beatty as it has seen a fall in the total amount of goods and services demanded by consumers fall. This also led to the value of the goods and services produced by the firm also decrease and thus although the low interest rate has had a positive impact on the firm, the economic climate has however offset the positive change in interest rates. It is also worth noting that Balfour Beatty has experienced a fall in its costs of production as labour has become cheaper resultant of the removal of trading barriers across member states of the EU. It is however worth noting that although this has decreased the costs of production for Balfour Beatty, it has been offset by the increase in the value of commodities such as oil and gas which have occurred resultant of the emergence of the BRIC economies contributing to their depletion. It is thus worth acknowledging that Balfour Beatty has experienced a number of positive changes within the economic climate through low interest rates and the removal of trading barriers across the EU, although these positive changes across the economic environment remain significant, they have not impacted the firm as much as the negative changes which have occurred across the economic environment which has seen the United Kingdom economy enter a recession for a long period of time, this has coincided with the emergence of the BRIC economies which have contributed to the depletion of natural resources such as oil and gas leading to an increase in the prices of such resources and thus from the point of view of Balfour Beatty a number of these positive changes across the economic environment have been offset greatly by the negative changes in the economic environment.

There are a number of possible economic changes which have been predicted to occur by a number of economists as well as the Bank of England. The Independent has reported that the Bank of England has predicted that the United Kingdom economy will see unemployment fall to below 7% after 2016 after which it may raise interest rates for the United Kingdom. It is predicted that unemployment may fall to below 7% after 2016 as the United Kingdom economy will see increases in business start up resultant of increases in business confidence which may occur as a result of increases in aggregate demand within the economy. The increases in aggregate demand within the economy may be influence by increases in consumption within the economy and thus the total amount of goods and produced within the economy will also increase leading to the fall in unemployment. The increase in aggregate demand within the economy will also lead to inflation within the economy and thus business confidence will increase to further stimulate economic growth as the economy also experiences increases in consumer confidence. As inflation increases and the value of goods and services within the economy increases the Bank of England may seek to increase interest rates in order to reduce consumption within the economy and increase savings. Many organisations such as Balfour Beatty may prepare itself for such changes by taking out loans at a lower interest prior to 2016 in order to invest into the business and fund expansion. It may also be aware that as aggregate demand will fuel inflation during this period of time, it may save resources and wait to sell goods and services during 2016 when consumer confidence is high.

The recent changes within the current economic environment have overall impacted Balfour Beatty negatively as discussed above. The future predicted changes within the economic environment will overall positively impact Balfour Beatty as aggregate demand will increase in the economy and thus the total amount of goods and services produced within the economy will also increase which will contribute to economic growth. The most significant positive change within the economy which predicted is inflation, inflation as it will continue to increase in the near future will see the value of the goods and services produced by Balfour Beatty increase and thus will also increase the business confidence of Balfour Beatty, a significant negative change within the economy which is predicted to occur is the increase in interest rates, this will impact Balfour Beatty as it will no longer be able to access cheap loans at a low interest rate as borrowing becomes less desirable and saving becomes more attractive within the economy.

Task 2: Fiscal and Monetary Policies and their Effects on spending:
Fiscal policy is a policy used by the government as a means for it to spend and invest on a vast variety of sectors. Fiscal policy is the means by which the government is able to spend in public sector areas such as Education, Health, Defence, Welfare and Transport. Fiscal policy is seen as a means to increase aggregate demand within the economy which is often supported by many Keynesian economists who support the use of fiscal policy as the means to fund public sector organisations.
Fiscal policy is however a policy used by the government and thus the extent to which is used is dependent upon the current state of the economy and often the party which is in government. It has been well known that socialist parties have long supported the use of fiscal policy whilst many conservative parties have opposed extensive use of fiscal policy to fund public sector organisations.
The use of fiscal policy has however been subject to restriction in recent times which has been evident under the well-known “Golden Rule” which states that government borrowing should never be in excess of 40% of national income. The restricts towards the use of fiscal policy has been evident within many laws that have recently been passed such as the Fiscal Policy responsibility bill which was passed as a means to restrict government borrowing which often is the major fund in terms of the government being able to spend in areas such as those outlined above.
In order for the government to implement fiscal policy measures that it sees as rewarding, the government must be aware that the majority of the public do not support high levels of borrowing that can add to high levels of government debt. In order for the government to be able to fund and invest into many public sector organisations it must thus implement a means to gather income. The government thus obtains income through taxation, which can come in the form of direct and indirect taxation. The different forms of taxation are outlined below:
Direct Taxation:
Direct taxes are a form of tax that is based upon ones income and is paid not only be individuals but also by businesses. The level of tax is dependent on the form of tax, ones income and profit.
1) Income Tax is a form of direct tax that is paid based upon ones income. The current basic means to tax individuals is set on the principle that the lowest earners within society are taxed 20% of income whilst the top earners are taxed 40% of income. It is however worth noting that many individuals may be subject and exempt from paying this form of tax is their level of income is below a certain figure, currently this figure is believed to be £10,500. Tax again cam also come through the interest upon ones savings within a saving account once again the figure percent taken is dependent upon ones earnings and thus the lowest earners pay 20% of interest in tax whilst the highest earners pay 40% of interest in tax.
2) National Insurance Contributions are also another form of direct tax that the government is in recent of. NIC are a form of tax also dependent on ones income, these contributions enable individuals to claim welfare benefits from the government if required and add up to one’s ability to claim a state pension upon retirement. National insurance contributions are paid not only by individuals but are also paid by the employers to the government.
3) Corporation tax is a form of tax that directly placed upon organisations profits. It is well know that many large organisations shall seek to avoid paying corporation tax by investing back into the company for the future in order to gather exemptions from the government. The current level of corporation tax is 20% of profits.

Indirect Taxation:
Indirect taxes are a form of tax that is indirectly taken from individuals by being added to the prices being charged for the good or service provided.
1) Value added tax is a form of tax that is charged upon most goods and services. These taxes also apply to many goods that are brought into the United Kingdom from outside the European Union. VAT is currently applicable to many goods and services ranging from clothing to the sales of services. The current level of VAT that is payable by most organisations is set at 20%.
2) Excise Duty is a form of tax that is applicable to many particular goods such as alcohol, fuel and tobacco. Excise duty is often added to goods that are seen as harmful to health or the environment but are a good means to raise income for the government whilst reduce consumption of the good.
3) Air Passenger Duty is a tax paid by many commercial airlines per flight. The duty is currently charged not to individuals but rather the airline. This tax was implemented not only to raise levels of government income but also for a vast number of environmental reasons associated with air travel.

Monetary policy is a policy that was previously used and controlled by the government in order to stimulate aggregate demand within the economy and to control the money supply within the economy. The policy is now however implemented by the Bank of England who set interest rates according to the state of the economy, whereby rewards are given on savings and are also the rate at which one is charged when borrowing. Monetary policy is thus ultimately used to control interest rates within the United Kingdom and the money supply within the economy.
There have been many recent Fiscal and Monetary policy decisions made by the United Kingdom government as well as the Bank of England ultimately these decisions have been made in order to stimulate growth within the economy.
The current Budget that was introduced in 2013 has set out a variety of policy implementations that would fall under fiscal policy these decisions set out under the budget can affect many firms such as Balfour Beatty.
As a result of Balfour Beatty operating in the construction sector it shall be affected by the government recent decision to provide interest free loans for homebuyers which would be the equivalent of 20% of a new build properties value. This would ultimately be beneficial to Balfour Beatty as it would enable the firm to gather income at a faster rate. Many individuals may choose to pick up on this scheme such as homebuyers, as a result of Balfour Beatty construction activity many individuals may choose to buy homes build by the firm. Many individuals will be attracted to this new scheme and prospect of obtaining an interest free loan and will thus ultimately invest into a new build property rather than a classic and available home on the market. As a result Balfour Beatty will be able to gather revenue earlier than expected and may continue investment into the construction sector or otherwise employ more workers and thus contribute to employment levels by taking on unemployed workers.
The 2013 Budget also has set aside £20bn for new road, rail and construction projects by 2020 with £3bn to be made available for 2015. This will ultimately be beneficial to firms operating in the construction sector such as Balfour Beatty who will know that as a large firm operating on a large scale a vast amount of this investment from the government will go towards such large firms. This will mean that the firm can invest into the construction sector further and may also choose to take on more workers and thus contribute to the United Kingdom employment levels.
The government budget of 2013 has also cut the levels of corporation tax payable by a firm on its profits. The current level of 21% has been cut down to 20% meaning that many firms will now be making larger amounts of profit, and thus will be able to use some of the profit to invest into areas of the business. They may also use the extra profit to hire more workers and thus contribute to the employment levels of the United Kingdom.
There have not been many recent changes to the current overall Bank of England stance on monetary policy. The current base interest rate set by the bank of England is currently 0.5% which has been in place since 2009. This interest rate has been set in order to encourage consumers to increase spending within the economy rather than save, as borrowing will become more attractive in comparison to saving. It has however been said the Bank of England will consider raising interest rates if unemployment levels fall below 7%. This currently is beneficial to firms such as Balfour Beatty as they are able to obtain loans at a low interest rate and thus investment becomes more attractive in contrast to savings and thus allows many organisations to gather a source of income which does not set a large cost to borrowing.
The market within which Balfour Beatty operates is one of many which are dominated by few large firms. The market Balfour Beatty operates within is currently within the construction sector whereby it is also in the private sector. The market within which it operates can be said to be oligopolistic as a result of the few firms that dominate the market. Balfour Beatty currently has since 2009 been taking over many smaller firms within the market and has thus increased its market share as a result. The market as a result is not currently favourable to many small firms that seek to enter the industry as a result of the high start up costs that may be involved often these costs may be sunk costs. The market however has been subject to fluctuations whereby the construction sector has seen increased levels of investment during some stages of the year whilst it has also often seen a decline in the demand for construction services on many occasions.
Fiscal policy has affected Balfour Beatty, the current budget that was set out in 2013 particularly focused on investment within the construction and infrastructure sector of the economy which ultimately will be beneficial to the firm. The budget also sought to reduce the levels of corporation tax payable by many such firms which has also benefited the firm greatly in its ability to continue in its day to day running.
Fiscal Policy (Pros):
The current Budget set aside £20bn for new road, rail and construction projects by 2020 with £3bn to be made available for 2015. This ultimately will benefit firms such as Balfour Beatty that operate within the construction sector as it will guarantee business for the firm up until at least 2020 on a large scale. As a result of operating in a market which many may regard as oligopolistic it is very much likely that a vast amount of this figure will pass on to firms such as Balfour Beatty. This measure will ultimately mean that the business will face more demand for its goods and services and thus will allow the firm to make greater levels and amounts of profit.
The current cut in the level of corporation tax from 21% to 20% has ultimately been a fiscal policy measure that was designed to help firms such as Balfour Beatty which operate on a large scale and thus expect large profits. The cut in the level of corporation tax will allow the firm to make a significant amount of profit extra, which may be invested into other areas of the business and may also be used to hire extra workers.
Fiscal Policy (Cons):
It is however worth acknowledging that the £20bn figure will only be available in 2015 and thus the firm should be aware that it must rely on other construction projects up until the time which the firm may find difficult, this is due to the fact that the economy remains fragile and large scale investment within such sectors is currently unlikely. It is also worth acknowledging that as a result of the figure £20bn being made available in 2015, the government has time to consider retracting the commitment of £20bn. This may affect the business if the government were to consider backtracking on its commitment as the business may invest in areas assuming this £20bn figure of investment may be available in the near future and thus the business may be making a large risk and may lead to the business having to make cutbacks in operations.
Monetary Policy (Pros):
The current base interest rate set by the Bank of England is currently 0.5% which has been the lowest ever, this rate of interest has been set at such a low rate in order to increase borrowing by businesses and thus reduce savings. This is ultimately beneficial to firms such as Balfour Beatty as it will allow the firm to take out loans on low interest rates and thus will allow it to make earlier than expected investments if the amount of interest payable is not to large. This ultimately means that borrowing becomes more attractive rather than saving. For many consumers they will also be able to take out loans on a low interest rate and thus will make investment into construction and thus firm such as Balfour Beatty will see an increase in demand for its services as a result.

Monetary Policy (Cons):
As a result of operating in the construction sector, often large scale investment is required from individuals. Often individuals will not be willing to take out loans in order to fund such investment as the amount of interest payable would be high as a result. As a result of only gaining low returns on savings many individuals will not be able to make large scale investment into areas such as construction and thus the demand of services provided by firm such as Balfour Beatty will ultimately be in decline and thus would not be beneficial to firms such as Balfour Beatty.

The recent changes in Fiscal and Monetary Policy have significantly affect Balfour Beatty in terms of the costs that it faces. As a result of the cut in corporation tax from 21% to 20%, Balfour Beatty has been more so with ease been able to cover its costs as it is now making more profit than previously. These changes in fiscal policy measures have ultimately overall benefited the organisation on a large scale as although costs will remain the same it now has greater profits allowing it to cover these costs. The rate of monetary policy has benefited the organisation as it now able to take out loans with a low rate of interest on occasion to cover costs often the amount of interest payable is so low that the firm will cover the costs back in upcoming projects. The firm is however not able to gather a large amount of interest on its savings within the United Kingdom and has thus not helped the organisation when making large scale investment within a shorter period of time.

The current expansion plans set by Balfour Beatty have benefited from the recent changes in fiscal and monetary policy measures. The cut in the rate of corporation tax has benefited the organisation greatly as it now makes greater substantial levels of profit which has allowed the organisation to bring forward expansion plans for the near future as investment income in more so readily available. The managers will have to react to the change as although the current economic situation is not desirable any form of investment into expansion may benefit the organisation whilst the lower level of corporation tax is in place.

The current expansion plans set by Balfour Beatty may not benefit by the current level of interest available for savings as the returns are not substantially great. This may mean that current expansion plans set by Balfour Beatty may have to wait and be pushed further back, or the managers of the firm may decide to move savings abroad where interest rates are more desirable and attractive to such firms.

Balfour Beatty ultimately in its objectives seeks to maximise profit levels and expand within the market it operates within. The firm also seeks to provide a quality level of service to all its consumers and thus fiscal and monetary policy will affect the firm dependent upon the measures implemented by the government and the bank of England. Balfour Beatty would thus more so favour a considerable number of measures that may be taken by the Bank of England in terms of monetary policy and the government when implementing fiscal policy. There are a number of measures that would be desirable to Balfour Beatty in its achievement of its objectives which are outlined below.

1) A further cut in corporation tax thus would help Balfour Beatty achieve its long term objectives in a variety of ways. A further cut would enable the firm to increase its profits which would occur as a result of costs being cut down, tax being the cost in this case. A cut in corporation tax would mean the firm would have increased income which would previously have been lost through tax which the firm could now use to expand the business within the market in the near future. It is well known that the current cut in corporation tax has helped the business takeover other firms so it may well be the case that Balfour Beatty may continue to expand into the market if a further cut in corporation tax were to be implemented. The firm could use this cut to buy better materials for the goods and services it provides and thus ultimately a cut in corporation tax would allow the firm to provide a better quality service.

2) A dedication to increased spending on infrastructure and construction projects by the government would also help the firm achieve its long term objectives of maximising profits. This would occur as the firm would be aware of upcoming investment into such areas of development. The firm would thus be able to bulk buy raw materials for its goods and services at a lower rate and thus maximise its profits when undertaking large scale projects.

3) A cut in the base interest rate would help Balfour Beatty in the long term as it would allow the firm to obtain loans with no interest or minimal interest if obtained from commercial banks. This would allow the firm to expand within the market at a faster or earlier than expected period of time and thus would be beneficial to the firm if the interest occurred is not great enough to put off any earlier investment.

4) A possible hike in the interest rate may also be beneficial to the firm as large amounts of savings may be subject to high interest rewards. These rewards may allow the firm to increase expenditure in terms of investment in the near future if great enough and thus would allow the firm to achieve its long term objective of expanding within the market.

Task 3: Effects of the International Economy on UK Business and Competition:

There are a number of major events that have taken place across the international economy which have affected many businesses such as Balfour Beatty. These changes have been positive and beneficial to the firm whilst many have not been desired by such businesses. There have been many economic developments which have occurred alongside these events which have affected the business in terms of Balfour Beatty and its day to day running. These events that have occurred are outlined below:

1) The influence of the European Union (EU) and its operation.
2) Stock Market Fluctuations.
3) War and Political instabilities.
4) Terrorism.
5) Actions of OPEC.
6) Environmental concerns and actions.
7) Outsourcing.
8) International trade agreements.
9) Industry specific developments.

The influence of the EU and its operation:
The European Union has increasing grown in terms of influence within the international economy. The European previously was restricted under the previous European Economic Community in terms of economic influence but has recently grown and replaced the community in terms of power as the European Union. The European Union has become increasingly influential not only under Economic terms but also socially and politically which has thus gone on to affect many organisations such as Balfour Beatty.

As a result of joining the European Union, businesses such as Balfour Beatty have been able to freely attain goods and services from other member states without having a need to pay custom or excise duty charges. This has also allowed Balfour Beatty with the opportunity to extend its trade of goods and services within a wider market whilst reducing its costs. The European Union in this case has been beneficial to Balfour Beatty in terms of reducing its costs and providing it with the ability to extend and broaden its market. It is however worth acknowledging that Balfour Beatty currently maintains a stronghold position within the United Kingdom construction sector but as a result of the United Kingdom joining the European Union, it has had to accept that it shall be prone to increased competition from firms based elsewhere in the European Union also operating within the construction sector.

The European Commission which works with member states of the European has been founded in order to help and support business success, growth and employment. The European Commission has set up schemes in order to help countries or regions develop and grow. This has targeted many derived areas where poverty is stricken, the commission has thus helped the European Union to devote money in order to help and revive such areas by investing into infrastructure this has helped organisations such as Balfour Beatty who have been able to take advantage of such schemes as a large firm who have been targeted by the European Union to take hold of such project investments.

The European Union has also implemented policies for member states to reduce:

1) Air Pollution.
2) European Climate Change.
3) Pollution.
4) Land Use.
5) Noise.
6) Sustainable Development.
7) Waste.

Policies have been implemented by the European targeting the above which have affected many businesses such as Balfour Beatty who as a result of operating in the construction and infrastructure sector will be affected by any policy targeting the above. The European Union has sought to reduce any activity affecting the environment which has affected businesses such as Balfour Beatty who have had to ensure that any activity taken by the firm is in co ordination with such policies. The European Union in this case has hindered Balfour Beatty in achieving its long term profit targets and policies set out by the union have increased the firm’s costs. These costs have only come as a result of the European Union which may have been avoided if the United Kingdom were not a member state of the union and has thus had a negative impact upon Balfour Beatty.

Stock Market Fluctuations:
Stocks and shares are traded throughout the world across many stock exchanges such as the London stock exchange. As a result investors moving money across many nations in order to gather a maximum amount of profit, changes or otherwise fluctuations in the value of stocks and shares within one country can have huge impacts upon other firms. Currently Balfour Beatty is listed as a public limited company and is currently available for shares the value of the business currently fluctuates up and down as a result of the economic climate. The firm was hit hard when the housing slump hit the USA which went on to affect other stock markets across the world and did lead to the share price of Balfour Beatty to fall.

War and Political Instabilities:
Political instabilities have also been evident in recent times which have affected many large organisations. These instabilities have been present particularly in recent times throughout the Middle East which have led to many large developed nations within Europe to devote large sums of aid through monetary form to such countries. This aid has however only been given by some nations through cutting public expenditure in areas such as business and welfare and as a result has impacted many large organisations such as Balfour Beatty. The impact of political instabilities can be great in terms of business operation as a result of the negative impact and implications it may have upon trade on an international scale. These impacts have been great as a result of the importance that globalisation has in terms of trade in the modern world. As a result of political instabilities in such countries, Balfour Beatty has been negatively impacted as it has not been able to access raw materials from abroad which have raised the organisations costs. This has come as a result of many trading embargos that have been implemented by larger developed nations onto nations that have not been able to resolve political instabilities.

War has also had a large impact upon many organisations such as Balfour Beatty, as a result of the cost that comes along with a country entering a war, government finances are also diverted away from ensuring business and economic growth towards areas such as defence businesses such as Balfour Beatty can experience risen costs and thus may lay off workers in order to ensure its day to day running.

Terrorism:
Terrorism has however not had a great impact upon organisations such as Balfour Beatty but has however indirectly impacted the organisation on a larger scale. Although Balfour Beatty has not experienced any terrorist activity directly, terrorism on a national scale has seen the United Kingdom enter war within the Middle East in order to remove terrorist threat. This has seen the government devote more finance towards areas such as defence rather than business or economic development which has resulted in the organisation experience a drop in profits as during war it its evident that consumer spending is also hard hit and thus the sales of Balfour Beatty’s goods and services have dropped further causing the business to experience stagnation in terms of its growth.

Actions of the Organisation of Petroleum Exporting Countries (OPEC):
The Actions of OPEC have also been significant in not only affecting large organisations such as Balfour Beatty but have been significant in terms of affecting many individuals. OPEC were set up in order to protect the interests of petroleum exporting countries, countries which are oil rich or otherwise seen to have large amounts of oil ready for extraction. The OPEC were set up almost as a means by many of these large nations to ensure that large or otherwise fair amounts of money was received from nations who are not oil rich and thus to increase the amount of money obtained from the sale of oil. This has impacted many nations such as the United Kingdom in terms of business, the government has been forced to buy oil for large sums of money, which in turn has led to businesses such as Balfour Beatty experience an increase in costs forcing them to lay off workers and contribute to the rising levels of unemployment. The OPEC by increasing the cost of oil has led to rising inflation within the United Kingdom’s economy which has seen a fall in the amount of goods and services bought and sold causing organisations such as Balfour Beatty to also experience a fall in profits and in this case OPEC has negatively impacted such businesses. OPEC has however in some cases benefited the United Kingdom as the government has devoted more money to research and development of renewable or other sources of energy which has led to Balfour Beatty obtaining contracts for construction and has this indirectly benefited from the actions of OPEC.

Environmental Concerns and Actions:
As a result of the growing impact of global warming, many environmental concerns have been raised by the governments of many countries resulting in action being taken to resolve such concerns. These concerns have been raised and have seen action taken at many key meetings between some of the world’s largest and most influential leaders. These meetings have been arranged in order to and as a means to protect the environment. These meetings have taken place under the United Nations Framework Convention on a large scale in order to help protect and preserve the environment.

Rio Earth Summit:
The Rio Earth summit was held in Rio, Brazil 1992 which saw leaders from all over the world attend and address many environmental concerns. The summit saw a variety of decisions made by some of the most influential leaders in order to support work in areas of Biological diversity, climate change, forest management and to achieve sustainable development.

Kyoto Protocol:
The Kyoto protocol was implemented in 1997 after a meeting between the leaders of some of the world’s largest and most influential leaders. The Kyoto Protocol saw a number of targets implemented in order to ensure and support work that aimed to reduce the amount of carbon emissions and to also support the investment and development of cleaner and renewable energy in some of the world’s developing countries.

Copenhagen Climate Conference:
The Copenhagen climate conference was a conference that took place by member states of the United Nations and was the 15th meeting since the formation of the United Nations. The meeting took place in Copenhagen in 2009 which resulted in a last minute agreement and formation of the Copenhagen Accord. The conference was however criticised for its minimal addressing of environment concerns and was also seen as a conference that failed as a result of the lack of achievement in terms of addressing and taking action upon the environmental concerns.

Outsourcing:
Outsourcing occurs when a business asks another business or group of companies to carry out work or provide a service on its behalf. Outsourcing to and from other countries has become increasingly common as a result of economic developments resulting from globalisation. Outsourcing has increasingly become common within the service sector where services have been provided to other countries whilst situated within one country. This has come as a result of cost cutting measures implemented by many organisations that have been able to obtain cheaper goods and services from abroad in comparison to the United Kingdom. Outsourcing has become increasingly common from the BRIC economies where it is known that services are cheaper however Britain has also been outsourcing its own services abroad. Organisations such as Balfour Beatty have become increasingly aware of the use of outsourcing across the world on an international scale. The organisation has been able outsource its own services within the infrastructure sector to businesses within Europe but has however lost out to many other businesses also operating within the same sector to developing countries who have developed their service sector especially within Asia.

International Trade Agreements:
There are many trade agreements that are in place in order to help the trade of goods and services between economies. These agreements have ultimately been put into place in order to increase the amount of goods and services being traded on a lower cost basis. There are many agreements which have been implemented as a result of conflict and disputes which have seen to the formation of organisations. These are outlined below:

The World Trade Organisation:
The World Trade Organisation was set up in 2009 and consisted of 153 member governments. The organisation was set up in order to ease the trading of goods and services between the member states by promoting trading and resolving conflicts and disputes between the nations regarding trading. The World Trade Organisation is believed to provide a number of benefits in regard to the negotiation of trade, these are outlined below:

1) To ensure and promotes peace in terms of the trade of goods and services.
2) To resolve any disputes between the member states constructively.
3) To enforce rules allowing the trading of goods and services efficient.
4) To water down trading costs, making the cost of living lower.
5) To increase the amount of choice available between goods and services.
6) To increase the incomes of individuals and businesses through trade.
7) To allow the stimulation of economic growth.
8) To enforce basis principles allowing and enforcing efficient trade.
9) To prevent lobbyists having impact upon government.
10) To encourage a fairer government in terms of trade of goods and services.

Trading Blocs:
A Trading Bloc is a group of countries that work together in order to increase the amount of goods and services traded with one another, and thus increase the economic benefits for all economies within the bloc resultant of trade. Trading Blocs however can make it harder for economies outside the bloc to trade, as it can increase the cost of trade with such countries by placing costs for trading with members of the bloc if not included within the bloc. The North American Free Trade Agreement is a trading bloc between the USA, Mexico and Canada who have no trading fees between one another and thus are able to trade with efficiency allowing goods and services to be cheaper.

International Trade Agreements have ultimately been beneficial to organisations such as Balfour Beatty this has come as a result of the agreements protecting the rights of such organisation by increasing the amount of trade with countries protected by such agreements and thus making the trade of goods and services cheaper. This has allowed businesses such as Balfour Beatty to make larger sums of profit as the goods and services being provided by the business abroad to be cheaper and thus Balfour Beatty has benefited from such agreements.

Industry Specific Trade Developments:
Developments across the world in terms of oil, gas and transport industries have in some way not only affected the industries themselves but have also gone on to affect many other industries such as the construction sector indirectly. These developments have affected a vast amount of other industries primarily through cost in most cases through raising or increasing costs which have affected many organisations such as Balfour Beatty negatively. The increasing price of oil and gas have affected many such industries by impacting directly on the cost of production as it is well known that most industries in the modern rely upon such resources in order to allow the production of goods and services. The increased costs for goods and services from areas such as the construction sector have thus been derived from the increased costs of oil and gas. As an organisation established within the United Kingdom, Balfour Beatty is aware that the United Kingdom has come to a point where the its natural resources have been used extensively and are at a point of depletion. This has thus led to an increase in the price of natural resources in terms of oil within the United Kingdom, which has forced many oil industries within the United Kingdom to import oil from abroad primarily from the Middle East. This is however also not desirable as it also an expensive alternative, but businesses such as Balfour Beatty have been forced to cope with such rising costs.

Global Warming:
Global warming has become an increasingly important issue regarding business and the economic environment. The issue has increasingly has great impact upon many organisations such as Balfour Beatty who have been impacted directly and indirectly as result of global warming. Global warming has impacted a great and vast number of areas which have in turn gone on to affect organisations such as Balfour Beatty such as the actions of OPEC have been increasingly subject to global warming concerns which have in turn affect stock markets and thus affected Balfour Beatty.
Global warming has become a growing issue on an international scale, the scale of global warming has not only been great enough to directly affect the environment but it has also gone on to affect organisations, governments and international bodies. It is worth acknowledging that global warming has been given great attention on an international scale which has as a result indirectly affected the actions of organisations such as Balfour Beatty.
For 2020, the EU has committed to cutting its emissions to 20% below 1990 levels. This commitment is one of the headline targets of the Europe 2020 growth strategy and is being implemented through a package of binding legislation. The EU has offered to increase its emissions reduction to 30% by 2020 if other major emitting countries in the developed and developing worlds commit to undertake their fair share of a global emissions reduction effort. This has however only come as result of implementations but into place as the European Union has currently placed strict restrictions on the amount of emissions a business such as Balfour is allowed to emit. The EU emissions trading system has allowed businesses to purchase permits for any dangerous gases emitted contributing to global warming. Balfour Beatty has been affected by the system as the permits currently cost large sums of money, which has forced the organisation to consider alternative uses and sources of energy which do not result in large amounts of dangerous gases emitted allowing the firm to purchase fewer permits, and thus allowing the firm to make larger sums of profit as a result of cost cutting measures implemented.
Stock market fluctuations have also impacted organisations such as Balfour Beatty, these fluctuations have come as a result of global warming, as strict restrictions have been put into place by many governments on the amount of gases emitted by organisations, the price of oil has increased as its supply has been restricted in terms of its use. This has caused the stock market prices for oil and gas to dramatically increase which have thus impacted and affected organisations such as Balfour Beatty. The organisation as a result of the fluctuating price of oil which has been known to increase as oil becomes scarce been forced to accept increasing costs of production in terms of its work in the construction sector. The price of oil as a result of stock market fluctuations have been on great concern to organisations such as Balfour Beatty as it known that after the recent economic crash many organisations within the same sector have closed. Balfour Beatty has as a result been forced to accept that as a result of the increase in costs of its production, the total costs of its goods and services provided will also rise which has led to a fall in sales as many consumers have become unwilling to pay large and excessive amounts for the goods and services Balfour Beatty provides.
War and Political instabilities have impacted organisations such as Balfour Beatty on a large scale, it is however worth acknowledging that war and political instabilities have not directly affected the organisation but have indirectly affected the organisation. The war and political instabilities of recent times have been known to occur in the Middle East, it is known that countries within the Middle East are oil rich but however have not been able to exploit these resources as war and political instabilities have been occurring. War and Political instabilities have affected organisations such as Balfour Beatty who rely on oil on a great scale as a result of operating in the construction sector. These instabilities have restricted the supply of oil and gas onto the market forcing the prices of oil and gas to rise further as they also become scarcer. These instabilities which have forced the price of oil and as to rise have resultantly added to the overall costs of production for organisations such as Balfour Beatty. These costs of production have affected the organisations ability to sell and maximise profits as the demand for such goods and services has fallen. The fall in demand for such goods and services has only come as a result of increases in price for such goods and services and thus war and political instabilities have affected organisations such as Balfour Beatty on a large scale.
The actions of OPEC have also been impacted and affected by global warming. As a result of global warming, many countries have cut back on emissions which occur and result from the use of oil and gas. The cut back in the use of oil and has have affected the actions of OPEC who know that although the amount of oil and gas used is being cut down, oil is seen as a necessity and is becoming increasingly scarce. As a result of oil becoming increasingly scarce the organisation of petroleum exporting countries has been able to exploit this situation by colluding and increasing the overall price of oil and gas. This has in turn affected many organisations such as Balfour Beatty who rely upon the use of oil and gas in order to provide its goods and services. As a result of OPEC increasing the price of oil and gas and global warming becomes an increasingly international concern, organisations such as Balfour Beatty have been affected. The increasing price of oil and gas have increased the costs of production for Balfour Beatty who have in turn been forced to pass these costs on to consumers who have been forced to pay excessive amounts for the goods and services Balfour Beatty provides. It is however worth acknowledging that many consumers have not been willing to pay such excessive amounts forcing the organisation to accept a fall in demand for its goods and services which have resulted in the organisation expecting lower levels of profit.
Global warming has led to increasingly environmental concerns and action which have impacted organisations such as Balfour Beatty in terms of their day to day running. Global warming has led to environmental action being implemented such as the Kyoto Protocol, which set targets to reduce carbon emissions in order to support the development of cleaner energy in developing countries. This has impacted organisations such as Balfour Beatty who have been forced to acknowledge that the government will implement a variety of policies in order to reduce such emissions. The government has diverted spending away from the construction sector in order to develop renewable sources of energy which do not have high levels of dangerous gas emissions. This has thus meant that organisations such as Balfour Beatty have accepted that they will face a fall in demand for the services provided as the government remains a large consumer on the construction sector and thus Balfour Beatty has experienced a fall in profits in terms of its goods and services sold.
Industry specific trade agreements have been affected by global warming which has thus affected many organisations such as Balfour Beatty. The United Kingdom previously were large exporters of coal, however it is known that the use of coal can greater add to dangerous gas emissions. As a result of government targets to cut down on the amount of dangerous gas emissions, the government has shut down may coal mines and has increasingly become importers of gas and has also invested into areas of research and development of other sources. It is worth acknowledging that the government as a result of developing other areas of energy and its sources the construction sector within which Balfour Beatty operates, has experienced a fall in investment which in turn has meant that organisations such as Balfour Beatty have experienced a fall in demand for its goods and services as the government remains a core consumer of goods and services from the construction sector. This in turn has meant that the organisation has experienced a fall in profits as a result of industry specific developments which have occurred as a result of global warming.
The influence of BRIC economies:
The influence of BRIC (Brazil, Russia, India and China) economies has impacted Balfour Beatty in a number of ways, directly and indirectly. The influence of BRIC economies have impacted and affected a vast number of areas which in turn have affected organisations such as Balfour Beatty. The influence of BRIC economies have impacted and affected stock markets resulting in fluctuations and thus impacting and affecting organisations such as Balfour Beatty.
Stock market fluctuations have been impacted by the influence of BRIC economies, this has occurred as the BRIC economies have increasingly grown and thus become more influential in terms of demanding necessities. The BRIC economies have increasingly as a result of developing their own industries in areas such as technology they have been able and resultantly demanded more oil and gas. The increase in demand from such BRIC economies has been so great that the price of oil and gas on stock market has plummeted to high levels. It is worth acknowledging that the influence of BRIC economies has resultantly affected many other organisations such as Balfour Beatty operating in a variety of sectors by raising their costs of production. The costs of production for organisations such as Balfour Beatty have increased resulting in the firm passing on these costs to consumers. The increased price for the goods and services offered by Balfour Beatty have led to many consumers seeking alternatives or decreasing their demand for the good or service, thus affecting organisations such as Balfour Beatty who have experienced falls in profit as a result. This has occurred only as result of the influence of BRIC economies.
The influence of BRIC economies have also altered and impacted upon the decisions made by OPEC. The influences of BRIC economies have ultimately impacted organisations such as Balfour Beatty. As a result of the BRIC economies growing in size and experiencing high levels of growth in a variety of sectors, they have been demanding more oil and gas in order to develop these industries. They have increasingly been demanding more oil and gas and thus increased the overall price for oil and gas on the stock market, which in turn has made OPEC also raise the stock market price for oil as a result of the increased demand for oil and gas emerging from OPEC countries. The increased price of oil and gas has impacted the decisions made by OPEC who have raised the price of oil and gas further which has impacted many organisations such as Balfour Beatty. It is worth acknowledging the costs of production for organisations such as Balfour Beatty have increased resulting in the firm passing on these costs to consumers. The increased price for the goods and services offered by Balfour Beatty have led to many consumers seeking alternatives or decreasing their demand for the good or service, thus affecting organisations such as Balfour Beatty who have experienced falls in profit as a result. This has occurred only as result of the influence of BRIC economies.
Outsourcing has also occurred across the world, which has impacted many organisations such as Balfour Beatty in terms of their ability to provide quality goods and services. The influence of BRIC economies has been great in terms of the impact it has had upon outsourcing as currently the BRIC economies are core suppliers and contributors to outsourcing. The BRIC economies have been able to provide quality services from abroad to consumers within the United Kingdom economy where Balfour Beatty currently operates. This has impacted the infrastructure sector within which Balfour Beatty operates as the firm has been forced to accept that many consumers within the United Kingdom can outsource services from the BRIC economies at a cheaper rate. This has forced Balfour Beatty to cut its costs for services provided in the infrastructure sector enabling consumers to obtain services at a cheaper rate, ultimately the firm has however experienced a fall in profits as a result of outsourcing from abroad.
Industry specific trade agreements have impacted many organisations operating within the United Kingdom such as Balfour Beatty, for example within the construction sector who actively demands high levels of gas and oil. It is worth acknowledging that industry specific developments have occurred as a result of the influence of BRIC economies which have impacted the world price of oil and gas and have also contributed to the falling supply of oil and gas as it becomes scarcer. As the BRIC economies have demanded more oil and gas the price of oil and gas has increased. It is worth acknowledging that the increase in demand has led to oil and gas becoming increasingly more so scarce forcing the price of oil and gas to increase further. This has led to the United Kingdom becoming increasingly reliant and spending heavily on investment in areas of renewable energy. This has however meant that United Kingdom government has given organisations operating in the construction sector the opportunity to develop and construct buildings which will support the supply of such sources of energy. It has thus meant although Balfour Beatty has experienced increases in costs of production as a result of the increases in the price of oil and gas, it has however been able to take advantage by experiencing increases in demand for the goods and services it provides. This has however only occurred as a result of the influence of the BRIC economies.