Business Environment and Economic System of UK

This report provides an overview of the business environment and economic system of the UK, focusing on concepts such as fiscal policy, general economic concerns, capital markets, and monetary policy. It discusses the government policies and their impact on the business environment, labor markets, income distribution, and employment. The report also explores the implications of monetary policy on money supply and demand forces, and the effects of fiscal policy on taxation, social security contributions, pensions, and public expenditure deficits. Additionally, it provides insights into the capital market and its functions in the UK.

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Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
General economic concerns.........................................................................................................1
Monitory Policy...........................................................................................................................3
Fiscal Policy.................................................................................................................................5
Capital market..............................................................................................................................6
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Business environment is mentioned to entirety of entire intrinsic and extrinsic factors which
have huge potentials to influence a business. At same time, macroeconomic policy is defined as
economic branch which deals with structure, decision making, performance along with
behaviour of an economy (Fontana and Setterfield, 2016). General economic concerns engross
situations related to income distribution, government economic policies, employment as well as
labour markets. Monetary policy is the action that is implemented by nation’s central bank with
the objective of controlling money supply in order to attain macroeconomic objectives which
promote growth of sustainable economy. Similarly, fiscal policy is usage of revenue collection
addition to expenditures of political system for influencing economy. Capital market is defined
to financial market wherein equity backed securities together with long term debt are purchased
and sold. The present report is prepared on business environment and economic system of UK
which is one of extremely developed social market addition to market oriented economy. The
report includes information related to concepts including fiscal policy, general economic
concerns, capital markets and monetary policy.
MAIN BODY
General economic concerns
Introduction
General economic concerns are defined as the main factors in which government of a
nation emphasis the most. Economics is one of social science that is concerned to production,
distribution along with consumption of products and services. In context to economic system of
UK, it is seen that business concerns continued to solidify their expenditure plans and
manufacturers are buffeted through stockpiling efforts. The few of general economic concerns
that needs more emphasis of UK’s government includes employment challenges, uncertainty
from Brexit, relative inequality, cost push inflation and so forth (General economic concerns of
UK, 2019).
Government policies along with impacts on business environment
Government policy is defined as rule as well as principle which hopefully guides in better
decisions and results in positive results for influencing economy or community. Some of
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government policies that are implemented by UK’s political system and their impact of business
environment are as follows:
Investment in infrastructure: It is one of UK’s government economic policy in which
huge money are planned to invest for developing infrastructure facilities. Moreover, National
Infrastructure Plan is also developed with coherent vision for UK’s infrastructure. It impacts
positively on business environment of companies in the nation. For example, investment in
communication, road networks and scientific excellence has improved ways of Tesco to perform
operations effectively and build healthy relations with international companies.
Enhancing finance access for business: UK’s government has set an economic policy
that is Funding for Lending Scheme through which it provides businesses greater access of
finance. In this economic policy, government of the country is offering strong incentives for
businesses to boost their establishment. With this, business environment are impacted in positive
manner as strong incentives helps small entity like Captify Ltd with significant investment to
establish, manage and attain huge growth in the economic system (Government policies, 2015).
Labour markets as well as impacts on business environment
Labour market is the availability of labour as well as employment in context to demand
and supply. In UK, labour market is also termed as job market wherein employers of business
provide demand and employees provide supply. Labour market of UK has experienced certain
fundamental changes in terms of decline in full time manual labour manufacturing jobs, net
migration, increase in self employment, growth in female participation, decline in trade unions as
well as growth in flexibility of labour market. It impacts positively and negatively on business
environment of UK. Some of its positive impacts are analysed in form of increasing flexible
along with part time working hours that are required in service sector, enhancement in proportion
of women within labour force and less influences of Union. However negative impacts of labour
market are seen in context to overcrowd as rapid increase of labours because of migration results
in falling living standards and creates shortage of various amenities (Allen and Hamnett, 2018).
Income distribution and impacts on business environment
Income is a flow that measures money receipt for an individual per time period. As
compared with other developed nations, UK has huge unequal income distribution. it is seen that
majority of households have disposable income below than the mean income which is £34,200 as
of 2018. In UK, income is distributes as per categorises that are Bottom Fifth (8%) Second Fifth
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(13%), Third fifth (17%), Fourth Fifth (23%) and Top Fifth (40%). This impacts business
environment of UK in various manner as it reduces gap among companies that generates huge
revenue and the entities that only generate at breakeven point (Belabed, Theobald and Van
Treeck, 2018).
Employment together with impacts on business environment
UK is among the top nations in world for work and employment having average salaries
surpassing £27,000 annually. National Minimum Wage is rising 4 percent from £ 7.20 to £ 7.50
an hour. In March 2020, employment rate for population have increased 0.6% points with
highest record of 76.3%. This impacted business environment positively as the companies that
are shortage or have deficiency of employees are able to hire manpower as per the requirement
and complete working timely for achieving success (Blyton and Morris, 2017).
Monitory Policy
Introduction
Monitory policy is describe as the policy that was espoused by monetary authority of a
nation for controlling either interest rates which are payable on short term borrowings or supply
of money and interest rate for ensuring general trust as well as price stability in the currency. The
main objective of monetary policy is to contribute in stability of gross domestic product, achieve
addition to maintain low unemployment and maintaining forecasted exchange rates with another
currency. Low together with stable inflation is nest for UK’s economy which is its main
monetary policy objective. the central bank of the nation uses two tools of monetary policy. the
first is Bank rate in which interest rate is set which is charged to banks for borrowing money
from central bank. Another is Quantitative easing or asset purchasing in which the central bank
create money in digital manner for buying corporate addition to government bonds (Borio and
Zabai, 2018).
Supply as well as demand forces of money
Forces of money supply are all the currencies as well as other liquid instruments in
economy of a nation on date measured. Likewise, forces of money demand are the desired
financial asset holding that are in kind of money rather than investments. Demand for money is
all about total amount of income that is held by organisations and household. The forces of
money demand depend on interest rates, national income and so forth. The first force is national
income which is total net value of all products and services which are produced in a country over
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particular time period. It involves rents, pension payments and many other elements. The next
force is interest rate which is used by Bank of England for controlling inflation and reducing
spending powers in the UK’s economy (Burns, 2016).
In UK, forces on money supply are open market operations, reserve requirements as well
as discount rate. The major one is open market operations in which buying and selling of
government securities in order to regulate money supply along with creating credit on ongoing
basis. This force stabilises prices of all securities that are with government and central bank
makes purchase of all these securities for increasing commercial banks reserves, enhancing
prices of securities for reducing interest rates and decreasing interest rates in general manner
with the aim of encouraging investments by business organisations. The other force is discount
rate that is defined as interest rate at which central bank of a nation lends reserve funds to
financial intermediaries and commercial banks. It is seen that increase in discount rate results in
reducing amount of lending which are made by banks. It is one of force which serves as
significant indicator of supply of money within economy of UK or other nations. The third force
of money supply is changes within requirements of reserves in which specific percentage of
deposit and necessary reserves are hold by commercial banks with Bank of England for
regulating supply of capital (Davidson, 2016).
Implication on distinct aspects of demand for money
Different aspect of money demand implies in different manner. In context to rising prices
or inflation, it impacts on cost of living, cost of performing business activities, mortgages,
government bond yields and borrowing money. At same time, negative implication of inflation
in economy of UK includes rise in opportunity cost to hold money, shortage of products as
consumers initiates hoarding out of concerns and discourage investments of business enterprises.
The next aspect of money demand is interest rate in which certain change impacts on business
enterprises along with individuals in various manner. It also has direct effect on nation economy.
It is perceived that lower interest rate results in encourages business environment and companies
to expand as in this aspect, businesses are able to make borrowings of money at lower interest
rates. However, higher interest rates results in increasing borrowing cost, mortgage interest
payments, incentive to save despite of spending, enhance value of currency and reduce
confidence of business concerns in the country (Dodd, 2016).
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Fiscal Policy
Introduction
Fiscal policy is mentioned to the policy through which spending levels addition to
taxation rates are adjusted by government for monitoring and influencing economy of a nation.
This is considered as sister strategy of monetary policy with the help of which central bank of a
nation influences money supply. It aims to attain economic objectives including high
employment, steady growth addition to stable pricing. It also have potentials for redistributing
income across population in an economy (Chugunov and Pasichnyi, 2018).
Taxation along with its macroeconomic effects
Taxation is described as system through which political system takes money from
population as well as spends it on various things including education, defence, heath and many
more. In other words, it is the money amount which people of the nation have to pay in form of
taxes. It is imposition of necessary levies on organisations and individuals by government of a
nation. At macroeconomic level, its effects are seen on business environment together with
economic system of a nation. Some of the effects are as follows:
Fostering economic growth: It is seen that enhancing taxation may have disincentive
effect on economic growth. In UK, business organisations are positively affected due to taxation
as it creates jobs opportunities, creation of businesses and increasing service level in the
economy. For instance, federal taxes allocated to different states can result in using of funds for
helping businesses to expand resulting in fostering economic growth.
Effects on income distribution: At macroeconomic level, effects of taxation are seen on
distribution on income. For instance, at the time of reduction or increment of taxes, distribution
of income depends on nature of taxation. Moreover, steeply progressive taxation reduces income
inequality as the burden of taxed falls more on richer persons (Riera-Crichton, Vegh and Vuletin,
2016).
Social security contributions, pensions and benefits
Social security contribution is one of tax which is levied on superiors and subordinates
for funding Social Security Program. In UK, social security tax is collected in form of self
employment tax as well as payroll tax. It is mandatory payment which is paid to government
which confers entitlement for receiving contingent social advantage. The main benefits of the
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contribution are that it funds retirement, survivorship, disability and so forth. Moreover, the
taxation type also provides some monthly income once after a person is retired that benefits to
them and their family to meet daily necessities. The other benefit is that it helps in controlling
finances to business organisations in UK.
Pensions are the taxation type in which sum of money is added within an employer’s
employment duration as well as from which spending are drawn for supporting retirement from
work through periodic payments. It is one of defined benefit plan in which fixed amount is paid
to a person on regular basis. In UK, when population takes money from pension pots, they are
benefitted with 25% free of tax. They only pays pension taxation on other 75% (Gilbert, 2017).
Public expenditure deficits
Public expenditure is defined as spending made by government of a country. In other
words, expenditure which is incurred by public authorities including central, state together with
local political system for satisfying collective society needs such as security, pension,
infrastructure and so forth. At same time, public deficit is about government deficit that id
difference among expenditures and incomes within defined time period. It is seen that debt of
government of UK are increasing because of gap among expenditures and revenues. In the year
2019, general government debts in UK were around £1,821.3 billion which are equivalent to
85.2% of GDP along with 25.2 % above reference values which are set by Protocols (Coccia,
2017).
Sustainability of public debts
Sustainability of public debt is one of paramount in macroeconomic analysis within fiscal
policy. it presents a challenge for public policy design as well as economic theory in UK and
other countries. It is maintained at particular rate or level. For instance, in macroeconomics, it is
maintained through debt consistency along with stationery equilibrium under some
commitments. At same time, it is also preserved through debt supported in equilibria considering
default risks (Biondi and Boisseau-Sierra, 2017).
Capital market
Introduction
Capital market is mentioned to the market or the place at which sellers and purchaser
engages for trading of financial securities such as stocks, bonds and so forth. It aids in
capitalising surplus money from savers to companies that are further invested for productive
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purposes. It comprises of primary as well as secondary markets. Essential functions related to
capital market are that it facilitate security trade, transaction settlement, encouragement of
diverse ownership of important assets, minimising transaction costs, improvement of capital
allocation and quick valuation of various financial instruments. In UK or other nations, capital
market is considered as measure for inherent strength and effective source of finance for business
enterprises (Carpenter and Petersen, 2017).
Primary capital market
Primary capital market is one of market in which new securities or other financial
commodities are issued for obtaining capital. Within primary market, business concerns and
public institutions of UK can raise financial resources through making new issue of bonds or
stocks. At the time, when companies are making new issue then it is termed as Initial Public
Offering. The process is defined as Underwriting of issued share. In this type of capital market,
companies of a nation are directly involved in trading (Kasdorp, 2017).
Secondary capital market
Secondary capital market is defined as the market place in which securities which are
already issues are traded. Certain instruments which are commonly used on this capital market
involve bonds, futures, stocks addition to options. At same time, definite mortgage loans are also
traded to investors in this market type. In context to economic system or business environment of
UK, secondary capital market is considered as important facet as provides market placing, brings
together diverse number of interested parties, keeps transaction costs at low, results in active
trading, stimulate new financing, provides risk premium, assist in monitoring activities of listed
firms and creates effective linkage among savings and investment for mobilising savings
together with channelizing them as securities for corporate sector (Taylor, 2018).
Crowd funding
Crowd funding refers to practice for funding specific venture and project through raising
limited amount from large population through internet. In UK, concept of crowd funding is used
for the purpose of raising money in order to fund development of singular along with well
defined project. For business concerns, crowd funding enables in getting early purchasers and
concept proof without losing control on existing investors. To the entrepreneurs in UK, crowd
funding offers large number of benefits. For example, entrepreneur of Captify Ltd which is small
company has enjoyed certain great benefits of crowd funding. Some of them include easy access
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to capital, hedging of risks, reaching numerous marketing channels, proof of concept, retaining
prospective loyal customers and gaining opportunity of pre selling (Prive, 2012).
Crypto currencies
Crypto currency refers to virtual currency which is secured through cryptography that
makes things impossible for double spending as well as counterfeited. There are various types of
crypto currencies which are decentralised networks that are based on technology of block chain.
One of describe characteristic of crypto currency is it is not issues by central authority and is
majorly used for securing network. It is digital asset which are designed to work as exchange
medium in which individual coin ownership records are stored within computerised database by
using effective crypto currency for securing entries of transaction record, controlling creation of
various digital coin records together with verifying transfer of ownership related to coin. In UK,
large number of crypto currencies including Bitcoin, Tether, XRP, EOS, Cardano, Stellar and so
forth are used in the market (Crypto currency, 2019).
CONCLUSION
As per the above information, it is concluded that business environment involved certain
factors that impacts operations and other workings of all companies in the industry.
Macroeconomic policy is the setting of diverse objectives by political system for the economy as
whole as well as avoiding unproductive aspects. The general economic concerns which need
more emphasis are investment in infrastructure and enhancing finance access for business.
Government of a nation has adopted monetary policy and fiscal policy for managing as well as
stimulating economy. Taxation is levied in all countries at the globe for the purpose of raising
revenues for expenditures of government and serving other purposes also. Primary and
secondary markets are important capital market that aids business entities to obtain capital
funding. Crypto currencies are form of digital currencies wherein encryption tools and
techniques are adopted for regulating generating of currencies and verifying transfers related to
funds.
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REFERENCES
Books and Journals
Allen, J. and Hamnett, C. eds., 2018. Housing and Labour Markets: building the connections
(Vol. 1). Routledge.
Belabed, C. A., Theobald, T. and Van Treeck, T., 2018. Income distribution and current account
imbalances. Cambridge Journal of Economics. 42 (1). pp.47-94.
Biondi, Y. and Boisseau-Sierra, M., 2017. Financial sustainability and public debt management
in central government. In Financial Sustainability in public administration (pp. 167-
191). Palgrave Macmillan, Cham.
Blyton, P. and Morris, J. eds., 2017. A Flexible Future?: Prospects for Employment and
Organization (Vol. 30). Walter de Gruyter GmbH & Co KG.
Borio, C. and Zabai, A., 2018. Unconventional monetary policies: a re-appraisal. In Research
Handbook on Central Banking. Edward Elgar Publishing.
Burns, S., 2016. Finance for All: The Success of the Market-Led Approach to Financial
Development in the Developing World. Available at SSRN 2879930.
Carpenter, R. E. and Petersen, B. C., 2017. Capital Market Imperfections, High-Tech Investment
and New Equity Financing. Finance Markets, the New Economy And Growth, pp.143-
170.
Chugunov, I. Y. and Pasichnyi, M. D., 2018. Fiscal policy for economic development. Scientific
Bulletin of Polissia. 13.
Coccia, M., 2017. Asymmetric paths of public debts and of general government deficits across
countries within and outside the European monetary unification and economic policy of
debt dissolution. The Journal of Economic Asymmetries. 15. pp.17-31.
Davidson, P., 2016. International money and the real world. Springer.
Dodd, N., 2016. The social life of money. Princeton University Press.
Fontana, G. and Setterfield, M. eds., 2016. Macroeconomic theory and macroeconomic
pedagogy. Springer.
Gilbert, N., 2017. Gender and social security reform: what's fair for women?. Routledge.
Kasdorp, A., 2017. Capital Market Supervision Strategies in the Face of Harmful But Legal
Conduct. Available at SSRN 3072515.
Riera-Crichton, D., Vegh, C. A. and Vuletin, G., 2016. Tax multipliers: Pitfalls in measurement
and identification. Journal of Monetary Economics. 79. pp.30-48.
Taylor, C., 2018. Geography of the'new'education market: Secondary school choice in England
and Wales. Routledge.
Online:
General economic concerns of UK. 2019. [Online]. Available through: <
https://www.economicshelp.org/blog/5962/economics/main-problems-of-uk-economy/>
Government policies. 2015. [Online]. Available through: <
https://www.gov.uk/government/publications/2010-to-2015-government-policy-uk-
economic-growth/2010-to-2015-government-policy-uk-economic-growth>
Prive, T., 2012. Top 10 benefits of Crowd funding. [Online]. Available through: <
https://www.forbes.com/sites/tanyaprive/2012/10/12/top-10-benefits-of-crowdfunding-
2/#4d7520832c5e>
Crypto currency. 2019. [Online]. Available through: <
https://www.cryptocurrencymarket.uk/market>
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