Impact of Government Policies on Tesco
Info: 8819 words (35 pages) Dissertation
Published: 9th Dec 2019
This report will identify and explain a range of current government policies which have a significant effect on Tesco. An analysis will also be carried out on the implications of these policies as well as the changes in them and an explanation on how Tesco may react to them. The findings of this report are below.
There are a range of different government policies which affect Tesco in many different ways. When the government introduces such policies, Tesco have to react to them to ensure they operate legally. Furthermore, if a policy changes Tesco also have to react.
The government introduces such policies to help fulfil many of their aims which include;
- Economy growth
- Full employment
- Controlled inflation/deflation – the rate of inflation being 2%
- A healthy Balance of Payments
- Care of the environment – reduced CO2 emissions in line with the United Nations Compact
- A good welfare state so that everyone is provided for
- A sustainable energy policy
Different policies the government has in place will be looked at below.
Economic policy which will refer to the actions that the government will be taking in the economic field. This covers the systems in place for setting the levels of taxation, government budgets, the money supply and interest rates. Most factors of economic policy can be divided into fiscal policy which deals with the government actions which will be regarding taxation and spending into monetary policy which will be dealing with central banking action which will be regarding to the money supply and interest rates.
The government does many different things to improve the economic environment in which businesses such as Tesco operate. These include policies to control inflation such as changing taxes and interest rates, to increase employment, to encourage new businesses by giving more money to help new businesses to start up such as Invest NI, giving help to businesses to grow their exports and to help improve the exchange rate.
Corporation tax – An increase in corporate income taxes has a direct effect on a business such as Tesco. A tax increase on company profits can hurt a business’s overall financial performance. Some corporations and small companies argue that some companies should have the ability to pay less in taxes, not more. The businesses that maintain a lower tax base will be able to boost the economy by investing more money to expand, resulting in more jobs as a result. When company tax rates increase, Tesco may respond by raising prices on goods and services.
National Living Wage – A country’s economic policy could also affect wages. When there are increases to a national minimum wage then this will benefit workers by allowing them to earn more money for the same work as a result. That’s usually good for the workers, but Tesco find this challenging because it increases costs. Labour costs are usually a company’s greatest expense. Some corporations will argue that they cannot compete against businesses which are located in other countries in the world offering a much lower minimum wage as a result. That can result in the business to transfer many job functions to foreign countries such as Germany as Tesco will be responding by sourcing products from countries such as China and sourcing their clothing stock from places such as India.
Government spending – More spending by the government can be a major help for some companies. For example, a business such as Tesco benefit when the government uses taxpayers money to spend billions on new roads, bridges and airports. This benefits Tesco as they have a wider access to different and possibly cheaper distribution channels to source their products and deliver products to consumers. This is why businesses such as Tesco spend time and effort trying to affect economic policy decisions. Usually, a government cannot increase the money spending in one area without taking money away from something else as a result. A government which has an economic policy which will be dictating more money to be spent on defence may have to reduce support for example such as building more hospitals. This action can result in less work for construction firms, which can force businesses which operate in that industry to reduce staff or freeze open positions as a result. This has implications for Tesco as more people are unemployed and so less people are buying their products so their sales and subsequent profits will decline. The government must ensure they give different policies equal attention as changing one will ultimately change another and this has implications for Tesco such as having to decrease their prices of their products and services so that people can afford to buy them.
Health Care Spending – Some economists believe that rapidly rising health care spending will then be lowering the GDP and overall employment, while raising the inflation. Tesco is affected by inflation in many ways. Inflation means that the costs for Tesco will increase. For example, they will have higher energy bills, higher transport costs, higher costs for raw materials and higher cost of services such as internet services and insurance. Due to these increases in costs, Tesco must react to them by either passing on these costs to consumers in the form of higher prices for products and services which may lead to a decrease in demand, or by absorbing the increase in costs and not passing them on to the consumer. This means that profits for Tesco will fall so they must find other ways of trying to reduce costs. As costs are rising, Tesco must react by reducing their costs of production or the price they pay for goods and services to suppliers to be able to compete with competitors such as ASDA and Sainsbury’s and survive.
Youth Unemployment Policies – In the UK, around 40% of the unemployed are under 25. Tesco’s first response to a period of recession is to stop recruiting new staff rather than to lay off their existing, experienced and knowledge workforce. Only when Tesco is in a state of financial stress does it normally make people redundant. The young trying to move from education into the workforce are then most exposed to the disappearance of new vacancies. The government’s strategy to tackle the high levels of youth unemployment has been coherent but may be poorly delivered and lacking in scale. Noting that most youth unemployment occurs between leaving full-time education and finding work, the government has not only got to extend education and training participation as part of its economic policy, but also try to increase recruitment of the young into jobs through offering some work experience or apprenticeships if they are not making successful transitions quickly. This has implications for Tesco as they may have to take on less skilled individuals who the government have put into working schemes alongside Tesco. Tesco’s productivity may decrease as a result of poorly skilled staff and they may react by cutting out apprenticeship schemes within the company and put all prospective-workers through the application process like everyone else.
The main aims of competition policy is to promote competition, which will make markets work better and contribute towards improved efficiency in competitiveness of UK businesses which operate in the European Union (EU). Competition policy aims to ensure;
- Safeguard and promote the interests of consumers through increased choice and lower price levels
- Effective price competition between suppliers
- Technological innovation which will be promoting dynamic efficiency in different markets
Competition will then play a vital role in helping the companies to grow and win new customers. In addition, the Competition law exists in order to make sure companies will be competing on a level playing field. It will then prevent their customers (other businesses or consumers) from losing out.
Competition Act 1989 – This is government policy towards increasing competition in the market. It includes;
- Deregulation means opening up the market and allowing new entrants into it for example, airline industry, energy industry and mail industry
- Relaxing rules and regulations and administration in order to encourage new businesses to set up and compete with existing businesses for example, new airlines, new banks, new private schools, new private health clinics and new energy providers.
- Policy to eliminate anti-competitive practices and cartel agreements ensure that one or two businesses do not dominate a market and that competition is as fair as possible for example supermarkets such as Tesco, airline industry, energy industry, oil industry.
Competition policy will therefore impact on an organisation such as Tesco directly and indirectly. Directly because it will control their ability to merge or take over other businesses without government intervention and their case may even be referred to Europe for approval. It will also impact Tesco indirectly because of this government intervention to encourage and promote competition; there will be more competition in the such industries and this will mean products and services which Tesco offer will be available at cheaper prices.
Market Power Policies – The government has policies in place to prevent and reduce the abuse of market power. If a particular company has more than 40% of market share then it will be considered to have market power. In addition, the OFT is much more likely to investigate companies which have a dominant market position. Abuse of market power can lead to market failure and this can be against the public interest therefore the government will be concerned to intervene and protect the interests of consumers. Evidence of abusing market power includes charging excessively high prices, using predatory pricing which involves cutting prices and selling below average cost in order to force competitors out of business and there are vertical restraints which involve the monopoly firm imposing prices or restrictions on its suppliers. The government has policies in place such as marketing power policies which promotes competition and prevents excess pricing. These policies impact on Tesco as they will be unable to abuse the market power which they have a lot of as they are the largest grocery supermarket in the UK. Tesco insists they ‘do not raise prices or otherwise worsen our retail offer where there is less local competition’. This shows that Tesco reacts to these policies by staying within their guidelines for example not increasing prices for a particular product or service because it cannot be bought anywhere else in that area. These types of policies are good for Tesco in that they control other businesses abusive power to charge inappropriate prices for goods and services which could drive Tesco out of business. However, it does mean that there are tight rules and regulations which Tesco must face in relation to Tesco so they must be very careful the prices they charge for goods and services and the quality of service they provide.
Reductions in Import Controls – This will be a reduction in import tariffs which is to encourage cheaper products from overseas. Increasing or eliminating import quotas will have the same effect as a result. Allowing new countries into the European Union single market will be increasing the contestability. This government policy has significant effects on Tesco. It means that Tesco have greater access to importing their goods cheaply from countries such as China and India. This means that their costs are decreased and allows them to make a greater profit. Allowing new countries into the European Union means that Tesco will have more competition so it makes a more competitive-market, however this makes it harder for Tesco to maintain the largest market share if new businesses are being allowed to enter the market from foreign countries. This policy will be good for Tesco as it means they can trade more easily and freely with other countries and can import cheaply. However, it does mean that other countries have a greater chance of coming in and taking over some of the markets which Tesco has been operating in.
Anti-Competitive Behaviour – This is the problem of ‘cheating’ or ‘finding loopholes’ which will include to getting round the regulations by moving into an adjacent market. For example, a large grocery retailer which is moving into the ‘convenience’ store market can be seen as a way of avoiding competition policy. A major criticism is that ‘single’ markets are inadequately defined. For example, in 2004 the Office of Fair Trading allowed Tesco to purchase Admin store (the owners of Cullen’s, Europa and Harts) because has been regarded as a ‘convenience stores’ to be a separate market from the grocery stores. This will give Tesco 6% of the convenience food market which also includes 26% of the grocery market. Tesco argued that the two markets are quite distinct, however critics have argued that the markets will be almost indistinguishable and also that Tesco shouldn’t have been allowed to enter the convenience food market as well. Anti- competitive policies ensure that mergers, takeovers and the exploration of new markets are all done fairly and within the law. This impacts Tesco as it restricts what they can and cannot do in terms of what different markets they explore. This may mean that Tesco’s profits are restricted also what they class a single market to be may be different to what the government class a single market to be. Having anti-competitive policies in place is good for Tesco as it gives them a framework of what they can and cannot do as well as the protection against other companies trying to take over them or put them out of business. These policies definitely protect Tesco, offer the business a sense of security and allow for a healthy competitive environment.
The industrial policy of a country is its official strategic effort to encourage the development and growth of part or all of the manufacturing sector as well as other sectors of the economy. Changes in the international economy will mean an increase in both competition and opportunities from the global markets. The government will want to enable UK companies to compete and grow. The UK government are developing an industrial strategy which will be about setting out a long-term, whole of government approach which is into how they support companies. This will then give confidence for investment and growth.
As part of the strategy for industrial policy, the government aim to;
- support emerging technologies
- develop strategic partnerships with industry
- work with business to help develop skills that businesses will need
- publish government contracts to provide confidence to business investment
- improve access to finance for businesses
Industrial policy is government policy focusing on helping and developing different industries such as the construction industry, IT industry, film industry and tourism industry. This could give tax breaks to particular industries for example reduced corporation rates, reduced rates and lower VAT rates for tourism products. Industrial policy links very closely with economic policy.
Corporation tax – This is a government policy which the government could change at any time. A rise in corporation tax (which is taxation on business profits) has the same effect on a company such as Tesco as an increase in costs. If the government increase corporation tax, Tesco’s costs ultimately increase. They can react to this by passing on some of this tax to consumers in the form of higher prices for goods and services but it will also affect the bottom line.
Energy and infrastructure – Investing in infrastructure provides greater availability and access to skilled labour and intellectual property both in targeted growth industries as well as new and entrepreneurial industries. With labour costs being the highest costs of businesses, progressive improvements in the capability of the workforce and access to skilled workers are critical for innovation, service value, product quality, productivity, efficiency and operating costs. As a result of the government investing in infrastructure,
Tesco ultimately can gain access to greater skilled staff which improves their productivity and overall sales. Improved infrastructure for industries such as the retail industry which Tesco lies within can also lead to improved energy efficiency for stores and this decreases costs for Tesco allowing them to increase profits too.
Wages – A country’s industrial policy could also affect wages. When there are increases to the national minimum wage then this will benefit workers by allowing them to earn more money for the same work. That’s usually good for the workers, but it can be challenging for companies for example like Tesco and impacts them because it increases costs. Labour costs are usually a company’s greatest expense. In addition, some corporations argue that they cannot compete against companies which are located in other countries around the world offering a much lower minimum wage.
This can result in a business to transfer many job functions to foreign countries as a result. For example, Tesco reaction to changes in national living wages include sourcing products and services from other countries at cheaper prices so that they can reduce their costs to make up for the increased wages.
Transport policy deals with government policy in relation to road, rail, air and sea transport and deals with issues such as access, congestion, the effect on the environment, vehicle tax and crime. This will include;
- Development of roads, rail links, sea ports and airports
- Policies to ensure safety and security on transport
- Policies to reduce congestion on major arterial routes. For example, congestion tax, road tolls and tolls for parking your car on the streets
Transport policy links closely with economic policy, environmental policy and regional policy and different areas within this policy have different impacts on Tesco.
Transportation policies and projects often affect the employment, productivity and profits of specific industries and businesses, and communities in which they are located. For example, policies that improve transport options and discourage motor vehicle travel may reduce employment and profits in vehicle and fuel production industries, and therefore economic activity in areas where those industries are concentrated. Similarly, improving airport transit service may reduce taxi service demand. Advocates for the affected industries often lobby against such policies on grounds that jobs and economic activity will decline, but such impacts are generally economic transfers (one industry, business or area benefits at others expense). Transportation policies can also affect the competitiveness of local industries. Low transportation costs make locally produced goods less competitive compared with imports, harming local industries. This could mean that products which Tesco source locally are done away with as the company is impacted by these cheaper importation costs and source their products from further afield. For example, some vegetables are cheaper to grow in California and Florida than in Northern Ireland, so low shipping costs leads to more imported vegetables and less local farm production.
Belfast Rapid Transport System BRT – Belfast Rapid Transit (BRT) is an innovative and ambitious project that will create a new and dynamic public transport system for Belfast. BRT will offer a high quality service providing people with better access to jobs, hospitals, shops, schools, colleges, and entertainment. With a more efficient and effective transport system in Belfast, Tesco are impacted. This government project will allow customers and employees of Tesco easier access to stores to carry out their shopping. Deliveries will also be delivered more quickly to Tesco stores from warehouses. This impacts Tesco as they are able to extend the breadth of their customer base as customers can get to and from their stores much more quickly and effectively. If customers find it easy to get to Tesco stores they are much more likely to shop in those stores than one which is difficult to get to and the BRT allows customers to benefit from this. With changes to this transport system, Tesco are then able to maximise their sales much further and subsequently increase their profits too. The BRT project will impact Tesco as infrastructure is improved and so relationships with new suppliers who can avail of this new infrastructure can be established. This could mean that Tesco could source some of their products more cheaply and this will also impact company costs as they are reduced.
Belfast Transport Hub – The Belfast Hub will be a world class multi-modal transport interchange acting as a high quality gateway for Belfast and beyond. The new Hub creates an excellent first impression of Belfast as a confident and progressive capital city and will facilitate the area’s regeneration as an attractive place to live, work and visit. The Hub will ensure the people of Northern Ireland have the right infrastructure in place in order to attract more people to use public transport and active travel modes as a result. Along with other key projects, this will then be enabling a transformation into the public transport where they are making a positive impact for everyone in Northern Ireland. Due to the result of the government investing £150m in this new transport hub, businesses such as Tesco are impacted. Around eight million passengers a year will currently pass through the Europa bus centre and Victoria Street railway station, but this figure is expected to rise to thirteen million over the next fourteen years. This could significantly increase the number of customers who visit Tesco stores in the Belfast area and could drive their sales and subsequent profits, allowing them to increase their market share and grow the company as a whole. The Dublin Enterprise train is hoped to be a part of the hub which would even help Tesco to increase their customer base from the south of Ireland as well as the north.
Congestion charges – The Northern Powerhouse Investment Fund (NPIF) will provide an additional £1.1 billion by 2021 in new funding to relieve congestion and will then be delivering much needed upgrades on local roads and public transport networks. Congestion charges could be introduced for motorists which are travelling into Belfast in the future, this is according to a document which was prepared by the city council. Its submission to the assembly’s finance department was pointed to the success of the recent congestion charging which is in London and the road pricing in Durham. The council has said to the public that the local authorities should benefit from any revenue. However, Larne and Lisburn councils told the department that they believe this idea is unacceptable to the public as a result. The Department of Finance is reviewing possible changes to rates. In the city of London, all revenue raised by congestion charging will be re-invested back into the city’s transport system as a result. A Transport for London report has just found out that congestion levels in the zone are to be on an average 26% lower than in 2002 before the scheme had been implemented. It will now be costing £10 to bring your car into central London on the day, or £8 if you pay ahead. If these congestion charges were implemented into the Belfast area, it may turn people off going to Belfast and shopping in Belfast. This impacts on Tesco as many of their customers like to travel to stores via their own cars for their own convenience. This may deter their customers from visiting Tesco stores in Belfast and this will have a significantly negative impact on the company’s sales and overall revenue that it gathers each day. Tesco may react to this government policy by using incentives for customers to visit such stores. For example, offers or money-off coupons in stores where customers would have paid congestion charges to get to.
Social policy means the policies that are introduced for welfare and social protection. It relates to the provision of social services and welfare state. This includes issues such as;
- Community care
- Social disadvantage.
Within these issues lie topics such as minimum wage, social security payments, pensions, fuel costs and redundancy payments. In general terms, it looks at the idea of social welfare, and its relationship to politics and society as a result. There are many different government policies within social policy which have an impact on businesses such as Tesco.
Housing benefit – The government may offer the people of the UK help with all or part of their rent. There is no set amount of housing benefit and what a person gets will depend on whether they rent privately or from a council. There may also be increased housing benefits for older and vulnerable people. Help to buy policy – The government also have a policy in place which helps support peoples aspirations to own their own home. The Help to buy scheme enables people to buy a home priced up to £600,000 with a deposit of as little as 5%. Through this help via social policy, even businesses such as Tesco are impacted. If the government are financially assisting people to pay for their accommodation and housing, those people have a higher disposable income to spend in places such as Tesco. If there were no social policies in place with regards to housing, people of the UK would struggle a lot more with regards to making payments and would have a lot less money to spend around them. Tesco are impacted here as people simply don’t have the money to spend with them and so they lose a lot of customers. Due to this, they may have to lower prices for goods and services which will ultimately damage the company’s overall profits.
Reducing/Increasing welfare benefits – In the UK, unemployment benefits are also known as welfare benefits. This is where the government give a proportion of money to those who are unemployed and not working. Reducing and increasing welfare benefits have very different impacts on Tesco. Higher welfare benefits help to reduce inequality and reduce relative poverty in the UK. Higher benefits will give those on low income a better living standard and help contribute to a more cohesive society. This impacts Tesco as people who are unemployed and receive a higher benefit will have a higher disposable income to spend with them. For example, a person who receives £60 per week may not have as much money to spend in Tesco as a person who receives a welfare benefit of £150 per week. Tesco may be happy that people receive a higher welfare benefit as they will increase their sales.
However, it also has drawbacks for Tesco too. Increasing welfare benefits creates a disincentive to work. If welfare benefits are too generous, people may have a strong incentive to avoid work or work fewer hours. This may impact Tesco’s employees who feel that if they do not work, they may actually receive more money from welfare benefits than they do from their wages with Tesco. This could ultimately lead to employees within Tesco becoming a lot less productive as they have a smaller incentive to work for money and may actually leave the company completely. This impacts Tesco as if this occurs; they have to spend time and money on recruiting and training new staff to the same level as previous staff. Furthermore, higher welfare payments increase the burden on the government requiring higher taxes and / or higher borrowing. Both taxes and borrowing place economic costs on society and this can affect Tesco’s taxes as well as their customer’s ability to afford their products if they are being taxed more heavily!
Youth unemployment policies such as the Youth Contract – The government have introduced policies to tackle an aspect of social policy which is youth unemployment. The Youth Contract will be aiming to expand the opportunities for young unemployed people for them to find relevant work experience which can be, hands-on training and they will be able to start the process of building a positive employment record after they have left school or college. It will need to be seen in the wider context of other government policies for example increasing the school leaving age to 17 and also requiring that all school leavers will have a suitable qualification in Maths and English so that they will have a prosperous career. The main aim of the Youth Contract is to assist as many young people as possible into sustained employment where they will have a meaningful career. This policy has a number of features;
- Apprenticeship Grant for Employers of 16-24 year olds. This government subsidy will pay £1,500 to employers who have less than 50 employees that take on young apprentices.
- Support for 16 and 17 year olds: Payments of £2,200 are made to providers who take on 16 and 17 year olds who are not in employment, education or training and who have low or no qualifications, and also those from other disadvantaged backgrounds.
- Work experience: These are placements which are available for 16-24 year olds, through Jobcentre Plus who have been claiming Job Seekers Allowance for at least 13 weeks.
The Youth Contract policy has impacts on Tesco too. Tesco have the opportunity to recruit and be paid for it. Although it will cost to train staff, they may retain some of the governments money which they are given and use it for other operations of the business such as improving customer car parking, customer service or facilities in-store. Tesco will also be impacted as they can be seen as having a better corporate image if they are supporting 16 and 17 year old people who are not in education, employment or training or who come from disadvantaged backgrounds.
Education and Training Policy
This is the government policy in relation to education and training such as STEM subjects, apprenticeship schemes, internship, university fees and the school leaving age. The overall aims of education and training policy are to improve education and training and in turn society and increase economic growth. There are different government policies within this policy which have an impact on businesses such as Tesco.
Skills focused training – The investment by the government in skills focused training, for example through education and training in schools to prepare people for future aspects of the work place are essential in future innovation. Tesco require an adequate knowledge pool of skilled employees to develop a wide range of innovations. Through the government having such a policy in place, people become more educated and this has implications for Tesco. It will result in a more skilled-workforce being available for recruitment and once recruited, allows for more skilled workers within the company. This can improve the profitability of Tesco and impacts them by increasing their profits and market share.
Increasing university fees – There was a 17% fall in the number of first year undergraduates at UK universities in the first year due to the higher tuition fees that has been imposed. This doesn’t look good for the economy as it would seem that fewer people would graduate in specialised industries.
However, it may have benefitted Tesco as more people looked for full time employment instead of going to university. This impacted Tesco as they had a greater number of people to choose from when recruiting. They also had the option of more skilled people when recruiting as they may have had a 17% increase in people to choose from. However, the increase in university fees may have negative implications for Tesco. If people graduate with greater debt with their education fees, they may spend less so that they are able to pay off their debt. These cuts in their spending may be with Tesco as they attempt to save money and this ultimately damages Tesco sales which they will have to look for ways to improve again.
Pathways to success – Pathways to Success is the Northern Ireland Government’s over- arching strategy is in order to prevent exclusion and promote participation amongst young people who are not in education, employment or training, or at risk of becoming so. As the government do this, Tesco are impacted. There are implications such as Tesco introducing schemes to include young people in their workforce such as a scheme for 16-18 year olds who are not in work and take them on and train them up with necessary skills to succeed in a job role with Tesco. Pathways to success may also have implications on Tesco such as the company being able to recruit more specialised people for more specialised roles. For example, if a person has been in education and training through Pathways to Success which improve their marketing techniques, then Tesco may take on this person to help them with their marketing team. This impacts Tesco as they have a better work force who can market their products and services to an even greater level and subsequently, sales and profits could be increased further. Tesco may react to this policy by taking on employees via schemes for people who come from disadvantaged backgrounds and offering them a job within the company. This would also contribute to decreasing unemployment figures.
Environmental policy is to do with caring for the environment. Every government now has to achieve CO2 targets after the agreement. This means that every government has to introduce policies to achieve these targets. Environmental issues will affect companies which include industrial waste, sustainable development of raw materials and water and air emissions.
These are issues which affect companies due to laws which require companies to change equipment and procedures to meet imposed standards, which as a result cost businesses a lot of money. Many companies will undertake stricter changes in an effort to preserve the environment and “do what is right”. These companies will then pay for the protective and proactive environmental measures and will then also attempt to recoup the expenses through consumer good will or the added consumer base which is gained from an environmentally friendly policy. This policy links closely with transport and industrial policy.
The Kyoto Protocol 1997 was the first international treaty to set legally binding emissions – reduction targets for developed countries that ratified it. This would lead to a greenhouse gas emissions reduction of 5.2% below 997 levels between the years 2008 and 2012.
Government environmental policy is led by the Department for Energy and Climate Change (DEEC). In 2008, the UK government greatly enhanced its environmental policy by changing the law through the Climate Change Act. This act includes the following targets;
- A UK wide climate change risk assessment must be completed every five years
- Public authorities and some companies must report on what they are doing to reduce climate risk
- A climate strategy has to be published
- A programme must be put in place to reduce climate change risks
Some policies the government have introduced under environmental policy will be looked at below.
Renewable energy – Through the government introducing policy in relation to renewable energy, they pay energy users who will be investing in a small-scale, low-carbon electricity generation systems for the electricity they generate and use and provide incentives for businesses to install renewable heating instead of fossil fuels. This has implications for Tesco and Tesco respond to changes in this policy. Tesco have a long term goal to become a zero carbon retailer by 2050 and they have zero-carbon stores to meet this goal. Their special stores use a mix of environmentally-friendly design, materials and technologies to ensure that all energy-consuming equipment, no matter how big or small, is as efficient as possible – whether that be the refrigeration system or the hand drier in the toilets. This shows how Tesco have responded to changes in the government’s renewable energy policy and the impact of such a policy on Tesco.
Energy wise schemes – The government has introduced many different energy wise schemes over the past number of years. The government once funded the Green Deal Finance Company, which was set up to lend money to Green Deal providers. This – although not directly linked to Tesco – did actually have implications for the company and they reacted in different ways. The heating and cooling system in Tesco’s Ramsey zero-carbon store uses 66% less energy than a typical store of a similar size. They are designed to help Tesco reduce their carbon footprint. Introducing air conditioning to all stores reduces the need for extra heating or cooling and this also helps Tesco save energy by preventing heated air escaping outside their stores. Other reactions by Tesco to energy wise schemes introduced by the government are the introduction of sophisticated lighting control systems. These can automatically dim individual lights when the natural daylight increases and can be linked to timers and motion sensors to ensure that lights are not left on when they are not needed. This shows the lengths Tesco are going to in ensuring they stay ahead of the energy schemes which the government introduce and as they attempt to be the first zero-carbon retailer.
Waste legislation and regulations – The EU Waste Framework Directive will be now providing the legislative framework for the collection, transport, recovery and disposal of waste, and will also be including a common definition of waste. The directive will now be requiring all member states to take the necessary measures in order to ensure that the waste is recovered or disposed of without endangering human health or to be even causing harm to the environment and this will also include permitting, registration and inspection requirements. With such legislation in place, implications are in place for Tesco. Tesco have responded to this legislation by agreeing a deal to donate all the unsold food from its stores to charity. The supermarket giant has also announced plans for them to work with 5,000 local charities across the UK in an initiative with the aim to eradicate all its food waste by the end of 2017. Tesco have also reacted to this policy by drawing up a plan that by 2018, the store will have a 0% food waste figure and this shows how Tesco quickly and effectively react to implications placed on them by government policy.
Fiscal policy deals with taxation and government spending. This will cover things such as;
- cutbacks in government spending and changes in the way government spending is administered
- changes in taxation or example changes in income tax rates, VAT rates, Corporation Tax rates, airport duty and customs duties on goods coming into the country
- the introduction of new taxes such as sugar tax, fat tax and tax on bigger supermarkets
Under fiscal policy, the government has many different measures in place and proposed measures to ensure it is followed effectively.
Government spending cutbacks – Government spending in a range of different areas is extremely important for things such as the economy and for business. Some government spending for example, on roads, infrastructure and transport will have an important effect on the long run productivity of the economy. If these areas of spending are cut, then the UK’s productive capacity may suffer in the long term. Cutting spending in roads and transport may mean these areas become insufficient for use and can restrict people travelling to and from places. Tesco customers may not be able to use roads which they deem too dangerous due to insufficient repair and this impact Tesco as they lose customers and subsequent sales. It may also mean that Tesco cannot import products from other countries if transport isn’t appropriate to do so which may mean they have to source their goods and services more locally and at a higher cost. However, capital spending is often the easiest place in order to make spending cuts; this is because people don’t lose out in the short term. If you reduce pensions, then people will notice straight away. If you reduce capital investment, then this action will affect people 10 or 20 years in the future. If the government make spending cuts to pensions for example, people may immediately try to save money for themselves in the future. This attempt as saving money for people may be reducing their spending on their weekly groceries and so ultimately Tesco suffer with a decrease in their sales. The government must ensure they give different policies equal attention as changing one will ultimately change another and this has implications for Tesco such as having to decrease their prices of their products and services so that people can afford to buy them.
Increase in taxation – The largest source of revenue for the government is the income tax and this will then be levied against interest, dividends, capital gains and income. Therefore, the highest earners will then be paying high taxes. However, if there is an increase in tax then this will affect consumer spending in different ways including which will then be affecting the aggregate demand. Increase in tax reduces consumer spending. When the taxes have been placed on specific products, then the consumers will tend to look for substitutes that are available at cheap prices. This has implications for Tesco as they may have to reduce the prices of their products to compete with other competitors such as ASDA and LIDL. This also impacts Tesco as a smaller price being charged means profits aren’t as high as the firm would wish for them to be. It is imperative to note that consumer spending is often two thirds of GDP. Therefore, the increasing taxes will then be reducing the disposable income. This will then mean that the consumers will only spend the money they have on essentials and no additional amounts. With the tax increases, the consumer spending reduces and this will then cause fluctuations in the economy because of the attitudes of clients or consumers towards the state of economy. This also has implications for Tesco who may have to compete in an economy which is struggling and so they will struggle too with imports and daily running of their stores.
Increased rates for bigger supermarkets – The UKs largest supermarkets are being hit with increasingly disproportionate hikes in business rates that will spell more pain for them in times of recovering from an economic recession. Tesco, Sainsbury’s, ASDA and Morrison’s face an additional bill of more than £110,000 per superstore in 2015-16 compared with 2010-11. This occurs at a time when small businesses have seen their bills reduced. This increase of rates for only the bigger supermarkets is seen as unfair and has many implications for Tesco. Changes in this policy impact Tesco as increasing their rates is an increase to their expenses and takes away capital which can be used to expand and which eats up the company’s profits. It may also impact Tesco as they have to increase their price of goods and services to cope with these increased business rates and so consumers stop shopping with them and go to other smaller stores who don’t have to increase their prices to cope with an increase in business rates.
Regional Policy targets all regions and cities in the European Union in order to support job creation, business competitiveness, economic growth, sustainable development, and improve citizens’ quality of life. Regional policies are policies in relation to a particular region of the UK for example, Northern Ireland, Scotland, England and Wales. In 1994 the government divided the UK into a number of different regions and developed policies according to the needs of those particular regions. Regional policy could include:
- Delegating powers to different regions. For example, Northern Ireland and England having different law and policing
- Giving more support to regions affected by flooding
- Designating regions as Enterprise Zones
Enterprise Zones are areas regarded as being a disadvantaged area and are targeted by the government for growth and development. The government provides such areas with advantages in order to attract business to the area. Some advantages provided could include a speedier planning system, superfast broadband, business rates relief and enhanced capital allowances. This would then help inward investment into the disadvantaged area. Stormont would like all of Northern Ireland to be designated as an enterprise zone with mini enterprise zones in struggling towns. This would help NI to reduce its dependence on government funding and develop more private sector jobs.
Corporation tax – Since 2010, the government has eased the regulatory burden onto companies and has also reduced the corporation tax rate from 28% to 20% with onshore tax receipts increasing by over 20% over the same period. To continue providing the certainty those businesses will need to make their long-term investments, then the government will be recommitting to the business tax road map which includes the principles that it sets out. This includes cutting the rate of corporation tax to 17% by 2020 which also includes reducing the burden of business rates by £6.7 billion over the next 5 years. This has positive implications for Tesco as their tax is reduced and so they have the opportunity to use such capital on daily operations or even to expand, which otherwise would have been paid in tax. This also impacts Tesco as they are able to maximise their profits even further as an expense has been significantly reduced. This may enable the company to invest in other areas as seen in the past such as insurance and clothing. Another implication of this reduction in corporation tax is a better opportunity for Tesco to import goods from abroad as they are paying less tax on the money they are making and so can afford to import in greater volumes for cheaper prices!
Introduction of National Living Wage – Increases to a national minimum wage will benefit workers by allowing them to earn more money for the same work as a result. This is usually great for the workers, though Tesco may find this challenging due to increased costs. Labour costs are usually a company’s greatest expense. There are some corporations who argue that they can’t compete against other companies who are located in foreign countries which are offering a much lower minimum wage to their workers. This can result in a business to transfer many job functions to foreign countries such as Tesco responding by sourcing products from countries such as China and sourcing their clothing stock from places such as India.
Increased and more in-depth training – Introducing and increasing more in-depth training to different job areas has helped shape a better economy and allows for better business practice. Thanks to EU funding – around £21 million was made available under the PEACE II Programme – farmers in Northern Ireland are being trained up to make today’s technology work for them in their day-to-day administrative tasks. The overwhelming majority now acknowledge that the training they received has helped them to adopt better business practices. 80% of the participants stated that the training contributed to the use of better business practices. This training was given to 4,213 farmers and their family members. As the government introduce more in-depth training, businesses such as Tesco can benefit.
Tesco may be impacted from this case for example. Farmers (suppliers of Tesco) can now log communicate effectively through the use of ICT with Tesco and this can make ordering products much more simpler for Tesco. It also has implications for Tesco such as being cheaper to communicate with farmers via email instead of having to go to farms and go through huge orders. Changes to this government policy would impact on Tesco as the farmers wouldn’t be as heavily equipped with the skills necessary to carry out quick and simple business practice with Tesco and so more expensive methods may have to be explored by both Tesco and the farmer.
This report successfully identifies a range of current government policies and their impacts on Tesco as an organisation. The implications of these policies and changes in them have also been analysed and ways in which Tesco may react to them has been looked at. It’s clear that Tesco must always be aware of current government policies and any changes in them so that they can make necessary changes such as to their documentation and protocol to the way in which they carry out business which will ensure that it is positive for them and for the UK economy too.
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