IntroductionThis report will identify and explaina range of current government policies which have a significant effect onTesco. An analysis will also be carried out on the implications of thesepolicies as well as the changes in them and an explanation on how Tesco mayreact to them. The findings of this report are below.FindingsThere 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 suchpolicies to help fulfil many of their aims which include;Economy growthFull employmentControlled inflation/deflation – the rate ofinflation being 2%A healthy Balance of PaymentsCare of the environment – reduced CO2emissions in line with the United Nations CompactA good welfare state so that everyone isprovided forA sustainable energy policyDifferent policies the government has in place will be looked atbelow. Economic PolicyEconomic policy which will refer tothe actions that the government will be taking in the economic field. Thiscovers the systems in place for setting the levels of taxation, governmentbudgets, the money supply and interest rates. Most factors of economic policycan be divided into fiscal policy which deals with the government actions whichwill be regarding taxation and spending into monetary policy which will bedealing with central banking action which will be regarding to the money supplyand interest rates.The government does many differentthings to improve the economic environment in which businesses such as Tescooperate. These include policies to control inflation such as changing taxes andinterest rates, to increase employment, to encourage new businesses by givingmore money to help new businesses to start up such as Invest NI, giving help tobusinesses to grow their exports and to help improve the exchange rate.Corporation taxAn 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 WageA 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 spendingMore 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 PoliciesIn 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.Competition PolicyThe 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 interestsof consumers through increased choice and lower price levelsEffective price competition between suppliersTechnological innovation which will bepromoting dynamic efficiency in different marketsCompetition will then play a vitalrole in helping the companies to grow and win new customers. In addition, the Competitionlaw exists in order to make sure companies will be competing on a level playingfield. It will then prevent their customers (other businesses or consumers) fromlosing out.Competition Act 1989This is government policy towards increasing competition in the market. It includes;Deregulation means opening up the market andallowing new entrants into it for example, airline industry, energy industryand mail industryRelaxing rules and regulations andadministration in order to encourage new businesses to set up and compete withexisting businesses for example, new airlines, new banks, new private schools,new private health clinics and new energy providers.Policy to eliminate anti-competitivepractices and cartel agreements ensure that one or two businesses do notdominate a market and that competition is as fair as possible for examplesupermarkets such as Tesco, airline industry, energy industry, oil industry.Competition policy will therefore impact onan organisation such as Tesco directly and indirectly. Directly because it willcontrol their ability to merge or take over other businesses without governmentintervention and their case may even be referred to Europe for approval. Itwill also impact Tesco indirectly because of this government intervention toencourage and promote competition; there will be more competition in the suchindustries and this will mean products and services which Tesco offer will beavailable at cheaper prices.Market Power PoliciesThe 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 ControlsThis 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. Industrial PolicyThe industrial policy of a country is itsofficial strategic effort to encourage the development and growth of part orall of the manufacturing sector as well as other sectors of the economy.Changes in the international economy will mean an increase in both competitionand opportunities from the global markets. The government will want to enableUK companies to compete and grow. The UK government are developing anindustrial strategy which will be about setting out a long-term, whole ofgovernment approach which is into how they support companies. This will thengive confidence for investment and growth.As part of the strategy for industrialpolicy, the government aim to;support emerging technologiesdevelop strategic partnerships with industrywork with business to help develop skillsthat businesses will needpublish government contracts to provideconfidence to business investmentimprove access to finance for businessesIndustrial policy is governmentpolicy focusing on helping and developing different industries such as theconstruction industry, IT industry, film industry and tourism industry. Thiscould give tax breaks to particular industries for example reduced corporationrates, reduced rates and lower VAT rates for tourism products. Industrialpolicy links very closely with economic policy.Corporation taxThis 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 infrastructureInvesting 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,Tescoultimately can gain access to greater skilled staff which improves theirproductivity and overall sales. Improved infrastructure for industries such asthe retail industry which Tesco lies within can also lead to improved energyefficiency for stores and this decreases costs for Tesco allowing them toincrease profits too.WagesA 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 toforeign countries as a result. For example, Tesco reaction to changes innational living wages include sourcing products and services from othercountries at cheaper prices so that they can reduce their costs to make up forthe increased wages.Transport PolicyTransportpolicy deals with government policy in relation to road, rail, air and seatransport and deals with issues such as access, congestion, the effect on theenvironment, vehicle tax and crime. This will include;Development of roads, rail links, sea portsand airportsPolicies to ensure safety and security on transportPolicies to reduce congestion on majorarterial routes. For example, congestion tax,road tolls and tolls for parking your car on the streetsTransport policy links closely witheconomic policy, environmental policy and regional policy and different areaswithin this policy have different impacts on Tesco.Transportation policies and projectsoften affect the employment, productivity and profits of specific industriesand businesses, and communities in which they are located. For example,policies that improve transport options and discourage motor vehicle travel mayreduce employment and profits in vehicle and fuel production industries, andtherefore 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 ongrounds that jobs and economic activity will decline, but such impacts aregenerally economic transfers (one industry, business or area benefits at othersexpense). Transportation policies can also affect the competitiveness of localindustries. Low transportation costs make locallyproduced goods less competitive compared with imports, harming localindustries. This could mean that products which Tesco source locally are doneaway with as the company is impacted by these cheaper importation costs andsource their products from further afield. For example, some vegetables are cheaper to grow in California and Floridathan in Northern Ireland, so low shipping costs leads to more importedvegetables and less local farm production.Belfast Rapid Transport System BRTBelfast 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 HubThe 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 chargesThe 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 PolicySocial policy means the policies that are introduced for welfareand social protection. It relates to the provision of social services andwelfare state. This includes issues such as;EmploymentCommunitycareHealthCrimeHousingSocial disadvantage.Within these issues lie topics suchas minimum wage, social security payments, pensions, fuel costs and redundancypayments. In general terms, it looks at the idea of social welfare, and itsrelationship to politics and society as a result. There are many differentgovernment policies within social policy which have an impact on businessessuch as Tesco.Housing benefitThe 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 benefitsIn 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 forTesco too. Increasing welfare benefits creates a disincentive to work. Ifwelfare benefits are too generous, people may have a strong incentive to avoidwork or work fewer hours. This may impact Tesco’s employees who feel that ifthey do not work, they may actually receive more money from welfare benefitsthan they do from their wages with Tesco. This could ultimately lead toemployees within Tesco becoming a lot less productive as they have a smallerincentive to work for money and may actually leave the company completely. Thisimpacts Tesco as if this occurs; they have to spend time and money onrecruiting and training new staff to the same level as previous staff.Furthermore, higher welfare payments increase the burden on the governmentrequiring higher taxes and / or higher borrowing. Both taxes and borrowingplace economic costs on society and this can affect Tesco’s taxes as well astheir customer’s ability to afford their products if they are being taxed moreheavily!Youth unemployment policies such as the Youth ContractThe 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 haveless 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 17year 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 atleast 13 weeks.The Youth Contract policy has impactson 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 governmentsmoney which they are given and use it for other operations of the business suchas improving customer car parking, customer service or facilities in-store.Tesco will also be impacted as they can be seen as having a better corporateimage if they are supporting 16 and 17 year old people who are not ineducation, employment or training or who come from disadvantaged backgrounds.Education and Training PolicyThis is the government policy inrelation to education and training such as STEM subjects, apprenticeshipschemes, internship, university fees and the school leaving age. The overallaims of education and training policy are to improve education and training andin turn society and increase economic growth. There are different governmentpolicies 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 feesThere 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 Tescoas 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 whenrecruiting. They also had the option of more skilled people when recruiting asthey may have had a 17% increase in people to choose from. However, theincrease in university fees may have negative implications for Tesco. If peoplegraduate with greater debt with their education fees, they may spend less sothat they are able to pay off their debt. These cuts in their spending may bewith Tesco as they attempt to save money and this ultimately damages Tescosales which they will have to look for ways to improve again.Pathways to successPathways 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 wor