Changes in the political and legal environment


64.1 Scope and effects of UK and EU law


Aspects of competition law include:

  • EU and UK laws exist in order to try to prevent the exploitation of monopoly power.
  • Prevent companies agreeing to work together to the detriment of consumers by operating a cartel, agreeing with supposed rivals to hold supply down in order to keep prices artificially high.
  • Moniter the behaviour of any business with a strong enough position within its market to potentially be able to abuse its power eg. investigations into supermarkets paying a fair price to farmers.
  • Ensure that takeovers and mergers do not break the rule of thumb, which is that 25% should be the ceiling on any firm's share of a UK market. 


  • CMA get involved in any potential takeovers or mergers that will have an impact on the UK consumers. The EU also have the powers to look into anything affecting the EU consumers. 
  • Impact of this on strategic decisions - may not be able to do takeovers % mergers, may force them to enter new markets, with or without a joint venture. 
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64.1 Scope and effects of UK and EU law

Law relating to the labour market

Empoyment law is designed to prevent the exploitation of employees by businesses. Therefore, the major areas covered include pay, working conditions such as entitlement to leave and holidays, physical working conditions and the right to trade union representation. 

The key area of the law governing payment is the need for employers to pay at least the national minimum wage. 

Legislation also exists to prevent discrimination in the workplace. 


Tightening employment laws may make firms adapt their operations strategies to reduce their reliance on UK-based HR. Strategic options could include offshoring certain operations to countries where wage rates are lower. 

Many employment laws have been influenced by EU attempts to create a 'level playing field' among European countries. This ensures that competition between EU members cannot be based on one country offering poor labour conditions. 

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64.1 Scope and effects of UK and EU law

Environmental laws

Environmental laws esist to try to minimise the negative impacts of business on the natural environment eg. preventing pollution, products packaging and recycling legislation. The environment agency is responsible for enforcing most environmental legislation within the UK. It operates at arms length from politicians, yet is funded by government-funded. 


Additional costs.

First movers benefit from a 'greener image' which allowed them to tap niche markets of environmentally conscious consumers. Nowadays, many of the effects of complying with envornmental legislation centre on how reducing material and energy use can form part of a lean production programme to reduce costs. 

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64.1 Scope and effects of UK and EU law

Laws governing tax

The two most significant taxes are Value Added Tax (VAT) and Corporation Tax. A businesses with a turnover above £81,000 must register for VAT with the HMRC. A VAT registered business can claim back VAT that they have bought. 

Corporation tax is a tax on profit. A limited company must pay tax on its porfits, currently at a rate of 20%. Profits generated in certain ways, including successful R&D, new patents or theatre, film or TV production are exempt from corporation tax. 


The major effect of the VAT system is to create more work for accoutants. Ensuring VAT is recorded, handed over to HMRC and claimed back on items purchased keeps accounting departments busy all year round. 

Tax avoidance - Starbucks, Google and Amazon. Companies like Ted Baker, pay their 20% tax. 

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64.2 Impact on strategic-decision making

Companies are inclined to threaten politicians and governments with calamity if they have the cheek to pass laws that may create costs for the companies. 

Really impressive companies are those that look forwards - and see opportuities rather than threats. 

Stretegic decision making means looking ahead, not just months but years to see where the future is heading. Over the past hundred years the environment and the accident rates in countries such as Britain have been transformed by legislation. Good companies look forward instead of reminiscing about a misremembered past. 

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64.3 Impact on functional decision-making

At a functional level, the need to ensure adherence to legal requirements tends to mean extra paperwork and administration for managers. Compliance is a key word for functional managers. Businesses will have formal administrative systems set up to ensure that the business complies with legislation such as employment or environmental laws; the role of functional managers will be able to help design these systems. They must then spot-check the different departments to make sure that staff are following the set procedures. 

Part of the challenge at a functional level will be to ensure, initially through training, but then through ongoing communication, that staff at the lowest levels of the organisation understand the need to comply with the systems in place. This may not be as easy as it sounds, since staff may see sticking to the rules as a burden that makes their jobs harder.

However, a decision made by a lowly production worker to pour hazardous waste materials down a drain, rather than stick to the proper company systems could cost the firm tens of thousands of pounds in fines. 

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