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6 Critical Political Factors Affecting Business in UK

Political factors are those critical decisions and laws governments make that can impact a business by making the market environment more or less convenient for that business.

Without doubts, governments tend to have so much power over businesses, and most often, there is really nothing these businesses can do to limit that power, and with these oversights, governments can make decisions that can impact businesses in various ways.

Have it in mind that they can create subsidies, tax the public and give the money to an industry; increase taxes to imported products to lift prices and ensure domestic products sell more. Indeed increase in taxes, fees, and greater regulations can hamper businesses or entire industries.

And aside from having a direct impact on businesses, these political factors can also impact other factors too and this can have a massive effect on the business and its operating environment. The UK is made up of England, Wales, Scotland, and Northern Ireland.

It is noted as one of the most powerful countries in the world with modern parliamentary democracy and a constitutional monarchy with the monarch (currently Queen Elizabeth II) being the current Head of State. Note that the prime minister is the head of the government who is elected for a five-year term.

Four political parties mostly dominate the politics of the land: Labour, Conservative, Liberal Democrats, and Scottish Nationalist Party. Numerous political factors in the UK impacts businesses and can also introduce a risk factor that can cause businesses to suffer losses or compromise their profit stream.

Since the country’s exit from the European Union, there have been numerous changes in policies and actions of the prevailing government. Owing to that, it is critical for every business in the UK to always plan for the variability in policies to ensure it maintains a stable business environment.

Political Factors Affecting Business in UK

As a business in the UK, you have to be wary of political factors that can alter the entire business scenario. These changes can be economic, legal, or social and can include the following factors:

  1. Brexit

In a referendum on 23 June 2016, the UK electorate voted to leave the EU. Accordingly, the UK formally left the EU on 31 January 2020. At that point, a transition period began that ended on 31 December 2020. Since then, customs checks, paperwork, and border delays have been milking cash and time out of firms.

From large retailers to small neighborhood businesses, the frustration is genuine as they struggle with the long-term reality. Note that for a good number of businesses on tight margins, every pound spent on documentation simply entails less revenue for wages, hiring, and investment.

Although the effects will surely be less dramatic than the quick shock of the Covid-19 lockdowns, over time this factor and its impacts on businesses are expected to pile up, hampering the economy and eating deep into sales, earnings, and business incomes.

  1. Tax

Indeed, the government can raise or lower corporation tax and this will surely impact the profits of businesses. They can also impact businesses by increasing value-added tax on products or business rates. For some reason, they can also raise the tax rate for some businesses and lower the same for others.

However, the impact this factor will have on a business in the UK will more or less depend on whether the tax is paid directly to the government or indirectly via businesses. Note that any increase in income tax entails that workers pay more tax on their income, and are left with less money to spend on goods and services.

It also means that businesses make fewer sales and this will, in turn, reduce the level of their investment. Also, note that any slight increase in VAT will warrant that consumers pay more for the goods and services this tax is charged on. Since they will be paying higher prices, it will surely limit their purchasing power, causing inflation that will, in turn, affect business costs.

  1. Labour Laws

Also, note that government can implement new laws like the National Minimum Wage that can genuinely impact profits as the wage costs of the business will rise. Truth be told, since its introduction, the UK minimum wage has increased every year.

This entails that those businesses that leverage the national minimum wage as a basis for their employees’ pay will have to pay their workers more every year, at least to stay in line with government guidelines. Additionally, the government has noted that it aims to bring the national living wage threshold down for those who are 21 years old by 2024.

And if the trends of the last 22 years are to be trusted, then the remaining brackets for the minimum wage will also increase. Experts believe that increases in minimum wage will pile up pressure on businesses and will increase unemployment as businesses strive to safeguard their bottom line.

  1. Health and Safety Legislation

Indeed, health and safety in the workplace are very crucial as it works to ensure the general welfare of employees. In the UK, there are numerous legal regulations specifically designed to support employees, employers, and the general public.

These legislations are designed to keep everyone safe, buttressing the need for safety procedures and ensuring there are consequences for those that are not following these health and safety regulations.

Also note that the government can introduce new health and safety legislation and this will entail that a business may have to change the way it works, for instance by training its staff or upgrading its machinery or safety equipment.

  1. Trade Barriers

In 2019/2020, the Department for International Trade (DIT) removed 175 trade barriers to trade across 61 countries worldwide, and this has genuinely opened up new global markets for British exporters. Dismantling some of these market access barriers makes it easier for businesses in the UK to trade and invest across the world.

These trade barriers lifted include needless, legal, regulatory, or administrative requirements. It also includes labeling restrictions, out-of-date regulations, and licensing requirements. Reports from experts show that freeing up market access barriers could indeed boost British exports by £75bn per year.

with negotiating new free trade agreements, DIT is looking quite eager to eradicate trade barriers that are detrimental to British exports and investment. This will surely help to bridge trading relationships with the largest and fastest-growing economies in the world.

  1. Climate Change

In recent times, climate change has jumped from being a background social factor to a major political issue. The government has already legislated five carbon budgets, running from 2008 to 2032. However, note that climate change also offers business opportunities for willing businesses.

Companies can strive to boost their resource productivity (for instance by increasing energy efficiency), and this will, in turn, reduce their costs. In addition, climate change can instigate innovation, inspire new products and services that are genuinely less carbon-intensive or which enable carbon reduction by others.

Also note that companies can bolster the resilience of their supply chains, for instance by lessening their dependence on price-volatile fossil fuels and by moving towards renewable energy. All these actions can encourage competitiveness and open new market opportunities.