PESTLEE analysis
Political factors
Political factors:
Instability – one of the major objectives of government is to provide a stable economic and
legal framework. Competition needs to be fair; the rule of law and clear property rights must
apply.
National security – this is an increasingly important issue for many countries as terrorist
attacks have become commonplace across the world.
Major trading partners – whilst the UK has decided to remove itself from membership of the
European Union, the 27 remaining countries are still a vital market for many UK businesses.
Changes in government – new government may well have a more, ore less, positive attitude
towards business activities. Changes in taxation etc.
Changes in legislation – may lead to an increase in costs for businesses.
Pressure groups – the activities of such groups can have a significant impact upon political
decision-making.
The role of the government:
Manage the economy well
Low unemployment
Lower prices - low inflation 2%, price stability
Economic growth - higher standard of living
Fiscal policy is the changes in taxation and government spending used by the government to
influence aggregate demand and meet governments macroeconomic objectives.
Monetary policy is the changes in interest rates and money supply used by central banks to
achieve inflation targets and influence aggregate demand.
The government buys goods and services from UK businesses; this comes to over £100bn a
year.
Government purchasing has been seen by many businesses as a source of easy profits, but
the culture has now changed.
Government uses legislation to regulate businesses behaviour and prevent them from
exploiting people. Laws protect people who buy from businesses and workers employed by
businesses.
Main areas of legislation that affect businesses are:
Employment laws
Consumer protection laws
, Competition laws
Economic factors
Economic factors:
Taxation
Inflation
Interest rates
Exchange rates
Business cycle
Unemployment
Taxation - direct taxes (taxes on incomes and profits) and indirect taxes (taxes on spending).
Direct tax - income tax, corporation tax, national insurance contributions, inheritance tax.
Indirect tax - Ad valorem tax, VAT, excise duty, stamp duty.
If income tax decreases, consumers will have more disposable income and therefore will stimulate
aggregate demand.
Rise in VAT/ excise duty means the business may increase prices. However, the business may
decrease sales.
Increased rates of corporation tax / business rates will increase the costs of the business, as will such
measures as new landfill taxes. Business may need to increase prices hence may decrease sales.
National insurance increase, increases the costs of employing workers, increasing costs to the
business hence the business may increase prices and sales may decrease.
Inflation - rate at which the general price level rises.
Low inflation encourages investment by businesses and spending by customers.
Also increases competitiveness with overseas producers.
Political factors
Political factors:
Instability – one of the major objectives of government is to provide a stable economic and
legal framework. Competition needs to be fair; the rule of law and clear property rights must
apply.
National security – this is an increasingly important issue for many countries as terrorist
attacks have become commonplace across the world.
Major trading partners – whilst the UK has decided to remove itself from membership of the
European Union, the 27 remaining countries are still a vital market for many UK businesses.
Changes in government – new government may well have a more, ore less, positive attitude
towards business activities. Changes in taxation etc.
Changes in legislation – may lead to an increase in costs for businesses.
Pressure groups – the activities of such groups can have a significant impact upon political
decision-making.
The role of the government:
Manage the economy well
Low unemployment
Lower prices - low inflation 2%, price stability
Economic growth - higher standard of living
Fiscal policy is the changes in taxation and government spending used by the government to
influence aggregate demand and meet governments macroeconomic objectives.
Monetary policy is the changes in interest rates and money supply used by central banks to
achieve inflation targets and influence aggregate demand.
The government buys goods and services from UK businesses; this comes to over £100bn a
year.
Government purchasing has been seen by many businesses as a source of easy profits, but
the culture has now changed.
Government uses legislation to regulate businesses behaviour and prevent them from
exploiting people. Laws protect people who buy from businesses and workers employed by
businesses.
Main areas of legislation that affect businesses are:
Employment laws
Consumer protection laws
, Competition laws
Economic factors
Economic factors:
Taxation
Inflation
Interest rates
Exchange rates
Business cycle
Unemployment
Taxation - direct taxes (taxes on incomes and profits) and indirect taxes (taxes on spending).
Direct tax - income tax, corporation tax, national insurance contributions, inheritance tax.
Indirect tax - Ad valorem tax, VAT, excise duty, stamp duty.
If income tax decreases, consumers will have more disposable income and therefore will stimulate
aggregate demand.
Rise in VAT/ excise duty means the business may increase prices. However, the business may
decrease sales.
Increased rates of corporation tax / business rates will increase the costs of the business, as will such
measures as new landfill taxes. Business may need to increase prices hence may decrease sales.
National insurance increase, increases the costs of employing workers, increasing costs to the
business hence the business may increase prices and sales may decrease.
Inflation - rate at which the general price level rises.
Low inflation encourages investment by businesses and spending by customers.
Also increases competitiveness with overseas producers.
