I have been set a task for my economics coursework, it is to see how the recent changes to the budget this year have affected business in a town.The budget has been with us since the Norman times, back then there was no such thing as a budget but evidence of the Exchequer scan be dated to back then. During those past times, there were two halves for the finance system.
The treasury and the Exchequer, both halves organised different areas of the monarchs finance giving out money and receiving it. The word Exchequer comes from the Latin word ‘scaccarium’ meaning chessboard, this is because in court counter were moved along a chess-like board. The word budget is from an old French word meaning ‘bougette’ which means little bag.Every year since May 1997, the budget for the next 365 days is presented to the Government by the Chancellor.
The budget is always presented sometime during the spring, sometimes a pre-budget is drawn up after that some months later in Autumn, this allows the Chancellor to plan for next years and produce a progress report on what the budget has achieved since its release. This year the budget was released on the 17th April by the Chancellor Gordon Brown, Mr. Brown has maintained the title of Chancellor since the 2nd May 1997, a period of 5 years. His speech, which all Chancellors must make, lasted about 1 hour and a half.In this project I will be pursuing certain areas of the budget which will definitely affect everyone and others which may affect them depending on certain factors. I will delve into this further a bit later on. After analysing the 2002 budget since its public release, I have found various changes which may or may not affect businesses.
Below are 9 questions which I have created from reading the changes to the budget. Each question is from a different section of the budget which has been changed and I intend to implement them into a questionnaire to give out to some people owning businesses within the town of Wokingham. When the questionnaires are collected back in again, I intend to analyse them and see what everybody’s opinion of these changes to the budget are.Map and LocationOn the next page is what the questionnaire looked like blank with no answers filled into it.Below is an image of Wokingham showing where the places I have interviewed are located and a map version.QuestionnaireHow will the changes to the budget affected Wokingham1.
Will the 1% rise in National Insurance rates paid by employers and employees in contracted pension schemes affect you much? You will have to contribute 11% of your earnings between the threshold and the Upper Earnings Limit,1% of any earnings above the Upper Earnings Limit and 12.8% of any earnings above the threshold. For example: for a salary of £20000, the extra national insurance per month would be £12.82.2.
Will the new car fuel scale charges to be introduced in April next year affect company car fuel charges? A new basis has been introduced to tax the benefit of providing free fuel for private motoring in a company car.3. Do you think the government proposal for tax returns to be submitted online was a good idea?4. Will the new change to Corporation Tax starting rate affect you at all? It has gone from 10% to 0%. So a company with profits of only £10,000 pays no tax at all.5. Do you think that the government pensions schemes earnings cap that is increased annually inline with retail prices is fair , or should one be allowed to contribute as much as we want?6.
There have been changes to Research and Development expenditure tax credit, 25% for large businesses; 50% for small businesses. Have these changes affected you at all?7. The budget has opened up many new advantages to limited companies ,if you are a sole trader or partnership, to make the most of these advantages have you considered becoming a limited company?8. In the recent changes to the budget ,the expenditure is now being independent monitored, rather than centrally monitored. Is this pleasing news?9. Overall, do you believe that this new budget has opened up new opportunities for you and the company and that it is beneficial to small businesses?Analysis and ConclusionAt the back of this project you may find 6 questionnaires each all answered by various employees or owners of businesses within Wokingham.
I attempted to go for a variety of businesses in Wokingham and not follow a trend. The businesses that gave me permission to give them questionnaires were all very nice, I ended up with; George Bowcock LTD, Lunn Polly travel agents, Bookends, F -Hinds Jewellers and Snappy Snaps . These companies as you can see are all from different sectors of the economy. Some may have diversified , but the majority of them are still centred around a certain business sector of the economy.
For example :Hinds Jewellers has jewellers has diversified into clock and watch repair offering more than just jewellery services, the others still stick true to their main source of income but are slowly diversifying. I will now analyse the question and the answers which I received.1. Will the 1% rise in National Insurance rates paid by employers and employees in contracted pension schemes affect you much? You will have to contribute 11% of your earnings between the threshold and the Upper Earnings Limit,1% of any earnings above the Upper Earnings Limit and 12.
8% of any earnings above the threshold. For example: for a salary of £20000, the extra national insurance per month would be £12.82. This question was a good starter as this affects employees and employers , the 1% rise may not seem much but as the owner of Bookends says , and I quote ” Yes, it increases the cost of labour ,which directly affects profitability”.
This cost of insurance for employers and employees increases costs for both of them meaning less money can be spent on other goods. This in turn can lead to would be customers who are also employers or employees not purchasing anything from there after all thus the company lose profit. One point to make though is that the question was not answered by a few because it has yet to be introduced, it will be made public next year.2. Will the new car fuel scale charges to be introduced in April next year affect company car fuel charges? A new basis has been introduced to tax the benefit of providing free fuel for private motoring in a company car.
This question was more directed at the larger companies, who gave employees company cars, unfortunately almost all the people who answered my questionnaires were not on a company car scheme so that question was a bit of a flop. One person out of them could answer the question , George Bowcock LTD answered the question by saying that it will not affect the business much as the car user would rather option out of this as it has been made to complicated for most company car users .3. Do you think the government proposal for tax returns to be submitted online was a good idea? The results were even matched on this question, 3 of the returns had NO written on them and the other half had yes. The government intend to implement this by 2010 when they hope all employees will be able to send in their year end returns electronically.
The half that had no on them, replied to that question briefly saying that until the security of their information sent and held could be proven, they would not participate. The other half commented on how much more straight forward it would be and a lot quicker if sent electronically. One participant commented on how it was a good idea but only for those who have very simple returns- the new forms require an accountants time to complete and assess. Unless this could somehow be implemented then this option is still on the border line.
However since it says in the Employers bulletin magazine that this is only for small employers which the government want to help.4. Will the new change to Corporation Tax starting rate affect you at all? It has gone from 10% to 0%. So a company with profits of only £10,000 pays no tax at all. This question was answered briefly as it required basically only a yes or no. Everyone answered the question NO, adding to my belief that even though Wokingham is a small town, it is still the second richest in the whole of England, coming just after a town in Surrey. This would mean that even though not huge the inhabitants have enough money to keep the town prosperous .
This would the mean that no company in Wokingham earns less than £10000 and that this change does not affect them at all. Many though thought it was a good idea.5. Do you think that the government pensions schemes earnings cap that is increased annually inline with retail prices is fair , or should one be allowed to contribute as much as we want? This question was also a short , it was equally sided though with some saying it does no affect them and others saying yes, but there should be minimum amount to start off with. So it would be better to contribute.6. There have been changes to Research and Development expenditure tax credit, 25% for large businesses; 50% for small businesses.
Have these changes affected you at all? This question was not very good, it did not affect the businesses much or at all, R ; D expenditure did not affect any of the businesses I questioned. It would only affect companied that have an R ; D team or section.7. The budget has opened up many new advantages to limited companies ,if you are a sole trader or partnership, to make the most of these advantages have you considered becoming a limited company? This questions was brief , but is very important. The changes to the budget have led to limited companies receiving a great deal more benefits than sole traders. Some commented on how they would change to limited company to reap the benefits and others commented on how they were limited already and that these changes are very good work very well for them.8.
In the recent changes to the budget ,the expenditure is now being independent monitored, rather than centrally monitored. Is this pleasing news? This brief question diverged off the direct changes to the budget to discuss how the budget would actually be handled. Many were pleased that it was being handled by a 3rd person , outside of the government and its influence. However they were a bit sceptical about this change coming about with such radical changes. It is not centrally monitored, but how can we know that the information that is collected does not have to go through some unknown sub-section of the government before release.
I would wait a bit and see9. Overall, do you believe that this new budget has opened up new opportunities for you and the company and that it is beneficial to small businesses? This question was just used to finish things off, a basic overall evaluation of their thoughts on the budget 2002. Some thought that it was not a very good budget, the increase in tax was too high , an increase was ok, but the government pushed it and now some of the businesses are annoyed and angry. It is not beneficial to businesses even with the additional changes to help with the increase in tax.
To conclude this ,all in all I believe that the budget has made some drastic changes in some places which affect business severely such as the new advantages to limited companies and the increase in national insurance . However it has left some area which could have been changed intact and made some areas even worse such as the new car fuel scale chargers on company cars.To analyse these further, I can see how some of these specific changes to the economy can affect it in more in depth ways.
Firstly, the increase in National insurance contributions can lead to a reduction in demand for labour, this could lead to an increased amount of people becoming unemployed thus leading to a quickly rising unemployment rate. This Drastic increase in unemployment can lead to many things, inflation being a prime example. The type of unemployment would probably be structural, this is when there is insufficient capital in the economy. In this case, the employers do not have enough revenue to pay for the same amount of employees after the increase.Although 1% does no seem like much, it makes a considerable difference when facing over a thousand employees. Also to the employees, national insurance is deducted from them from their pay, so they are no in a good position.
As I mentioned earlier, inflation can occur when prices rise, this could happen when the employers decide to increase the price of the goods to pay for the increase in national insurance. What could happen is a slump in the market because of the increase in national insurance. The G.N.P of the country could be reduced. Below is a diagram showing National Insurance by labour force, this is an example for a large firm with 10000 employees.Each firm reacted differently to each question asked, depending on who I gave the questionnaire to the answered differed between them.
By far, the best returns were from George Bowcock LTD ,Bookends and Snappy Snaps. All three firms answered the questions well including economic terminology and thoroughly though over how these changes would affect them. The Other companies did answer the questions, but were much more brief in their answers, sometimes with just Yes and No, not expanding upon it further, these kind of answers hindered me in my process of analysing them.Most of the firms in Wokingham are quite small, they are either franchises or sole proprietors. I believe that George Bowcock LTD is the only sole proprietor there. The rest of the firms are a mix, Snappy Snaps is a franchise, Bookends is led by a partnership, F-Hinds is a private company with its head office elsewhere, Lunn Polly, I am unsure off, but I believe it to be a public company. Each company, with its different basis have different answers to the questions I have asked.
Franchises for example would be heavily affected by the 1% rise in National Insurance if they have just started up and need staff, as well as paying this, they must also pay a constant percentage of their revenue back to the company head office, so this would affect them quite badly.The corporation tax change from 10% to 0% could benefit many entrepreneurs. With this totally reduction, they are now free to start up their business with a lot less pressure from tax. With this new found profit instead of taxation from it, they can help their growing business and in turn help the economy, this could cure the National Insurance, as there would be many people starting up business leading to a boom in the economy.
It could counteract against inflation and the unemployment that might spring forth form the rise in N.I. The entrepreneurs could use the profit to update their machinery or sell it before it depreciates too much.
The rate of depreciation currently is racing forward with machinery 2 years ago selling for less than a 1/3 of the original price, items are becoming redundant in the span of a few years. With the profit staff could be trained, leading to promotions and helping the economy with unemployment and helping deal with inflation.The tax being collected from the National Insurance is supposedly being collected for once again education(schools) and the N.H.S.
However after all this recent news about war, it could be used for greater affect in preparing the county for this, war costs a lot of money, so taxes will probably rise even more, leading to inflation as prices rise. Oil will definitely rise in price meaning the fuel scale charges could affect them, however the issue is very complicated at the moment and so many choose to ignore it for the time being. The tax revenue would not benefit the companies I have surveyed much, but in turn would benefit other companies connected to the sectors of the country being glossed over with the money like the N.H.
S. This as in pharmaceutical companies, chemists / dispensaries and other companies connected to them, distributing drugs such as Boots.Wokingham itself is an affluent town, but it does have a problem with employment, though not appearing in the questionnaires, many of the firms mentioned that they had a labour shortage.
In the specialist skill sector is this most obvious, not many people have any skills which are serious needed at the moment. A major factor in this is because of the extortionately high cost of living in Wokingham, especially around the housing sector. This has led people away from Wokingham and the surrounding areas to seek jobs elsewhere , where the cost of living is affordable. The Budget has offered no concrete proposals to alleviate the problem.The new budget of 2003 must make amends these drastic changes and equal the advantages with the increases in tax. Changes must be made to benefit both sides and keep Britain’s trade and commerce flowing, small businesses are needed and stunting their growth does not help them one bit. These changes could be pursued even more and in more depth.
Which leads me onto my evaluation.I believe that overall I have performed quite well with this coursework, I have analysed everything possible for my task and done it in depth. I researched each question before implementing it and tried to discover and utilise a wide range of changes so as to not centre around areas which have already been placed into the questionnaire.
If I could improve certain areas of this project, I would first change some of the irrelevant questionnaires, these would be the Research and Development based question (unless I was asking a large company such as Dell or Waitrose) and the car fuel scale charges. I would replace these with more relevant questions , of which I will devise later.Another problem which I did not mention was that large business and banks would simply not answer my questions. They were not rude but they said that they could not answer the questions due to the fact they could not represent the bank itself in answering these questions.
I would have to seek out their public speaker if I was to do this and I had not the time to try to contact and interview the public spokesman or woman for each bank or large company.If I could expand upon this task, I could do many things, first I would probably devise more questions. If I could then accumulate more people who could help answer these for me I could start to produce more personalised questions for each participant. Different questions for different areas of trade and commerce, for example and question about the recent lies and shocks rippling through the stock market could be asked to large multi-national corporations or bank associations.Another point would be doing it on a much large scale, for example comparing the differences between another town such as Bracknell to Wokingham and there’s another factor here with Wokingham being an extremely affluent town.
There are many factors present which could affect the task, and I have only scratched the surface.