The Impact of Recent UK Tax Policy Changes on Local Business

BM461

Global Business Environment

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The Impact of Recent UK Tax Policy Changes on Local Business

Task 1: Knowledge of Economic Theory

The analysis of Sainsbury’s business operations requires the application of economic theories as a tool for understanding the effects of policy changes on the firm. An economic theory named after John Maynard Keynes puts into perspective the significance of entailing government participation in the boosting of economic action at the time of the economic cycle low. Macleod said that factors like changes to VAT or increases in NIC disrupt consumer expenditure because they impact disposable income and the cost of running a business in retail chains. Furthermore, the Supply and Demand Theory should also be understood because taxes influence costs and may consequently alter Sainsbury’s pricing approaches together with the sales quantity (Dolega et al., 2021).

These theories are of significant importance to Sainsbury’s since knowledge of them assists the company during its planning and development so that it can prepare for shifts occurring in areas such as users and costs. Since these economic principles, Sainsbury’s can craft corresponding strategies for dealing with the threats such as; the ability to increase the price of products to cover the increase in the VAT or the ability to modify the staff management in case of a rise in NIC (Slattery and Zidar, 2020).

Figure 1: Impact on Business

Source: (Harari et al., 2024)

Policy	Year 2023	Year 2024
NIC	10%	8%
Child Benefits	$50000	$60000
Capital Gain Tax	28%	24%

PESTEL Analysis

Sainsbury’s political, economic, social, technological, environmental, and legal factors. It plays a vital role in increasing strategic management within the organization concerning outside influences comprised of policies or economic conditions within the market space of Sainsbury’s.

Figure 2: Pestle Analysis

Source: (Author, 2024)

Task 2: Analysing Tax Policies 2023-2024

• National Insurance Contributions (NIC): The NIC increase causes employee’s wages to rise, which is a direct detriment to Sainsbury’s payroll. This could result in restricted employment mainly for low-wage jobs or even rising costs to absorb the operating expenses.

• VAT Changes: Many consumers are influenced by a potential VAT rise and their power to purchase goods and services. Higher value-added tax is detrimental to Sainsbury’s because it leads to high-end prices for the products, and may cause customers to cut down their expenditure for merchandise they consider to be expendable.

• Corporation Tax Hike: From 19% to 25% in corporation tax greatly reduces Sainsbury’s post-tax profits. The percentage change in corporation tax reduces Sainsbury’s post-tax profits greatly. Below, it is necessary to identify how this tax increase can impact businesses’ investment capacity: As discussed in the previous sections, retained earnings, which can be used for additional investment in equipment, processes to support operation or digitalization, among others, are now used to pay taxes (Hope and Limberg, 2022).

• Capital Allowances: A temporary full expensing policy enables Sainsbury’s to claim allowances for investments made in machinery and technology in the initial year. This might influence modernization and efficiency enhancement in distribution centers or store technologies in the process.

• Minimum Wage Increases: While the minimum wage increases, Sainsbury’s has to deal with increased labor costs, particularly the stores. This can either reduce profit or lead to high prices that can affect competitiveness in a highly sensitive retail industry.

Task 3: Link Analysis to Economic Theories

Cost-Push Inflation Theory: The upswings on minimum wages and NIC drive operating expenses to rise, making Sainsbury’s look to increase prices thereby contributing to inflation.

Consumer Spending Theory: Changes in VAT impact on disposable income leading to changes in demand for non-core goods for Sainsbury’s (Jensen, 2022).

Keynesian Perspective: Higher corporation tax can have an impact on the degree of reinvestment of Sainsbury and thus aggravate the situation decreasing the positive impact on the economy from corporate consumption expenditure.

Task 4: Assessing Policy Effectiveness

Positive Impact of Capital Allowances: This policy may make Sainsbury’s embrace automation which may in turn increase efficiency while at the same time relieving the company from heavy reliance on expensive employments.

Negative Impact of VAT and NIC Increases: These policies may contribute to high costs that keep consumers’ spending down and operational costs up. Sainsbury’s has to alter prices or cut spending in other areas, concessions, and extras that affect service delivery and product differentiation.

Effect on Manufacturing and Profitability: An increase in NIC and the minimum wage rate can affect the company's in-house food production cost with likely hood effects on the product offer and company profitability. That’s why capital allowances can offset such effects by encouraging the adoption and usage of automation equipment that may lower the necessity of labor costs in the future (Jensen, 2022).

Conclusion

In Conclusion, integration of the PESTEL framework, Sainsbury’s can apply stability amidst change approach in organizational tax policies in conjunction with economic theories. Headings The key conclusions that lead Sainsbury’s to make operational decisions to retain its market share and financial stability in the 2023-2024 year depend on.

References

Dolega, L., Reynolds, J., Singleton, A. and Pavlis, M., 2021. Beyond retail: New ways of classifying UK shopping and consumption spaces. Environment and Planning B: Urban Analytics and City Science, 48(1), pp.132-150.https://journals.sagepub.com/doi/pdf/10.1177/2399808319840666

Hope, D. and Limberg, J., 2022. The economic consequences of major tax cuts for the rich. Socio-Economic Review, 20(2), pp.539-559.https://www.cambridge.org/core/services/aop-cambridge-core/content/view/B7A8B0C7C80C8F7E38D20BE4F5099C83/S1474746420000056a.pdf/modern-monetary-theory-and-the-changing-role-of-tax-in-society.pdf

Jensen, A., 2022. Employment structure and the rise of the modern tax system. American Economic Review, 112(1), pp.213-234.https://www.aeaweb.org/content/file?id=15862

Slattery, C. and Zidar, O., 2020. Evaluating state and local business incentives. Journal of Economic Perspectives, 34(2), pp.90-118.https://pubs.aeaweb.org/doi/pdf/10.1257/jep.34.2.90

Harari, D., Webb, D., Booth, L., Keep, M. and Brien, P. (2024). Spring Budget 2024: A summary. [online] House of Commons Library. Available at: https://commonslibrary.parliament.uk/research-briefings/cbp-9979/ [Accessed 28 Oct. 2024].

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