National Business Environment in UK

By John Dudovskiy

Business Environment in UKResource allocation plays an integral role in facilitation of a national economy in any country. Economic systems can be centrally-panned, free, and mixed and economic systems have a direct impact on the nature of resource allocation.

UK has a free market economy, and accordingly resource allocation in the UK is facilitated purely according to the forces of supply and demand. In centrally-planned economies, on the contrary, such as former USSR “resource allocation plans and decisions are made by central government and then promulgated through government agencies” (Folsom and Boulware, 2004, p.58).

In mixed economic systems, such as in China and present state of former USSR members, there are elements of both, free market and centrally-planned economies to varying proportions. The extent of presence free market and centrally planned elements in each mixed economy depends on a range of factors such as political agenda, the level of corruption, the levels of dependency on exports and imports etc.

The effectiveness of free market economy such as in the UK has been traditionally perceived to be greater compared to alternative types of economies in terms effective resource allocation. However, global economic and financial crisis of 2008-2010 and its continuing implications have shed a light on inefficiencies associated with free market economy.

Fiscal policy is a type of government economic policies that affect macroeconomic situation in the country. Impact of fiscal policy on businesses is evident and straightforward and this impact is facilitated through taxation, and the levels of government spending.

Monetary policy is can be defined as government economic policy to control the supply of money through interest rates. In the UK the monetary policy is conducted by The Bank of England, whereas in Russia the Central Bank of Russia is responsible for monetary policy.

The importance of adequate fiscal and monetary policies further increases in times of economic uncertainties such as the global economic and financial crisis of 2008-2010. In the UK Labour Government fiscal and economic policy responses to the crisis included reducing interest rates to 0,5% and temporary VAT reduction to 15% among other measures. The UK Coalition Government took an alternative approach starting from 2010 by increasingly focusing on reducing the amounts of government spending and increasing VAT to 20% starting from January 4, 2011 (Guidice et al, 2012).

There are contradicting opinions about the impact of these fiscal and monetary policies on businesses; however, continuing economic issues in the UK may be interpreted as a signal of ineffectiveness of these policies.

In Russia, on the other hand, fiscal and economic policy responses to the crisis has been marked with extensive government support of banking sector and financial markets, increasing insurance coverage for individual deposits to banks from 500,000 to 700,000 roubles, and temporarily reducing required reserve ratios from 5.5% to 0.5% to all types of liabilities (Polonskiy, 2011).

Objective assessment of the outcome of these policies on businesses in Russia is not a straightforward task due to a set of reasons such as lack of relevant objective data, and unique specifications of national economy in Russia.



Folsom, W.D. & Boulware, R. (2004) “Encyclopedia of American Business” Library of Congress Cataloguing

Giudice, G., Kuenzel, R. & Springbett, T. (2012) “UK Economy: The Crisis in Perspective” Routledge

Polonskiy, A. (2011) “Monetary and fiscal policies in Russia: their implementation and interaction” Central Bank of Russia