‘There has to be a bolder shift’: retail and hospitality businesses assess relief in budget
Real-world example for IB, A-Level, AP and IGCSE Economics essays: Taxes, subsidies and price controls, Wages and income inequality, Firms' costs, profits and decisions
What happened
The chancellor cut business rates for more small businesses and limited the rise in the minimum wage for younger workers.
The economics
Lower business rates reduce a fixed operating cost for small firms, acting like a tax-based subsidy that can raise profits and affect hiring and investment decisions; capping the minimum wage rise for younger workers lowers the wage floor for that group and affects their relative pay. A student could show how lower costs shift supply and profits, and how a wage cap affects low-skilled wages and employment.
Evaluation
The relief may ease pressure on firms in the short run, but it can limit younger workers' earnings growth and widen wage inequality; whether it actually boosts investment and jobs also depends on demand and the wider economy.
Practice question
Using this example, analyse how cutting business rates for small firms and limiting the minimum wage rise for younger workers affects firms' costs, employment and income distribution in retail and hospitality.
Where it fits in the syllabus
- Taxes, subsidies and price controls: Indirect taxes, subsidies and maximum or minimum prices that governments use to change market outcomes.
- Wages and income inequality: How labour markets set wages, and how income and wealth are shared across people.
- Firms' costs, profits and decisions: How firms decide output, prices and investment from their costs, revenue and competition.
- IB Economics: Government Intervention and Market Failure, Aggregate Demand and Supply, Demand, Supply and Elasticity
- A-Level Economics: Government Microeconomic Intervention
- AP Microeconomics: Supply, Demand and Market Equilibrium, Market Failure and the Role of Government, Factor Markets and Income Distribution, Production, Cost and Perfect Competition
- IGCSE Economics: Government Intervention, The Allocation of Resources, Business Economics