5 Competition

All businesses produce goods and services and seek profits. And they all compete with other businesses in doing so. Competition is universal in the world of business.

Businesses do not compete only in selling things. They compete for labour, capital, and natural resources.

If a business is going to survive in the face of competition, it needs a constant flow of new ideas. It needs managers who are good at developing new products, finding new ways to reduce costs, and thinking of new ways to make products attractive to consumers.

In the 1960s Xerox had a virtual monopoly on producing copying machines because the company had major patents. Rivals like Kodak, Canon, and 3M spent huge amounts of money on getting new patents. They succeeded in obtaining new patents, and now Xerox is just one among many competitors in the copier market.

6 Taxes

Taxes are a compulsory financial contribution by a person or body of persons towards the expenditure of a public authority.

The government has a choice of taxing income, wealth or consumption to finance its expenditure on defence, social services, municipal services etc.

The main forms of direct tax are income tax paid by individuals and corporation tax paid by businesses. Income tax in Great Britain dates from the 1790s and has until recently been the major source to generate tax revenue. Income tax can be progressive, proportional or regressive. The idea of a progressive tax is to take more from those who earn more.

Indirect taxes are imposed on certain products or services that people buy. The main ones are value added tax and excise duties.

Pressure to increase government expenditure may lead to a search of new taxes.

Some people argue for a more direct link between specific taxes and particular items of government expenditure. For example, taxes from motorists could be spent on roads and the transport system while the tax from alcohol and tobacco could be spent on the national health service. But it is impossible for the government to match all individual taxes with particular spending programmes.

The major principles of a tax system are that it should be equitable and reasonable. Then the incentive to avoid and evade tax would be less. The system of tax collection shouldn't be costly and shouldn't contain a lot of tax allowances and exemptions.

7 The Budget

The budget is the government's main economic statement of the year. It is a forecast of revenue and expenditure for the conning year.

In Great Britain the budget is prepared and usually issued in March. In a major speech to Parliament, the Chancellor of the Exchequer reviews the nation's economic performance and describes the government's economic objectives and the economic policies it intends to follow in order to achieve them.

In November 1993 Great Britain introduced the "so-called" Unified Budget. Under this budget the government presents taxation and spending proposals to Parliament at the same time. The Budget now covers both the government's taxation plans for the coming financial year and its spending plans for the next three years. The proposals are announced to the House of Commons by the Chancellor of the Exchequer in the Budget statement and are published in the Financial Statement and Budget Report. This report also contains a review of recent developments in the economy, together with an economic forecast, and sets out the fiscal and monetary policies.

The main sources of revenue are:

• Tax on income;

• Taxes on expenditure, which include VAT (Value Added Tax) and customs and excise duties;

• National Insurance contributions.