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No business operates in a legal vacuum. The political and legal environment shapes what businesses can and cannot do, how they compete, how they treat employees and how they interact with the natural environment. Understanding these influences is essential for analysing the strategic position of a business, as required by AQA specification topic 3.7.4.
Competition law exists to prevent anti-competitive behaviour and to protect consumers from the abuse of market power. In the UK, competition policy is enforced by the Competition and Markets Authority (CMA).
| Area | What It Prohibits | Example |
|---|---|---|
| Anti-competitive agreements | Cartels, price-fixing, market-sharing agreements between competitors | In 2016, the CMA fined five estate agents in Burnham-on-Sea a total of £370,000 for agreeing minimum commission rates |
| Abuse of dominant position | A firm with significant market power exploiting that position to exclude competitors or exploit consumers | Google was fined €2.42 billion by the European Commission in 2017 for favouring its own shopping comparison service in search results |
| Mergers and acquisitions | Mergers that would substantially lessen competition | The CMA blocked the proposed merger between Sainsbury's and Asda in 2019, concluding it would lead to higher prices for consumers |
Exam Tip: Competition law questions often appear in the context of a proposed merger or acquisition. The key evaluation point is whether the merger would create a firm with the power to raise prices or reduce choice. Consider whether efficiency gains from the merger might benefit consumers enough to outweigh the reduction in competition.
Employment law governs the relationship between employers and employees. It affects recruitment, working conditions, pay, dismissal and discrimination.
| Legislation | Key Provisions | Impact on Business |
|---|---|---|
| National Minimum Wage Act 1998 / National Living Wage | Sets minimum hourly rates (£11.44 for workers aged 21+ from April 2024) | Increases labour costs for businesses relying on low-skilled workers; may encourage automation |
| Equality Act 2010 | Prohibits discrimination on grounds of age, disability, gender, race, religion, sexual orientation, etc. | Businesses must review recruitment, promotion and pay practices; failure to comply risks costly tribunal claims |
| Employment Rights Act 1996 | Provides rights to unfair dismissal protection, redundancy pay, written employment contracts | Increases costs and complexity of workforce restructuring |
| Working Time Regulations 1998 | Limits working week to 48 hours (with opt-out); mandates rest breaks and paid annual leave | Constrains flexible working patterns; increases costs for businesses requiring long shifts |
| Health and Safety at Work Act 1974 | Employers must ensure the health, safety and welfare of employees | Compliance costs (training, equipment, inspections); penalties for breaches |
Labour legislation affects business strategy in several ways:
Environmental law regulates how businesses interact with the natural environment. Compliance has become a significant strategic issue as governments respond to the climate crisis.
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