Monetary policy is the changing of interest rates and the influence of the money supply compared to the fiscal policy, which includes the government altering tax rates and the levels of government spending when it comes to influencing the total demand within the economy. They are both utilized to help support the economy in terms of economic growth and controlling inflation.
The fiscal policy often includes changes in taxation and spending policies. Lower taxes results in an increase of disposable income for customers which leads to EDF having more money to then invest in more employees to help the business and to invest in more equipment to help the business run more effectively and to keep up with the supply demand. Stimulus spending programs involves infrastructure projects, which are usually short term within nature, and this leads to growth for EDF as it allows the business demand to increase as they produce more short-term jobs and more job opportunities and the chance to supply more energy for example Hinkley point is an infrastructure project. However the increase of income or consumption taxes will result in less disposable income which can then in a long period of time reduce EDFs activity as people will have less money to spend on energy so will reduce their use of energy which then leads to EDF getting less money meaning there activities like spending money on investments to therefore decline.
PUBLIC SECTOR BORROWING
The fiscal policy controls the levels that alter for taxation and spending as well as controlling the public sector borrowing. When public sector borrowing is at a peak and high it limits the sum of money that other businesses can borrow as it becomes limited. This leads to it becoming harder for business to borrow money in order to invest in new projects or technology with for EDF may have an impact on their growth as if they don’t have enough money to fund projects or buy equipment themselves they will have to use old machinery which could be less slow meaning less energy will be produced and with projects they will have to be put on hold which means there business wont be growing as they aren’t setting up any new energy points like Hinkly point which allows them to supply more energy to more people which means they are growing as they are supplying to new and more consumers but this would be put on hold as they are limited with how much money they can borrow. Limited borrowing can also lead to interest rates increasing as more people will want to be borrowing more money than there is accessible and when there is higher interest rates it results in higher costs and for EDF this will mean raising their prices of their energy supply which then affects the consumers as they will have to pay more and some may not want to which means they will go to a cheaper supplier and then for EDF this may mean that there demands will be affected and may even decline.
Direct taxation is tax that is paid by people and businesses straight to an organization and the tax is taken on their profit, or income. For instance corporation tax is a type of direct taxation and this is tax that is taken from how much the business earns and how much profit in which they gain. At this current time the corporation tax rate is 19%. EDF will be impacted by this tax because they will have to pay the taxpayers this money and this means that money will be taken from their business from their profits in which they make. EDF currently have to pay £114m for corporation tax. Even if sales decline then it will mean that EDF will still have to pay the tax and this will mean the money they have left over from their profit they will have to pay the tax meaning they will be left with less money from their profit to re-invest into their business to allow the business to grow by starting new profits and paying off any other things they need too like buying new equipment.
Another type of direct taxation is income tax and this is the tax in which the government gets from the sales of the business in order for the government to gain their own income, the government then spend this on public spending like the NHS, education etc.. This once again impacts EDF in terms of they are loosing money once again as they are having to pay income tax, this will have an impact on the overall profit they make as it will be taken out of that. Another tax that is based on income is national insurance contributions and this helps to gain money for people to claim benefits if they need to and this is good because if people are being given benefits when working its more likely people will be willing to work meaning EDF will have more employees that will be wanting to work meaning their will be an increase in productivity and also this tax helps to build up state pensions for individuals when they retire and EDF spend currently £170m on their employees’ pensions scheme which will again make employees want to work as they know thier business is helping to set them up for the future meaning EDF will have a employee loyalty and will again increase productivity and not only the business has to pay national insurance contributions to the government but so do the employees but this may benefit them in the future as they will get their pensions.