hot topics paper 1 application Flashcards
(26 cards)
Reforms in the UK labour market – banning fire and rehire, regulating zero-hour contracts, and increasing union power.
Fire and Rehire Ban (2024):
The Labour Party pledged in Jan 2024 to ban fire and rehire practices. This refers to when firms dismiss employees and re-employ them on worse terms.
➤ Example: British Gas faced criticism in 2021 for using this tactic.
➤ Impact: Protects worker rights → reduces wage-cutting flexibility for firms.
Zero-Hour Contracts:
As of early 2024, over 1.18 million UK workers are on zero-hour contracts (ONS data), often in hospitality and retail.
➤ Labour proposed a ban in Jan 2024, with workers guaranteed minimum hours instead.
➤ Economic Concern: Reduces labour market flexibility, but improves income security.
Trade Union Resurgence:
➤ Following high-profile strikes in 2023 (NHS, rail, Royal Mail), unions gained negotiating power.
➤ RMT union secured a 9% pay rise deal in late 2023.
➤ Economic Implication: Higher collective bargaining power → potential cost-push inflation.
📈 Figures to Remember:
🔹 1.18 million people on zero-hour contracts (ONS, 2024)
🔹 9% pay rise won by RMT Union (late 2023 deal)
🔹 Public support for banning fire and rehire: 70%+ in YouGov polls
Labour Party Labour Market Reforms (2024–2025)
Day-One Employment Rights:
The proposed legislation introduces rights from the first day of employment, including statutory sick pay, paternity leave, parental leave, bereavement leave, and protection against unfair dismissal.
Strengthening Trade Union Power:
The bill includes measures to bolster trade union influence, such as facilitating collective grievances and enhancing whistleblower protections. These reforms aim to empower workers and promote fair workplace practices
figures:
£5 billion estimated annual cost to businesses due to the reforms – CBI estimate.
28 individual employment law reforms included in the Employment Rights Bill.
UK market failure negative externalities
🚗 Air Pollution (Transport Externalities):
In 2023, road transport accounted for 34% of UK NOx emissions (DEFRA).
Estimated £20 billion/year cost to the UK economy due to health impacts of air pollution (Royal College of Physicians).
London’s Ultra Low Emission Zone (ULEZ) was expanded in August 2023 to combat this → internalises external costs.
🍔 Obesity & Junk Food (Consumption Externalities):
NHS spent £6.5 billion treating obesity-related conditions in 2023 (NHS Digital).
Over 64% of UK adults are overweight or obese (ONS, 2023).
UK introduced a Soft Drinks Industry Levy (“Sugar Tax”) in 2018 → reduced sugar in soft drinks by 44% by 2023 (PHE).
🏭 Industrial Emissions (Production Externalities):
The UK’s total CO₂ emissions were 331.5 million tonnes in 2023 (BEIS).
The Emissions Trading Scheme (ETS) charges firms for polluting, aiming to correct the market failure.
A record 50% more raw sewage was discharged into rivers in England by Thames Water last year compared with the previous 12 month
UK market failure figures - air pollution
Air Pollution (PM₂.₅ & NO₂):
Human-made air pollution in the UK causes around 28,000–36,000 premature deaths annually.
The projected cost to the NHS and social care system from PM₂.₅ and NO₂ between 2017 and 2025 is £1.6 billion.
GOV.UK
Traffic Congestion:
UK drivers lost an average of 61 hours to congestion in 2023, costing each driver £558 in lost time.
Overall, traffic congestion cost the UK economy £7.5 billion in 2023.
INRIX
📈 Figures to Remember:
28,000–36,000 premature deaths/year from air pollution
£1.6 billion NHS & social care costs (2017–2025)
61 hours lost per driver (2023)
£558 average cost per driver (2023)
£7.5 billion total congestion cost (2023)
how the govt is promoting positive externalities
Education:
Government Spending: In the 2024–25 academic year, the UK government allocated an additional £2.3 billion to school funding, with £1 billion dedicated to high-needs education, aiming to improve outcomes for young people.
Healthcare:
NHS Funding: Government-financed healthcare spending reached £258 billion in 2024, marking a real-terms increase of 2.5% from 2023, ensuring broader public health benefits.
Institute for Fiscal Studies
Renewable Energy:
Electricity Generation: Renewables accounted for 50.8% of the UK’s electricity generation in 2024, the first time renewables surpassed half of the total electricity generation.
Solar Power Portal
Offshore Wind Incentives: In May 2025, the UK government increased funding for offshore wind projects to £544 million, aiming to boost offshore wind capacity from 15 GW to between 43–50 GW by 2030.
Electric Vehicle (EV) Infrastructure:
Battery Plant Investment: A £1 billion investment, including £150 million in government grants, is funding a new EV battery “gigafactory” in Sunderland, expected to produce batteries for up to 100,000 EVs annually.
minimum pricing on smoking in Scotland has been raised, In April 2024, the price was increased from 50p to 65p per unit.
Negative Externalities of Gambling (UK Focus)
📉 Economic Costs:
Gambling-related harms are estimated to cost UK society at least £1.27 billion annually, encompassing healthcare, criminal justice, and welfare expenses.
🧠 Mental Health Impact:
The NHS has reported a 130% increase in referrals for gambling addiction treatment between April and September 2024 compared to the same period in 2023, highlighting the growing demand for mental health services related to gambling.
Latest news & breaking headlines
👥 Prevalence of Problem Gambling:
Approximately 2.5% of UK adults have experienced problem gambling, according to the largest survey of its kind, indicating a significant portion of the population is affected.
💰 Economic Activity Reduction:
The online gambling industry has been associated with a £1.3 billion annual reduction in economic activity and a £2.6 billion decrease in wages, as funds are diverted from other sectors of the economy.
🧒 Youth Gambling Concerns:
The proportion of young people in Britain with a gambling problem has more than doubled from 0.7% to 1.5%, equating to about 85,000 children, raising concerns about the impact on younger demographics
Market Failure – Rising Food Prices as a Negative Externality (UK Focus)
📈 Food Price Inflation:
As of April 2025, UK food inflation reached 2.6%, the highest in 11 months, up from 2.4% in March. This surge is attributed to increased employer National Insurance Contributions and higher wages, which have raised production costs.
🍽️ Food Insecurity:
In January 2025, 14% of UK households (approximately 7.3 million adults) experienced food insecurity. Notably, 5% reported not eating for a whole day due to affordability or access issues.
🥫 Food Bank Usage:
Between April and September 2024, over 1.4 million emergency food parcels were distributed, marking a 69% increase compared to the same period five years prior.
👶 Impact on Children:
Families affected by the two-child benefit limit are more likely to skip meals, with approximately one in four such families struggling to afford nutritious food.
High Childcare Costs and Labour Productivity (UK Focus)
🇬🇧 UK Real-World Examples & Figures:
📈 Rising Childcare Costs:
Childcare fees for children under two increased by 9% from 2023 to 2024, with private group-based providers charging an average of £7.86 per hour.
Nursery World
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Explore Education Statistics
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💼 Impact on Workforce Participation:
A survey revealed that 25% of parents would consider leaving the workforce if childcare costs rose by 10%.
Approximately 31% of mothers with young children spend over 40% of their salary on professional childcare.
Pregnant Then Screwed
HR Magazine
📉 Economic Consequences:
High childcare costs contribute to reduced labour force participation, particularly among women, leading to a potential decrease in overall productivity and GDP growth.
📚 Key Economics Concepts:
Marginal Social Cost (MSC) > Marginal Private Cost (MPC):
The societal costs of high childcare expenses (e.g., reduced workforce participation) exceed the private costs borne by individual families.
Underutilisation of Labour Resources:
High childcare costs discourage parents, especially mothers, from participating fully in the labour market, leading to inefficiencies.
Government Intervention Tools:
Subsidies and Free Childcare Hours: To reduce the financial burden on families and encourage workforce participation.
Tax Credits and Benefits: To support low- and middle-income families with childcare expenses.
Regulatory Measures: To control and monitor childcare costs and quality.
🧠 Evaluation Points:
Effectiveness of Policies:
While subsidies and free childcare hours aim to alleviate costs, their effectiveness depends on adequate funding and accessibility.
Equity Considerations:
Policies must ensure that support reaches those most in need, particularly low-income families, to promote inclusive economic growth.
Long-Term Economic Impact:
Investing in affordable childcare can yield long-term benefits by enhancing labour force participation, reducing gender disparities, and boosting productivity.
Market Failure – Inequitable Access to NHS Healthcare (UK Focus)
📉 Access Disparities by Income:
A survey found that 19% of individuals on very low incomes reported difficulty accessing NHS care, compared to 8% of those from wealthier backgrounds. Specifically, 38% of the lowest-income individuals had trouble accessing dental care, and 28% faced challenges in obtaining mental health treatment.
⏳ Prolonged A&E Wait Times:
In 2024, over 1.15 million people aged 60 and older in England experienced waits exceeding 12 hours in A&E departments—a sharp increase from 991,068 in 2023 and 305,619 in 2019.
🏥 GP Appointment Availability:
Between March 2016 and March 2024, the number of fully qualified GPs per 100,000 patients in England decreased by 15%, from 51 to 44 full-time equivalents, despite a 10% increase in the patient population.
📊 Health Inequalities by Demographics:
Research indicates that individuals from lower socioeconomic backgrounds, certain ethnic minorities, and rural areas often experience poorer health outcomes and face greater challenges in accessing healthcare services.
Market Failure – High Tuition Fees and Labour Productivity (UK Focus)
🇬🇧 UK Real-World Examples & Figures:
💷 Tuition Fees:
In England, universities can charge up to £9,535 per year for undergraduate courses starting in 2025. This fee cap has been in place since 2017, leading to a real-terms reduction in funding per student .
UCAS
💳 Student Debt:
The total higher education loan balance in England reached £236.2 billion by the end of the 2023-24 financial year. The average student debt for those who started their course in 2022-23 is approximately £45,600 .
📉 Repayment Thresholds:
For Plan 2 loans, the repayment threshold is £27,295 per year. Graduates repay 9% of their income above this threshold. For example, a graduate earning £30,000 annually would repay approximately £242.55 per month .
📉 Impact on Labour Market Participation:
High student debt can deter graduates from pursuing entrepreneurial ventures or jobs in lower-paying sectors, potentially leading to underutilisation of skills and reduced overall productivity.
Market Failure – State Provision for Low-Income Individuals (UK Focus)
🇬🇧 UK Real-World Examples & Figures:
📉 Income Inequality:
In 2024, the UK had a Gini coefficient of 0.35, indicating moderate income inequality. Low-income households often spend a disproportionate amount of their income on essential goods and services, leading to financial strain.
🏥 Healthcare Access:
While the NHS provides healthcare services, additional costs like dental care and prescriptions can be prohibitive for low-income individuals. In 2024, approximately 10% of low-income households reported delaying or forgoing medical treatment due to cost.
🏠 Housing Affordability:
In 2024, 1.6 million low-income households benefited from increased Local Housing Allowance rates, averaging an additional £800 per year, to help cover rising rental costs.
🎓 Education Accessibility:
The UK government provides free primary and secondary education. However, costs associated with uniforms, extracurricular activities, and school meals can burden low-income families. In 2024, over 1 million children from low-income families received free school meals.
Market Failure – Economic Impacts of HS2 Cuts (UK Focus)
💰 Financial Losses:
The cancellation of Phase 2 of the HS2 project has cost UK taxpayers over £2 billion, including £1.1 billion in costs incurred during planning and £1 billion in accounting charges due to reduced project scope.
📉 Reduced Economic Benefits:
The scaling back of the project, particularly the northern leg, has resulted in an immediate financial loss of over £2 billion to UK taxpayers, a consequence of investments made in planning, land purchases, and partial construction that will no longer come to fruition.
🏗️ Construction Sector Impact:
The decision to cancel significant parts of the HS2 project will have dire implications for the construction sector, which already faces challenges from previous government regulations and a challenging economic environment. This three-year, £100 million shutdown will lead to legal scrutiny of contracts, potentially resulting in claims for damages and lost profits.
🚄 Transportation Inefficiencies:
Following the cancellation of HS2’s second phase beyond Birmingham, the UK government’s spending watchdog, the National Audit Office (NAO), warns that train fares on the west coast mainline from London to Manchester may rise to reduce demand. The termination of phase 2 means extensive wind-down costs and site restoration amounting to £100 million, taking three years.
Market Failure – Flood Defences as Public Goods (UK Focus)
🇬🇧 UK Real-World Examples & Figures:
📉 Condition of Flood Defences:
As of 2022, over 4,000 of England’s most important flood defences were in poor or very poor condition, with 856 rated as “very poor,” meaning they had severe defects resulting in complete performance failure.
💰 Economic Impact:
In the first quarter of 2025, UK home insurers faced a record £226 million in weather-related claims, marking the highest amount since tracking began in 2017. This underscores the economic consequences of inadequate flood protection.
🏗️ Government Investment:
The UK government announced a record £2.65 billion investment to build and maintain flood defences, aiming to protect over 66,000 properties by March 2026.
🌾 Additional Funding:
An extra £250 million was pledged to shore up defences and protect an additional 66,500 properties from flooding over a two-year period
Evaluation Points:
Effectiveness of Government Investment: While the £2.65 billion investment is significant, concerns remain about the adequacy of funding given the deteriorating condition of existing defences and the increasing frequency of extreme weather events.
Regional Disparities: Certain regions, such as the East of England and the North-West, have higher proportions of flood defences in poor condition, highlighting the need for targeted investment.
Long-Term Sustainability: Ensuring the long-term effectiveness of flood defences requires not only investment but also regular maintenance and adaptation to changing climate conditions.
Market Failure – UK Rental Market
Average Rent:
As of March 2025, the average UK monthly private rent increased by 7.7% to £1,332, with England averaging £1,386, Wales £792, and Scotland £1,001.
Affordability:
In Q1 2024, the average UK tenant spent 30.6% of their monthly wage on rent, with 20% spending over half their income.
Supply-Demand Imbalance:
Zoopla’s analysis indicates that rental supply has increased by 11% year-on-year, while demand has dropped by 17%, partly due to reduced immigration and a stronger first-time buyer market. Despite this, there are still 12 prospective renters competing for each available property—double the pre-pandemic average.
Rental Growth:
The average rent for new lets in the UK was £1,284 as of December 2024, with rents rising 3% over the past year, the slowest rate of growth seen in 3.5 years.
Perfect Competition – UK Context (2025)
UK Real-World Examples (Idealized):
Agricultural Markets:
The UK agricultural sector, particularly in areas like cereals and dairy, exhibits characteristics of perfect competition. For instance, in 2024/25, dairy farm business income is forecasted to rise to £176,000, more than double from the previous year, driven by higher milk prices and increased efficiency.
Stock Markets:
The London Stock Exchange (LSE) is one of the largest and most liquid stock markets globally, with over 1,900 listed companies as of 2024. This high number of firms and the ease of trading shares contribute to a competitive environment
BUT:
Perfect competition is a theoretical concept, and while it doesn’t exist in its pure form, some markets (e.g., agriculture, stock markets) can come close to this ideal.
Monopolistic competition context
Restaurants and Cafés: Numerous establishments offer varying cuisines and dining experiences, catering to different customer preferences.
Hair Salons and Barbershops: Each offers unique services, styles, and atmospheres to attract a diverse clientele.
Clothing Retailers: Brands differentiate through design, quality, and brand image, despite selling similar apparel.
Pubs and Coffee Shops: Offer distinct atmospheres, menus, and services, competing for local patronage.
Oligopolies context
Supermarkets: The UK grocery market is dominated by a few large firms, with Tesco holding a 27.9% market share as of 2025.
Banks: The banking sector is controlled by a small number of large banks, including Lloyds, Barclays, and HSBC.
Mobile Networks: The UK mobile network market is dominated by a few providers such as EE, Vodafone, and O2.
Monopolies context
Royal Mail: Historically, Royal Mail held a monopoly on mail delivery services in the UK.
Network Rail: Manages the UK’s railway infrastructure, with no competition in the provision of rail tracks.
Thames Water: Provides water and wastewater services to the Greater London area, operating as a regional monopoly.
KCOM Group: Holds a monopoly on broadband services in the Hull area, with a 100% market share in the wholesale broadband market, as For historical reasons, the Hull area has no BT landline
Business Closures
Retail Sector: In 2024, the UK experienced a significant increase in shop closures, with an average of 37 shops closing daily, totaling nearly 13,500 closures throughout the year. This marked a 28% increase from 2023.
Insolvencies: In 2024, there were 23,872 registered company insolvencies in the UK, comprising various types of liquidations and administrations.
Government Intervention – CMA Investigations
Example: Veterinary Services Market Investigation
Context: In 2024, the CMA launched a formal market investigation into the UK’s veterinary services for household pets.
Concerns Identified:
Lack of transparency in pricing and treatment options.
High mark-ups on medications and services.
Limited consumer choice due to consolidation of veterinary practices.
thewebinarvet.com
Proposed Remedies:
Caps on prescription fees and other services.
Mandatory disclosure of treatment prices and ownership structures.
Introduction of a price comparison website for veterinary services.
Banning financial incentives that may lead to unnecessary treatments.
Current Status: As of May 2025, the CMA is consulting on potential remedies, with final decisions expected by November 2025.
Government Intervention – Thames Water’s Raw Sewage Discharges
Volume of Discharges: In 2024, Thames Water released 298,081 hours of raw sewage into rivers, a 50% increase from the previous year.
Regulatory Actions: The company was fined £104 million by the water regulator Ofwat for failing to manage its wastewater treatment works and networks.
Environmental Impact: Routine discharges have led to pollution of rivers and seas, affecting water quality and aquatic life
Windfall Taxes – Energy Profits Levy (EPL) , on manufacturers like BP and shell
Introduction: The EPL was introduced in May 2022 at a rate of 25%, increasing to 35% in November 2022.
Recent Changes: In October 2024, the EPL rate increased to 38%, bringing the total tax rate on upstream oil and gas activities to 78%. The levy was extended to March 2030, and the 29% investment allowance was abolished.
Impact on Companies: Harbour Energy reported a $93 million after-tax loss for 2024, despite a pre-tax profit of $1.2 billion, attributing the loss to the high tax rate and regulatory delays.
Industry Response: Companies like Apache have announced plans to exit the North Sea, citing the economic implications of the EPL and new emissions control regulations.
CMA Merger Investigations
Vodafone and Three UK Merger
Overview: Vodafone and Three UK proposed a £16.5 billion merger to create the UK’s largest mobile operator.
CMA’s Role: The CMA conducted an in-depth investigation to assess the potential impact on competition.
Outcome: Approval was granted with conditions, including commitments to invest £11 billion in network improvements and to cap certain tariffs for three years.
UK’s largest mobile provider with around 27 million customers. The deal is valued at over £15 billion. Vodafone will own 51% of the merged company, while CKH (Three UK) will hold 49%
Kingsmill and Hovis Merger Talks
Overview: Kingsmill (Allied Bakeries) and Hovis (Endless LLP) are in advanced talks regarding a potential merger in the UK’s £5 billion bread market.
CMA’s Role: The CMA is expected to scrutinize the merger due to concerns about reduced competition.
Potential Impact: The combined entity could command up to 40% of the UK bread market, potentially affecting consumer choice and pricing
Nationalisation in the UK (2024–2025)
British Steel (April 2025):
Context: The UK government intervened to prevent the closure of British Steel’s Scunthorpe plant, safeguarding approximately 2,700 jobs.
Action: Emergency legislation, the Steel Industry (Special Measures) Bill, was passed, granting the government powers to manage the company temporarily.
Reason: Concerns over national security and the strategic importance of maintaining domestic steel production capacity.
Outcome: The government is exploring options for full nationalisation if necessary.
Thames Water (May 2025):
Context: Thames Water faced financial instability, with over £20 billion in debt, risking collapse.
Action: The government considered temporary nationalisation under the Special Administration Regime (SAR), with potential costs estimated between £3.4–£4.1 billion.
Reason: To ensure continued water supply and address environmental concerns.
Outcome: The government is seeking a private sector bailout to avoid nationalisation.
Great British Railways (GBR) Initiative (2024–2027):
Context: The Labour government pledged to bring all passenger train operators into public ownership.
Action: The Passenger Railway Services (Public Ownership) Act 2024 was enacted, initiating the transfer of train operators to GBR.
Timeline: Nationalisation is set to begin in May 2025, with completion expected by 2027.
Reason: To improve service quality, reduce fares, and enhance accountability.
