Business hates uncertainty.
Uncertainty makes decision-making more difficult.
It reduces business confidence and creates unexpected events which businesses have to deal with.
June 2017: the existing South West Trains franchise comes to an end.
The company which wins the franchise will have to pay £700 million pounds to the government.
The contract could last 10 years.
What economic factors would a company wishing to bid for the contract have to consider?
1. The business cycle.
What stages of the business cycle would be positive or negative for running a railway?
2. Interest rates
The winning company may have taken on debt to pay for the contract.
3. Exchange rates
As part of the franchise deal the willing company must pay for new five carriage trains built by Siemens (a German company).
4. Inflation
Rising prices may lead to staff taking industrial action in order to gain 'inflation busting' pay rises.
5. Taxation
Currently there are no taxes on train tickets.
What if the government extended VAT to all public transport.
6. Government spending
Currently the government pays for some loss making rail services on social grounds.
What if this money was removed?
Can you see why business hates economic uncertainty?
