Highways Agency - PEST analysis
A Highways Agency case study

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Page 3: Economic factors

A central aim of government policy is to encourage economic growth. In a growing economy, businesses produce and sell more goods and services. More jobs are created. The country becomes more prosperous. The Highways Agency supports economic growth, because an effective major road network directly helps business and industry. Factories need raw materials, retailers need to keep their shelves well stocked or risk losing business. Even internet businesses like Amazon need to distribute physical products to customers.

To develop the transport infrastructure, the government is committed to increasing capacity on some of the busiest roads. Increased capacity means more goods can be carried and people will experience less congestion. Although this is a short-term cost, it will reap long-term benefits. The Highways Agency is responsible for spending taxpayers' money effectively and efficiently when improving the road network. However, England is a densely populated country and it is not possible to continue to build more and more new roads as this has financial, social and environmental impacts. For example, the paths of new roads might have to pass through countryside or close to housing. The Agency is continuing to deliver conventional road widening schemes. At the same time, as part of the new National Roads Programme it is also extending hard shoulder running to more key sections of motorway to help keep traffic moving. This will provide value for money to the taxpayer and improve the efficiency of the strategic road network.

In 2009 the UK economy went into recession. Rather than growing, the economy is contracting. People and businesses have cut back their spending. Many businesses have had to lay off workers. Although this may result in a short term fall in traffic levels, in the longer term traffic is still forecast to increase. This will put more pressure on the motorways so the case for increasing capacity still remains. The recession has other potential implications for the Highways Agency - by spending money on road improvements the Highways Agency can have an impact on the business cycle. To stimulate the economy out of recession, the government needs to encourage people and businesses to spend. It can try to do this by using a combination of monetary and fiscal measures. A monetary measure involves altering interest rates; fiscal measures concern levels of taxation and public spending. Many economists argue that governments should respond to recessions by increasing public spending. This is known as providing a fiscal stimulus - building Britain's future.

The government is using the Highways Agency to boost public spending and stimulate the economy by bringing forward £400 million of spending on new and improved roads. Up to £100 million of this money is being put towards bringing forward the project to upgrade the A46 in Nottinghamshire to dual carriageway standard and provide bypasses for two villages. It will now be completed and open to traffic some five years earlier than originally planned. The Agency will also deliver extra works in order to get motorways ready for more hard shoulder running schemes and carry out numerous additional smaller road improvement schemes.

By bringing forward spending on roads, contractors will be hired to do the work. They will buy raw materials from other companies and this will help drive the business cycle. Economic activity is driven by sales as order books fill up, firms can grow. They then hire workers and workers spend wages. This has the eventual effect of increasing consumer demand.

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