OCR A Level Business: Political, economic, social and technological factors and related topics (H431) – Revision Notes

These notes condense the external influences content in the OCR A Level Business (H431) specification, Version 2.1 (January 2026), first assessment 2017, final assessment summer 2027: political, economic, social and technological factors, the digital revolution, and ethical, legal and environmental factors. For full explanations and worked examples read the study guide, then test yourself with the practice questions. Wider context is in the External Influences revision notes. Course hub: OCR A Level Business. Checklist: printable checklist. Find weak spots with the free diagnostics.

Definitions to recall

Term	Meaning
Political uncertainty	firm cannot predict future rules, taxes or trade terms
Direct tax	goes directly to government from the person or firm it is levied on
Indirect tax	collected by sellers, paid by consumers through prices
Subsidy	government payment that lowers a firm’s costs or encourages an activity
Monetary policy	interest rates and the cost and availability of money
Fiscal policy	government taxation and spending
Supply-side policy	measures that raise the economy’s productive capacity
GDP	value of all output a country produces in a given period
Business cycle	repeated rise and fall of economic activity
Digital revolution	move from analogue to digital technology
Information age	period when information is created and shared quickly and cheaply
Ethics	moral principles a business chooses to follow beyond the legal minimum
Sustainability	using resources so present needs are met and later generations can meet theirs

Political factors in a table

Idea	Effect on business
Stability	planning, investment, steady demand, cheaper borrowing
Uncertainty	delayed investment, cautious hiring, higher risk
Instability and trade	supply and payment disruption, lost export orders, higher insurance
Local policy	planning decisions, local charges
National policy	tax, spending, regulation, trade rules
International policy	tariffs, agreements, shared standards

Method for a political evaluation (steps):

1. Name the policy or event.
2. Trace it to cost, revenue or risk for the named business.
3. Say which stakeholders gain or lose (owners, staff, customers, suppliers, lenders).
4. Judge size and speed of the effect.
5. Reach a decision about importance.

Economic factors in a table

Topic	Recall
Indicators (standard set)	GDP growth, inflation, unemployment, interest rates, exchange rates
Direct taxes (standard examples)	income tax, National Insurance contributions, corporation tax, capital gains tax
Indirect taxes	VAT, excise duties
Government spending	health, education, social protection, defence, transport, debt interest
Subsidy benefits	lower costs, lower break-even, price cuts, investment, survival
Cycle phases	boom, downturn or recession, slump, recovery
Most affected by cycle	luxuries, durables, construction, high debt, high fixed costs
Least affected	necessities, budget goods

Formulas (standard forms).

• Growth rate (%) = change ÷ original × 100.
• Price including indirect tax = price before tax × (1 + tax rate).
• Break-even output = fixed costs ÷ contribution per unit.

Interest and exchange rates. Higher UK interest rates tend to lift the pound; a stronger pound lowers import prices and makes exports dearer. Lower rates tend to do the reverse. Both also change borrowing costs.

Using the cycle to your advantage.

• Boom: build reserves, avoid over-borrowing.
• Slump: cut waste, renegotiate, buy assets cheaply.
• Recovery: restock, recruit and launch early.

Social, technological and digital factors

Social: age structure, population movement, lifestyle, attitudes and fashion. They shift demand and the labour supply. Evaluate by speed, predictability and who has to change.

Technology uses: design and production software, stock control, customer databases, websites, apps, cloud storage.

Hardware and software, two-sided.

Advantage	Disadvantage
speed and accuracy	purchase and upgrade cost
lower unit labour cost	training and resistance to change
better information	security and breakdown risk
better customer service	job losses for some stakeholders

Digital revolution: opportunities and threats.

Opportunities	Threats
wider markets	online rivals with low costs
lower costs	cyber-crime
personalised marketing	data misuse
real-time data	constant investment needed

More affected: digitisable products (music, books, banking) and online customers. Less affected: local, hands-on trades. Rapid change: early adopters gain an edge, but rivals copy fast, products age quickly and staff need retraining.

Ethical factors

Law versus ethics. The law is compulsory, enforced by the state and carries penalties. Ethics is chosen, based on moral judgement, and the penalty is reputational. Legal does not mean ethical.

Issues: pay and conditions, supplier treatment, honest marketing, animal testing, sourcing, product safety, tax avoidance and customer data.

More affected: long supply chains, high profile, sensitive products.

Ethical trading and working practices: fair trade sourcing, supplier audits, living wages, safe workplaces, no child labour, openness about origins.

Improve the profile (recommend and justify): code of conduct, independent certification, supplier audits, public reporting.

Advantages of behaving ethically	Disadvantages
trust and loyalty	higher costs
easier recruitment	lower short-term profit
positive press	claims that do not match practice backfire

Conflicts with other objectives: profit, growth, cost control. Managing them: phase the change, adjust price, share costs along the supply chain, explain choices to customers.

Legal factors

Legislation covers employment, equality, company and partnership matters, health and safety, data protection, intellectual property, planning, environmental matters, consumer protection, contract and financial conduct. Purpose in short: protect people, keep markets fair, set rules, give remedies.

Comply by: training, policies, audits, a responsible manager, professional advice.

Consequences of failure: fines, compensation, court action, lost contracts, damaged reputation and, at worst, closure.

Conflict: compliance costs time and money, which may clash with cost or growth aims. Changes in law: may force new processes or products, so plan ahead.

Environmental factors and sustainability

Issues: climate change, pollution, waste, energy use, resource shortage.

Why consider them: law, customer pressure, cost savings, staff and investor attitudes, supply risk.

Environmental policy: written commitment with targets. Judge by cost, brand effect and stakeholder reaction.

Sustainable actions: renewable energy, less waste, recycling, responsible sourcing, durable design, measured targets.

Being seen as green: attracts customers, staff and investors, but only if claims are backed up.

Conflicts: greener inputs and processes can cost more. Manage by phasing, targeting savings and clear communication.

Ignoring external factors: risks lost sales, fines, rising costs, reputational harm and failure.

Must-know distinctions

• Monetary, fiscal, supply-side: interest rates, tax and spend, productive capacity.
• Direct, indirect: who pays the government, versus who collects and who bears the price.
• Opportunity, threat: the same technology can be both, depending on who adopts it first.
• Legal, ethical: compulsory versus chosen.
• Sustainable, merely cheaper: sustainability looks at future generations, not just this year’s saving.

Worked reminders

A shop pays 40,000 euros for goods when £1 buys 1.25 euros: cost = 40,000 ÷ 1.25 = £32,000. If £1 then buys 1.00 euro, cost = £40,000, so the weaker pound adds £8,000. State who gains (exporters) and who loses (importers).

An ethical change that cuts margin from 35% to 32% is a trade-off. Argue whether brand trust and repeat custom could repay the lost three percentage points, and over what time.

Quick self-test

1. GDP rises from £800bn to £812bn. Calculate growth.
2. An item costs £50 before an indirect tax of 20% (illustrative). What does the customer pay, and how much is tax?
3. A firm buys 6,000 euros of stock. Calculate the sterling cost at £1 = 1.20 euros and at £1 = 1.10 euros.
4. Unemployment is 2.4m in a labour force of 30m. Calculate the rate.
5. State one difference between a direct and an indirect tax.
6. A subsidy of £0.25 per unit is paid on 60,000 units. What is the total?
7. Price £40, unit cost £26. Calculate the margin, then the margin if ethical sourcing adds £1.20 per unit.
8. Equipment costing £45,000 saves £7,500 a year. Calculate payback.
9. Give one difference between law and ethics.
10. Name two groups likely to be hit hard in a slump and explain why.

Answers

1. 12 ÷ 800 × 100 = 1.5%.
2. Tax = £10; customer pays £60.
3. At 1.20: £5,000; at 1.10: £5,454.55 (about £5,455), a rise of about £455.
4. 2.4 ÷ 30 × 100 = 8%.
5. A direct tax is paid by the person or firm it falls on; an indirect tax is collected by sellers and paid by consumers through prices.
6. 0.25 × 60,000 = £15,000.
7. (40 − 26) ÷ 40 = 35%; with £27.20 cost the margin is 12.80 ÷ 40 = 32%.
8. 45,000 ÷ 7,500 = 6 years.
9. Law is compulsory with state penalties; ethics is chosen and rests on moral judgement.
10. For example, sellers of luxuries or durables, because customers delay purchases; and heavily indebted firms, because fixed interest costs stay while sales fall.

Where marks are usually lost

• Describing a factor generally, with no link to the business named in the question.
• Confusing a subsidy (money given, not repaid) with a loan.
• Mixing up direct and indirect taxes, or placing VAT in the wrong group.
• Saying “a strong pound is good” without stating for whom.
• Writing about technology without naming a cost, risk or stakeholder.
• Treating ethical and legal behaviour as the same.
• Listing benefits of green or ethical action with no cost, conflict or limit.
• Ending an evaluation without a reasoned judgement on importance.
• Skipping the stakeholder angle when the question asks for it.

Frequently asked questions

What is the difference between monetary, fiscal and supply-side policy? Monetary policy works through interest rates and the availability of money, fiscal policy through taxation and government spending, and supply-side policy through measures that raise the economy’s productive capacity. Distinguishing them by the tool used is the quickest way to tell them apart.

How do higher interest rates affect the exchange rate? Higher UK interest rates tend to attract foreign money, which raises demand for the pound and lifts its value. A stronger pound makes imports cheaper and UK exports dearer for foreign buyers.

What is the difference between law and ethics in business? The law is compulsory, enforced by the state and carries penalties. Ethics are moral principles a business chooses to follow, often going beyond what the law requires, so treating the two as the same thing is a common error.

Which businesses are most affected by the digital revolution? Businesses whose products can be digitised, such as music, books and banking, or whose customers buy online, are most affected. Local services that must be delivered in person tend to be less affected.

Official syllabus

OCR, OCR Level 3 Advanced GCE in Business (H431) Specification, Version 2.1 (January 2026), Area of Study: External influences.