Political Environment (AQA A Level Business): Exam Questions

Source A: Severn Trent

Severn Trent Plc provides water and wastewater services to more than 9 million people across the Midlands and mid-Wales through its regulated business, Severn Trent Water. It is a public limited company listed on the London Stock Exchange and employs more than 11 000 people. In the year to 31 March 2026 its revenue rose 16.6% to £2 831 million and its profit before interest and tax rose 46% to £861 million. It invested £1 954 million in its water and wastewater networks, the largest investment programme in its history. The full-year dividend rose 3.5% to 126.02 pence a share, in line with the company's policy of increasing the dividend by at least the rate of inflation each year.

Water companies in England and Wales are the only suppliers of water and wastewater services in their regions. The prices they may charge, and the investment they must deliver, are set by the economic regulator, Ofwat, for five years at a time; the current period runs from 2025 to 2030. Companies receive financial rewards from Ofwat when they beat performance targets and pay penalties when they miss them. From April 2026 the average Severn Trent household bill for water and wastewater rose by £52, or 10%, to £587.

The discharge of sewage into rivers has become a major political issue. Severn Trent reports that:

• average spills from its storm overflows fell by 41% in 2025, to 15 for each overflow, beating its regulatory target and earning a reward of £10 million;

• pollution incidents fell by 35% to 178, two of which were confirmed as serious;

• it has committed to invest £450 million by 2030 to reduce spills to an average of fewer than 14 for each overflow.

The company supports customers who struggle to pay. During the year it provided £127 million of bill support to around 330 000 households, an average reduction of 64% on their bills, and it aims to help around 1 in 6 households in its region by 2030. Its employability programmes reached more than 15 000 people.

The company also works to improve the natural environment. During the year it planted almost 100 000 trees and 45 kilometres of hedgerow and restored 207 acres of habitat, and its performance on biodiversity reached the maximum financial reward available from the regulator. It generates renewable energy at its own sites.

Among its principal risks, Severn Trent lists uncertainty over regulatory, legislative and government reforms which could fundamentally change its operating environment.

Source: Severn Trent Plc, Preliminary Announcement of Annual Results, 20 May 2026

Appendix A: Severn Trent selected data

Source: Severn Trent Plc and Water UK

Appendix B: Reform of the water industry

Source: Analyst

Assess whether the government's reform of the water industry is likely to reduce Severn Trent's profit.

Calculate Severn Trent's operating profit margin for the year to 31 March 2025 to support your answer. Give your answer to one decimal place.

Source B: Tarnside Travel

Tarnside Travel Limited organises escorted coach holidays from its base in Kendal, Cumbria. It was founded in 1972 and is owned by the Fell family; its Managing Director is Joanne Fell. It employs 42 people, runs 8 coaches and has two booking offices, in Kendal and Penrith. In the year to 30 September 2026 it carried 10 300 passengers on holidays in the UK and Europe, at an average price of £815.

Most of Tarnside Travel's customers are retired: 76% are aged over 65. Its holidays are priced in a brochure published a year in advance, and include coach travel, hotels and entrance to attractions. A growing share of its customers travel alone; they pay a single supplement of £180 for a room of their own.

Customers can book by telephone, in a branch or, since 2024, online. A booking taken by telephone costs the company about £24 to process, compared with about £6 online.

Changes in government policy affect the company's holidays. Edinburgh introduced a visitor levy of 5% of the cost of accommodation from 24 July 2026, and councils in Wales may charge a levy of £1.30 a person a night from April 2027. In April 2026 the full new state pension rose by 4.8%, from £230.25 to £241.30 a week.

The coaches run on diesel. Tarnside Travel buys its fuel at the price on the day, while the price of each holiday is fixed when the brochure is published.

Source: Tarnside Travel

Appendix D: Tarnside Travel selected data

Source: Tarnside Travel

Appendix F: Visitor levies

Source: Analyst

Assess whether visitor levies are likely to reduce Tarnside Travel's profit.

Calculate Tarnside Travel's operating profit margin in the year to 30 September 2026 to support your answer. Give your answer to one decimal place.

Source B: Pukka Pads

Pukka Pads is a stationery business based in Poole, Dorset, owned and controlled by Chris Stott. It sells notebooks, pads, files, packaging and party products to retailers, to other businesses and online. It makes products in its UK factories and buys others from suppliers in China and the Far East, paying them in US dollars. It has companies in the United States, Hong Kong, China and the Netherlands.

In the year to 30 September 2025:

• turnover fell by 10% to £21.8 million, "primarily as a result of moving away from very low margin product sales in the UK business"

• gross profit rose, and operating profit rose to £652 055

• inventory was reduced by £1.57 million

• the average number of employees fell from 84 to 71

The company faces two main pressures:

• Currency. No contracts to fix the exchange rate were in place at 30 September 2025, though some were taken out shortly afterwards. Administrative expenses included an exchange loss of £68 483 in 2025, against an exchange gain of £413 141 in 2024.

• Trade. Since April 2025 the United States has charged a tariff of 10% on most goods imported from the UK, and higher tariffs on many goods from China.

For 2026, Pukka Pads says that "new machines have been acquired to improve manufacturing processes, reduce waste and headcount". In 2024/25, £367 080 of new machinery was financed through hire purchase. It also says that leaving one of its UK warehouses by 30 June 2026 will save more than £700 000 a year.

Source: Pukka Pads UK Limited, group accounts for the year ended 30 September 2025

Appendix D: Pukka Pads financial data

• Invoice discounting is a loan secured on money owed by customers; Pukka Pads pays 2.21 percentage points above Bank Rate.

• Administrative expenses include an exchange loss of £68 483 in 2025 (2024: an exchange gain of £413 141).

Source: Pukka Pads UK Limited

Appendix F: Risks, costs and the political environment

• Currency. Purchases from the Far East are made in US dollars. No contracts to fix the exchange rate were in place at 30 September 2025, though some were taken out shortly afterwards; Pukka Pads had committed to buying 1.5 million US dollars.

• Shipping. Attacks on ships in the Red Sea from late 2023 forced many container ships to sail around Africa, raising shipping costs and delays. Pukka Pads says the impact was "significantly reduced" in 2024/25 and that container costs are now significantly lower.

• Trade. Since April 2025 the United States has charged a tariff of 10% on most goods imported from the UK, and higher tariffs on many goods from China.

• Inventory. Pukka Pads holds high levels of inventory, which risks having too much; raw material and container costs are managed through price negotiations with suppliers and customers.

• Energy. Solar panels on the UK factories and warehouse have reduced energy costs.

Source: Analyst, using Pukka Pads UK Limited and press reports

Assess whether political events are the main influence on Pukka Pads' profitability.

Calculate Pukka Pads' gross profit margin in the year to 30 September 2025 to support your answer. Give your answer to one decimal place.

Source B: Ravenshall Engineering

Ravenshall Engineering Limited is a private limited company, founded in Burnley, Lancashire, in 1978. It makes aluminium body frames, floors and battery housings for buses and coaches, which bus makers use to build complete vehicles. It employs 240 people. Its customers are:

• three UK bus makers

• five bus and coach makers in Poland, the Netherlands and Spain, whom it invoices in euros

Its products can be sold to EU customers without tariffs if they meet the rules of origin in the UK-EU trade agreement, but every shipment needs a customs declaration and delivery takes four days.

In 2025 revenue rose to £38.6 million, helped by growing exports to the European Union. The gross profit margin was 21%, compared with 22% in 2024.

The company faces three main pressures:

• One large customer. 44% of its sales go to one UK bus maker, up from 39% in 2024. That customer has reduced its workforce and sites in the last two years.

• Government grants. Most of its UK customers' orders are for buses bought with the help of government grants, which do not require buses to be built in the UK.

• Chinese competition. Chinese bus makers such as Yutong ship complete buses to the UK, built with their own frames and battery housings.

Ravenshall's board is considering two investments:

• An automated welding line in Burnley. It would reduce labour costs and rework, with 30 fewer welding jobs and 6 new technician roles.

• A new factory in Poland, close to its EU customers.

Source: Ravenshall Engineering

Appendix D: Ravenshall Engineering selected data

Source: Ravenshall Engineering

Appendix E: Customers and risks

• If the pound rises against the euro, each euro of sales is worth fewer pounds.

• Chinese bus makers such as Yutong ship complete buses to the UK, built with their own frames and battery housings.

• Ravenshall's largest customer has reduced its workforce and sites in the last two years.

Source: Ravenshall Engineering

Appendix F: Politics, grants and trade

• Grants. Bus operators in England and Scotland can apply for government grants towards the cost of zero-emission buses; the grants do not require buses to be built in the UK.

• Scotland, March 2026. In the third round of the Scottish Zero Emission Bus Challenge Fund, the Chinese maker Yutong won more vehicles, many of them coaches, than the UK maker Alexander Dennis.

• Local content. UK bus makers have called for buying rules that reward "local content, job retention and creation".

• Trade. Ravenshall's products can be sold to EU customers without tariffs if they meet the rules of origin in the UK-EU trade agreement, but every shipment needs a customs declaration and delivery takes four days.

Source: Analyst, using UK and Scottish government information and press reports

Assess whether government policy is the biggest threat to Ravenshall Engineering.

Calculate Ravenshall Engineering's operating profit margin in 2025 to support your answer. Give your answer to one decimal place.

Source B: Brackenfold Outdoor

Brackenfold Outdoor Limited is a private limited company, founded in 1987 in Kendal, Cumbria. It designs and makes waterproof jackets and trousers for walkers and for people who work outdoors, and employs 132 people. Its waterproof fabric is bought from an overseas supplier and priced in US dollars.

Brackenfold sells its products in three markets:

• United Kingdom. It sells to outdoor shops and through its own website.

• European Union. It sells to shops in the European Union.

• United States. It sells to shops through a distributor.

In 2025 its sales to the European Union rose, while its sales to the United States fell.

Brackenfold also offers a repair service for its products. The number of jackets it repaired rose by more than half in 2025. In a survey of its website customers, more than half said they would rather repair a jacket than replace it.

The company faces two main pressures:

• Trade. Since April 2025 most UK goods sold into the United States have faced an extra US tariff of 10%.

• Costs. Its wage costs rose in 2025, after increases in the National Living Wage and in employers' National Insurance. The price of its waterproof fabric also rose.

Brackenfold's directors are considering investing in automated cutting machinery.

Source: Brackenfold Outdoor

Appendix D: Brackenfold Outdoor selected data

Source: Brackenfold Outdoor

Appendix F: Trade and politics

• Brackenfold's US distributor raised its prices by 8% in mid-2025 to cover the tariff.

• Brackenfold's products can be sold to the European Union without tariffs if they meet the rules of origin in the UK-EU trade agreement, but every shipment needs a customs declaration.

Source: Analyst, using UK and US government information, trade bodies and Brackenfold Outdoor

Assess whether US trade policy is the biggest threat to Brackenfold Outdoor.

Calculate Brackenfold Outdoor's operating profit margin in 2025 to support your answer. Give your answer to one decimal place.

Source A: JCB

J.C. Bamford Excavators Limited, known as JCB, makes construction and agricultural machinery, including backhoe loaders, excavators and telescopic handlers. It was founded in 1945 by Joseph Cyril Bamford and is still owned by the Bamford family. Its headquarters are at Rocester, Staffordshire, and it employs more than 20 000 people in 23 factories around the world. It sells its machines through independent dealers. Its competitors include Caterpillar and Komatsu, both of which are larger.

In 2025 JCB's turnover was £5.7 billion, compared with £5.8 billion in 2024, and its profit before tax fell from £687 million to £642 million. It sold 113 498 machines, about 5% fewer than in 2024, although it increased its share of the global market. Demand for machinery was flat in North America and fell by 12% in India. The company has no net borrowing, and it expects moderate growth in 2026.

Demand for construction machinery depends on the amount of building taking place, which tends to fall when interest rates are high. Many machines in the UK are bought by plant hire companies, which buy in large numbers and rent the machines to builders.

JCB is investing £100 million at its Staffordshire headquarters, including £60 million in a fully automated paint plant, which it says will help to secure more than 8 000 UK jobs.

In April 2025 the United States introduced tariffs on imports, including a tariff of 10% on most goods from the UK. JCB responded by doubling the size of the factory it was building in San Antonio, Texas, which will be its largest in the world. It said that in the short term the tariffs would have a significant impact on its business, but that in the medium term the Texas factory would help to reduce that impact.

Over three years JCB spent £100 million, and employed more than 150 engineers, developing an engine which burns hydrogen instead of diesel. In January 2025 the engine was approved for use in Great Britain, Northern Ireland and nine other European countries. JCB also makes machines powered by batteries.

Source: JCB and press reports

Appendix A: JCB selected data

Source: JCB

Appendix B: The Texas factory and US tariffs

Source: Analyst, using JCB and press reports

Since April 2025 most goods exported from the UK to the United States have faced a tariff of 10%.

Evaluate whether JCB should respond to US tariffs by making more of its machines in the United States or by focusing on growing its sales in markets outside the United States.

Source B: Wrenbury Castings

Wrenbury Castings Limited makes iron castings at a foundry near Crewe, Cheshire. It was founded in 1921 and is owned by the Fairclough family; its Managing Director is Tom Fairclough. It employs 118 people. It melts scrap iron and steel in two electric induction furnaces and pours the metal into sand moulds to make castings weighing between 2 and 8 tonnes, such as counterweights for excavators, pump housings and parts for agricultural machinery. Its largest customer, a UK manufacturer of construction machinery, buys 41% of its output, and customers in the EU buy 18%.

When the moulds are broken open and the castings are cleaned by grinding, a process called fettling, fine silica dust is released. The law sets a limit on the amount of this dust that workers may breathe, and the Health and Safety Executive inspects foundries to check that employers control it.

Electricity is the company's second-largest cost, after scrap metal. Wrenbury Castings competes with imported castings, many of them made in foundries which melt iron using coke, a process that emits more carbon dioxide.

Several changes in government policy affect the business:

• The EU carbon border charge. From 2026, businesses in the EU which import iron and steel goods, including castings, must pay a charge for the carbon dioxide emitted in making them, unless a similar carbon price has already been paid. In May 2025 the UK and the EU agreed to work towards linking their carbon markets, which would remove the charge on UK goods.

• The UK carbon border charge. From 1 January 2027 the UK will charge a similar levy on imports of iron and steel and some other goods.

• Electricity costs. In June 2025 the government's Industrial Strategy promised to cut electricity costs by up to 25% from 2027 for manufacturers which use large amounts of electricity.

Wrenbury Castings has been offered the chance to buy Lyme Foundry, a smaller rival in Staffordshire whose owner is retiring. Its largest customer has asked it to supply 3 000 more tonnes of castings a year from 2028.

Source: Wrenbury Castings

Appendix D: Wrenbury Castings selected data

Source: Wrenbury Castings

Appendix E: Electricity and the government's promises

Source: Wrenbury Castings

Appendix F: The carbon in a tonne of castings

Source: Analyst

Appendix G: A robotic fettling cell

Source: Wrenbury Castings

Appendix H: Two ways to grow

Source: Wrenbury Castings

The government has promised to cut electricity costs for manufacturers which use large amounts of electricity, and will introduce a carbon border charge on imports from 2027.

Evaluate two ways Wrenbury Castings could respond to these changes in government policy and recommend which one it should do first.

Use information from Appendices D to H to support your answer.

Source B: Fenwick Vale Homes

Fenwick Vale Homes Limited builds houses on small sites, usually of 10 to 60 homes, across Northumberland. It was founded in 1988 by Peter Robson and is owned by the Robson family; his daughter, Kate Robson, is Managing Director. It employs 64 people and uses local subcontractors for most building work. In the year to 31 March 2026 it completed 115 homes at an average price of £315 000.

Fenwick Vale Homes buys land with planning potential and applies for permission to build. It borrows to buy the land and build the homes, from a bank which charges interest at 4 percentage points above Bank Rate; Bank Rate was 3.75% at the start of 2026. The loan is repaid as homes are sold.

Since 2024 the law has required most new developments in England to deliver biodiversity net gain: the habitat for wildlife after development must be at least 10% better than before. A builder that cannot achieve this on the site itself must buy units of habitat elsewhere. The local council also requires 15% of the homes on larger sites to be affordable homes, sold to a housing association at about 55% of their open-market value.

The government has set a target of 1.5 million new homes in England during this Parliament, and the Planning and Infrastructure Act became law in December 2025. Fenwick Vale Homes says that the time it waits for a planning decision has continued to grow.

Source: Fenwick Vale Homes

Appendix D: Fenwick Vale Homes selected data

Source: Fenwick Vale Homes

Appendix E: Waiting for planning permission

Source: Fenwick Vale Homes

Appendix F: The Corbridge Road site

A site for 48 homes, bought in 2025 and awaiting planning permission.

Source: Fenwick Vale Homes

Appendix G: Three ways to respond to government housing policy

Source: Fenwick Vale Homes

The government wants many more homes to be built, but Fenwick Vale Homes waits longer for planning decisions than ever before.

Evaluate two ways Fenwick Vale Homes could respond to government housing and planning policy and recommend which one it should do first.

Use information from Appendices D to G to support your answer.

Source B: Oakhanger Lettings

Oakhanger Lettings Limited is a letting agent with branches in Alton and Farnham, Hampshire and Surrey. It was founded in 2004 by Rachel Dunn, who owns it and is its Managing Director, and it employs 28 people. At 30 June 2026 it managed 1 120 rented homes for 640 landlords. It advertises every home on Rightmove.

The company offers landlords two main services:

• Full management. Oakhanger Lettings finds a tenant, collects the rent, arranges repairs and inspections and makes sure the landlord meets the law. It charges 12% of the rent.

• Let-only. Oakhanger Lettings finds a tenant and the landlord manages the home. It charges a fee equal to one month's rent.

It also charges landlords for arranging the safety checks and certificates the law requires. By law, letting agents in England may not charge tenants fees.

Most of its landlords own one or two homes, and many have buy-to-let mortgages. Bank Rate was 3.75% at the start of 2026, and financial markets expected further cuts during the year. Rents in its area rose by 1.5% in the year to 30 June 2026.

The law on renting has changed. From 1 May 2026 the Renters' Rights Act ended "no-fault" evictions, under which a landlord could end a tenancy without giving a reason. A landlord must now prove one of the grounds set out in law. All tenancies became periodic, with no fixed end date, and rents may be raised only once a year. In the November 2025 Budget the government announced that, from April 2027, the income tax rates on rental income will be 2 percentage points higher than on other income.

Source: Oakhanger Lettings

Appendix D: Oakhanger Lettings selected data

Source: Oakhanger Lettings

Appendix E: Full management and let-only

Survey of Oakhanger Lettings' landlords, June 2026

Source: Oakhanger Lettings

Appendix F: Renting, the law and tax

Source: Analyst

Appendix G: Three ways to respond

Source: Oakhanger Lettings

The Renters' Rights Act has changed the rules on renting, and from April 2027 Oakhanger Lettings' landlords will pay more tax on their rental income.

Evaluate two ways Oakhanger Lettings could respond to these changes in government policy and recommend which one it should do first.

Use information from Appendices D to G to support your answer.