Politics: Simple breakdown of UK Economic policy

The new coalition Government provides many opportunities, and some problems, for the financial services sector. The economic policy for both parties was top of the agenda throughout the election campaign, and now that the talks between David Cameron and Nick Clegg have achieved an agreement between the two parties – legitimised by an in-depth publication of the deal last week – the country can begin to benefit from the Government’s pledges.

With the public outcry over bankers bonuses, particularly for those who reported significant losses on the year, the Government has said it will reform the banking system in its entirety, introducing a levy on banking bonuses to avoid the level of bonuses seen in the past, as well as a proposal to split up the banks into investment and retail in order to reduce the risk of another financial crisis.

The idea to break up the banks is one which Vince Cable, the new Business Secretary, has long supported, and he said “The banks that have been rescued or underwritten by the taxpayer must be treated as the servants, not the masters, of the economy” (BBC).

Britain’s debt, another key concern for politicians, is set to be reduced by cutting costs rather than raising taxes, in an attempt to keep the electorate on side after over a decade of increasing Government spending, particularly in areas such as the NHS.

The Government has promised a full Spending Review this Autumn, while creating £6billion through cuts between now and 2011, as well as reducing spending on Child Tax Fund and tax credits for higher earners.

In an attempt to stabilise British business and encourage businessmen, particularly those in European Union, that Britain is a safe and attractive place to invest, the Government has pledged to simplify business taxes and create the “most competitive corporate tax regime in the G20 “. Also Regional Development Agencies will be replaced with Local Enterprise Partnerships, to leave more power in the hands of local businesses rather than the Government.

The biggest concert for the financial services sector is whether the coalition will make good on its promises, and if it will prove to be the decisive and effective Government the sector needs to fully recover from some of the hardest times in decades.

Initial reaction to the plans has been positive, with many considering the plans to be the best of each party’s manifestos, but the stock markets have not faired well in recent days as the FTSE fell for the fourth consecutive day this morning, amid news that the Bank of Spain was taking control of commercial bank, meaning the Euro debt crisis isn’t coming to an end as analysts had hoped.

The effectiveness of Britain’s own recovery efforts are still uncertain, despite George Osbourne detailing the £6billion in cuts this morning, and it will take some time before the business world, as well as the public, have faith in the economy.

James Michael Parry

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