The coalition government of the Conservative party and the Liberal Democrats has revealed its plans for banking reform and tackling the budget deficit, though has avoided the question of what will happen to the Financial Services Authority.
An agreement hammered out between the two parties yesterday has now been published which says that they agree to “bring forward proposals to give the Bank of England control of macro-prudential regulation and oversight of micro-prudential regulation.”
But it makes no mention of what will happen to FSA, nor any mention of the much-touted Consumer Protection Agency that the Conservatives talked about introducing before they came to power.
The new coalition government has also agreed to introduce a banking levy, though as yet there is no mention of whether this will be introduced unilaterally or as part of an international agreement.
It says it will also consider of a major loan guarantee scheme and the use of net lending targets for the nationalised banks for small and medium-sized businesses, but does not mention whether this will also apply to mortgages.
On reducing the budget deficit the agreement calls for:
- a significantly accelerated reduction in the structural deficit over the course of a parliament, mainly achieved through reduced spending rather than increased taxes;
- arrangements that will protect those on low incomes from the effect of public sector pay constraint and other spending constraints; and
- protection of jobs by stopping Labour’s proposed jobs tax.
A more comprehensive plan to reduce the budget deficit will be set out in an emergency budget within 50 days of the coalition agreement being signed.
The parties recommend that new forecasts of growth and borrowing should be made by an independent Office for Budget Responsibility for the emergency budget.
They agree that cuts of £6bn to non-front line services can be made within the financial year 2010-11, subject to advice from the Treasury and the Bank of England.