29th June - Intelligence from Santander Corporate Banking

Budget sets ground rules for an era of austerity

"After the fevered anticipation and speculation come the facts. George Osborne’s landmark ‘emergency Budget’ proved to be less of a bloodbath than many had feared. Indeed, despite the predictions of swingeing austerity measures resembling those currently being experienced in some Euro zone countries, the reaction has largely been one of acceptance at the measures imposed.

There is little to argue with most of the Chancellor’s measures, the majority of which are necessary in order to begin the process of tackling the deficit. Clearly the increases in VAT and Capital Gains Tax are designed to boost the Treasury’s coffers, (VAT alone is expected to add an extra £13 billion) while those spending cuts that have been announced have been designed to make the biggest impact on the deficit reduction efforts. At Santander we have many clients in the public sector and there is no getting away from the conclusion that the next few years will be challenging for them (and their suppliers). We expect to work with many public bodies to face those challenges head-on, designing the products and services that they will need in the new environment.

Looking at it purely from a banker’s viewpoint, there are some areas we’ll need to focus on. For example, the Government intends to introduce a bank levy based on banks’ balance sheets, ‘intended to encourage banks to move to less risky funding profiles’. That’s in line with France and Germany, heading off any accusations of damaging the UK’s competitiveness. That is further bolstered by the promise of action from Business Secretary Vince Cable on the issue of access to credit for smaller businesses, which is something we support. The last couple of years have given us a glimpse of what ‘austerity’ means. Now,with the Budget published, we at least have some clarity on what to expect. That alone must be a good thing."

Steve Pateman, Head of UK Corporate and Commercial Banking

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