Could High Street Banks Become A Thing Of The Past? 
As the Parliamentary Commission on Banking Standards publishes its report on Government plans to ring-fence the banks, so a Bank of England Director has predicted that peer-to-peer lenders could replace them altogether.

Andrew Haldane, director of financial stability for the Bank has said that the mono-banking culture in the country is “on its way out” and that the sees “opportunity knocking” for finance.

He added that he hopes the growth of peer-to-peer lenders and those involved in crowd-funding will help solve the problems business has with lending for small and medium enterprises, saying that “the banking middlemen may in time become surplus links in the chain”.

However, if peer-to-peer lending is to become anything like large enough to compete with the high street banks, the Bank of England and other regulators would have to change the rules.

In addition, peer-to-peer lending is not protected by the statutory safety net that safeguards depositors with conventional banks and building societies and neither does it tick the boxes needed by official bodies such as the Financial Services Authority.

But if the banks are “electrically” ring-fenced, as the Banking Commission recommends, then there is potential for them to be broken up, which could have a negative impact on their ability to lend.

Given the uncertainty hanging over the banking sector it would be difficult to return to having an investable banking sector that would be customer-focused and globally competitive, which means that lending to businesses could be impacted.

The Government has said it will study the Banking Commission’s report and respond in detail when the Financial Services (Banking Reform) Bill is formally introduced to Parliament early next year.


For more information, please contact Glazers, Chartered Accountants London or visit www.glazers.co.uk




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Triple Dip Warning 
In the minutes to its last Monetary Policy Committee meeting published yesterday (December 19th 2012), the Bank of England warned that the economy is likely to shrink in the last three months of the year, fuelling fears of a dip back into recession for a third time.

However, despite Governor Sir Mervyn King’s prediction of a triple dip at the meeting, the Committee voted against an extension to its quantitative easing (QE) programme, after the last of the £375 billion of asset purchases was spent in November.

The reason for this decision was explained when the minutes revealed that inflation will be above the Bank’s target of 2 per cent into 2014, but claimed that this is out of policymakers’ hands and is due in part to the “continuing impact of the rise in university tuition fees and higher domestic gas and electricity and other administered and regulated prices.”

The Bank explained that although these prices only make up around 13 per cent of the consumer Prices Index basket, they will probably contribute around one percentage point to inflation and for it to be close to the target, the rate of inflation in the sectors that are influenced more by market pressures would have to be lower than usual.

In all, the warning is in keeping with the current Governor’s prediction that the UK will recover, but slowly, and via a “zigzag” path, a view that appears to be shared by business, as in a Bank survey, it was revealed that, while businesses are planning to increase investment spending next year, the main barrier to this is lack of confidence in the economic outlook.

However, in keeping with the minutes of the meeting, which said that the early signs of the impact of the Bank’s Funding for Lending Scheme were “encouraging”, the survey also found that the cost or availability of external finance were only constraining investment plans for “a small minority” of the firms surveyed.

For more information, please contact Glazers, Chartered Accountants London or visit www.glazers.co.uk




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Business Groups Welcome Redundancy Changes 
Changes to the rules for collective redundancies announced yesterday (December 18th 2012) by the Department for Business Innovation and Skills have generally been welcomed by business groups.

Employment Relations Minister Jo Swinson said that Government plans to cut the current 90-day consultation period before large-scale redundancies can take place to 45 days would help workers and businesses.

A spokesman for the CBI said that the priority for businesses is a meaningful and shorter consultation period that will reduce uncertainty for staff and allow firms to focus on the future more quickly.

While the Institute of Directors said that companies facing problems have to be able to restructure swiftly, and a 45-day consultation period brings the UK closer to a number of EU competitors. In fact, they would have preferred a move to a 30-day consultation period, which is the same as for smaller-scale redundancies, as that would have made the law less complex.

Tim Thomas, head of employment and skills at the manufacturers' organisation EEF, said that the announcement will send a strong signal to industry that the government is committed to creating the flexible labour market that it needs.

While the British Chambers of Commerce commented that in this modern era, requiring a business to spend a quarter of a year consulting on how to restructure is unnecessary, frustrating and potentially disastrous.

Ms Swinson also announced plans to exclude fixed-term contracts from collective redundancy agreements when they reach the end of their "natural life".

Although business groups welcomed the proposed reforms, which came after a lengthy consultation process following the somewhat controversial Beecroft report, the Labour party and unions have criticised the announcement, saying that the plans merely make it easier for businesses to sack workers.

For more information, please contact Glazers, Chartered Accountants London or visit www.glazers.co.uk




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Bank Of England Encouraged By Funding For Lending Results 
According to the Bank of England’s latest quarterly bulletin, its Funding for Lending (FLS) scheme is beginning to work, as early indications show that the scheme is leading to more and cheaper credit is flowing into the real economy.

The scheme was launched at the beginning of August and while it is still early days, the Bank says that early signs have been encouraging and that market funding costs for UK banks have fallen sharply, leading to a fall in many loan rates.

However, it also pointed out that, given the usual lags from credit being offered to loans being made, the scheme is unlikely to materially affect lending volumes until next year.

Many savers have also expressed concerns that one of the knock-on effects of the FLS has been to drive to the return on savings accounts, as with the cheap money available to them, banks and building societies are under less pressure to raise funds from the public.

In its bulletin, the Bank also discussed the effects of the various initiatives that it and the Government have launched since 2007 in a bid to boost economic growth.

Apart from the FLS, the Bank has kept its base rate at the record low of 0.5 per cent for nearly four years and has also pumped £375bn into the banking system via its policy of quantitative easing. Despite this, it says, output has been “broadly flat” over the past two years.

However, according to a survey by the Federation of Small Businesses, small firms are displaying “cautious optimism” because the FLS is starting to have an effect.


For more information, please contact Glazers, Chartered Accountants London or visit www.glazers.co.uk




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Red Tape War Being Won Says Government 
According to Business Minister Michael Fallon, businesses have benefited from a reduction in red tape costs to the tune of almost £1bn since the beginning of the year and he is promising a further saving of up to £83m by next summer.

The official “red tape scorecard”, published today, shows that the Government’s promised “bonfire of red tape” has resulted in net savings to business of £836m so far this year.

However, according to a CBI report published last week, economic growth faces being held back because of tens of millions of pounds in extra business red tape coming from the UK Government and Europe.

In its report entitled Changing the rules – eight steps to a better regulatory regime, the CBI calls on ministers to get a grip on the red tape and bureaucracy created in Whitehall.

It says that urgent action is needed to tackle an ingrained culture where there is too little detailed thinking about the real impact of regulation on business, while the report shows that the net added cost of regulation on UK businesses will increase by £177.7m as a result of policies created in 2011 alone, when for every £3 of costs that were removed, another £5 was added.

But Mr Fallon refutes the CBI’s figures and said that he will be sending officials to the business group this week to “talk through the numbers”, although the CBI says that it sticks by its calculations.

The main difference in both sets of readings are because the CBI has excluded recent major pension regulations from its calculation, including a switch in pension indexing from the Retail Prices Index measure of inflation to the Consumer Price Index, and its data also includes European red tape, which the Government’s calculations do not.

However, the CBI, along with other business groups, does accept that the Government is making progress on its pledge for deregulation on poorly conceived business rules.


For more information, please contact Glazers, Chartered Accountants London or visit www.glazers.co.uk




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