Darling’s rescue plan needs banks on board

Alasdair Darling announced measures on Monday that, according to government
calculations, should amount to a fiscal injection of around £25bn over the next
couple of years before the chancellor has to start clawing money back to service
borrowing of around £118bn by the end of next year.

The delayed increase in small business tax will free up more than half a
billion, while action on income shifting will do likewise. Action on vehicle
excise duty will leave more than £1.5bn in the economy. Over the next two years
VAT cuts should help out to the tune of just over £12bn. There’s also help on
how to spread losses.

But the government’s figures also show that the money will start to be clawed
back in three to four years through national insurance contributions amounting
to billions extra.

On the face of it this is not much more than a two year plan. It seems
remarkably short term given that the worst predictions make this the worst
recession since the war.

But despite all the actions announced by the chancellor, it will come to
nothing if the banks cannot be persuaded to start lending again ­ especially to
business. And while there was some rhetoric that the banks should follow the
example of Royal Bank of Scotland and freeze overdraft costs, there was little
detail from the chancellor by way of an assurance that the lending will come.

There cannot be a small business or practice accountant in the country who is
not feeling very queasy about the future of bank lending and ensuring survival
level cash flows and it remains highly likely that it is still in the power of
the banks to make the real difference.

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