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PBR 2008: A Budget for banks?

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26th Nov 2008
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I have been assuming everyone else had worked this out, but the press coverage I was expecting hasn't appeared, so here's my take: the PBR has support for the banking sector written all over it!

The reduction in the VAT rate is trivial to most of us. The biggest winners will be those who pay out the most VAT but can't reclaim it - in other words, the banks and financial institutions.

Over the next two months the High Street banks are likely to be inundated with requests for funds and overdraft extensions from companies facing 31/1/09 Corporation Tax they can't afford to pay and individuals with 31/1/09 Self Assessment bills. The Government has stepped in to stem the flow by launching it's new Business Support Service, basically offering to fund tax payments itself.

And early next year we also have the promise of a new Small Business Finance Scheme, a new temporary guarantee scheme to enable up to £1 billion of new Government-supported lending by banks.

And that's on top of all the direct funding the Government has been pumping into the banking sector in recent weeks. If the banks do indeed need these extra measures in the PBR it would suggest that the situation is actually a lot worse than everyone has made out. I hope I'm wrong, but I don't know what the Chancellor knows!

Nigel Harris

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