An analysis of UK government policies to encourage lending in the UK economy.

From the challenges faced during the Black Wednesday crisis to the current challenges faced by Theresa May in leaving the European Union, UK governments over the past twenty-five years have attempted to implement sound fiscal policies to protect the fundamentals of the UK financial system and ensure that institutions such as banks would continue to lend to other banks, ensuring strong consumer confidence in the process.

The Major years- New challenges.


One of the first challenges that required the UK government to develop a strong fiscal policy came about as a result of the Black Wednesday Crisis of 1992. With the UK treasury losing billions of pounds and the financial sector severely unstable, the government of then Prime Minister John Major implemented a range of fiscal policies that included: flexible exchange rates, allowing lower interest rates and a devaluation of the pound. All of these factors combined, not only ensured that banks continued to lend but ensured the overall integrity of the economy.

Blair, Brown and a looming crisis.


Upon winning power in 1997, the new Blair government's fiscal policy would be one that was based on the Golden rule of fiscal policy. This meant that debt levels would only be increased to fund investments for future generations but it would not be raised in order to fund current spending of the day.

Yet it was the actions of then Chancellor Gordon Brown who pushed for the policy of the 'Light Touch' on the UK financial sector. This was based on the belief that the industry could operate best with little government interference and provide the investment needed to UK businesses. The government limited the activities of the Financial Services Authority and effectively allowed the industry to regulate its self, unaware that events in the United States would have dire consequences for business not only in the UK but throughout the world.

UK Government policy in the post GFC world.


In the period since the worst of the global financial crisis has passed, the most active policies to encourage financial institutions to lend to business were implemented by the government of David Cameron. They sort to not only eliminate the soft policies of previous years but to ensure that financial institutions continued to lend out to all levels of business but did so in a way that was responsible, ethical and governed by more enforced sets of regulations.

The most significant government policy in ensuring that UK businesses have had an effective flow of credit has been through the development and implementation of the Business enterprise paper which was developed by the Department for Business Innovation and Skills. With a record of 4.9 million businesses of various descriptions registered in the UK at the start of 2015, the need for maintaining reliable flows of credit and equity from the financial sector has never been greater. In response the government initiated a number of policies that included:
* The Business Finance Partnership.
* Start-up loans scheme for young business operators.
* Development of the Business Angel co-investment fund.
* Development of the Enterprise capital funds program.

The unclear world of Brexit.


With the government of Theresa May faced with the responsibility of withdrawing the United Kingdom from the European Union, one of the great challenges that remains to be seen is how the current government will maintain an effective financial system that not only continues to lend out credit to businesses but ensures that the financial sector remains firm in the face of the loss of investment opportunities throughout Europe.

This, combined with the fact that it is early to show what the effect of Brexit will be on the UK economy. However, with Phillip Hammond already suggesting a reset in government economic policy, the challenge of ensuring an effective credit flow to all UK businesses remains to be seen.

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