Cameron and Clegg promise new order


■ New government will hike capital gains tax, hitting private equity and buy-to-let

■ FSA given stay of execution after Tories and Lib Dems broker compromise deal

George Osborne will chair commission to examine break up of big banks

PRIME Minister David Cameron hailed an “historic and seismic shift in politics” yesterday, as he ushered in Britain’s first coalition government since 1945.

Standing alongside deputy Prime Minister Nick Clegg, he said the Conservatives and Liberal Democrats would unite behind three key principles: “freedom, fairness and responsibility”.

Clegg conceded that there would be “bumps and scrapes” along the way but insisted that the two parties would come together to rule in the national interest.

At an historic press conference in the garden of Number 10 Downing Street, the pair said they would table immediate legislation to introduce fixed-term parliaments lasting five years, ridding British politics of “chronic short termism”.

Assuming that Cameron and Clegg continue to command the support of their respective parties – something which is far from certain – they will rule together until 2015.

The Tories and Lib Dems also released a coalition agreement, outlining a programme for government that will be fleshed out in the weeks ahead.

Cameron said his main priority was reducing the country’s massive £163bn budget deficit, starting with £6bn of extra cuts this year, earning plaudits from Bank of England governor Mervyn King and business groups.

But there was shock in the private equity and buy-to-let industries after the coalition agreement paved the way for a hike in capital gains tax, introducing “rates similar or close to those applied to income”.

Treasury sources were at pains to point out that no final decision on capital gains tax had yet been taken, adding that any new regime would include generous allowances for businesses and entrepreneurs.

Meanwhile, the Financial Services Authority has been given a stay of execution after the Liberal Democrats voiced strong opposition to Tory plans to disband it. Chancellor George Osborne was preparing to scrap the watchdog and hand its powers to a beefed-up Bank of England.

Instead, a new committee chaired by King will oversee macro-prudential regulation with the powers to intervene if it feels there is risk building up in the financial system.

Osborne will also chair an independent commission that will investigate whether big British banks should be broken up by separating retail banking from investment banking.

The Lib Dems want to break up the banks now, while the Tories would rather wait for international agreement before acting. The commission, which will report in a year, effectively kicks party differences into the long grass.