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HOW THE AGREEMENT AFFECTS THE CITY

BANKING
• The coalition has agreed to impose some kind of levy on the banking industry, although its exact form has yet to be decided. The Tories want to introduce a fee on banks’ wholesale funding, while the Liberal Democrats would prefer a tax on profits.

• There is a vague commitment to tackle “unacceptable bonuses” in a way that reduces risks, although the government has yet to flesh out these plans.

• Both sides want to boost bank lending to small and medium businesses. The Tories want to achieve this with a loan guarantee scheme, while the Lib Dems have proposed net lending targets.

• The government is launching a commission to examine the “complex” question of separating retail and investment banks, which will report its findings in a year. Business secretary Vince Cable wants a full-scale separation of investment and retail banking, but Osborne would prefer some kind of curb on “riskier” activities like proprietary trading.

• All financial services companies will be hit with a “social responsibility” levy to help fund a free financial advice service.

NON-DOMS
• The Tories appear to have back-pedalled on plans to introduce a flat-rate levy on so-called non-doms (people that work and live in the UK but pay tax elsewhere).

• Instead they have promised a review (one of 38) into the taxation of non-doms. Some Treasury sources said the Tories’ sums on the levy just didn’t add up.

• Although the absence of a levy should provide some welcome relief, businesses say that the uncertainty caused by a review could cause just as much damage, with talented foreigners steering clear of top jobs in the UK for fear of being hammered later down the line.

• According to PricewaterhouseCoopers, over a third of FTSE 100 chief executives are foreign-nationals that are likely to be non-domiciled.

• An cap designed to reduce overall net immigration, which has been criticised by City lobby group London First, could also prevent firms from tapping the foreign talent they need.

THE FSA
• When the first coalition agreement was published on 13 May, it appeared the Lib Dems had scored a major victory by convincing the Tories to abandon plans to scrap the FSA.

• But yesterday the chancellor refused to confirm that the FSA would survive; if it does, it is likely to be a shadow of its former self.

• A Bank of England committee will take over the watchdog’s responsibility for micro-prudential regulation, although it could still manage the day-to-day work of dealing with individual banks and institutions.

• The coalition government will also seek to set up a single agency to tackle serious economic crime, taking on the responsibilities of the FSA’s enforcement division. That would be a major blow to the department, which has raised its profile under head Margaret Cole in recent months by bringing a greater number of high-profile cases against miscreants.

• Other agencies like the Serious Fraud Office and Office of Fair Trading, which currently work with the FSA, will also hand over responsibilities.

PROPERTY
• It appears that the Tories are preparing to backtrack on a pledge to permanently increase the threshold at which first-time buyers pay stamp duty to £250,000.

• The threshold was raised in Labour’s final Budget before the general election, at which time Prime Minister David Cameron accused the government of stealing his policy.

• But yesterday, the coalition agreement said: “We will review the effectiveness of raising the stamp duty threshold for first time buyers,” in a signal that the much-cherished policy could be for the chop.

• Lowering the stamp duty threshold could discourage first-time buyers from entering the property market, estate agents say.

• However, there was better news for the property market with the well-trailed announcement that home information packs or HIPS will be scrapped.

• Estate agents and buyers argued that the much-hated HIPS were curbing the nascent recovery in the housing market, by holding up the sales process and adding to buyers’ costs.

MEDIA
• The National Audit Office will be allowed access to the BBC’s accounts for the first time, something that commercial competitors have been calling for.

• Media firms hope that a full-audit will prove their long-held suspicion that the BBC is spending vast sums of licence-payer cash in areas that would be considered as “commercial” by most outsiders.

• There will be a further relaxation of the competition rules that prevent local media outlets from joining forces, either in fully-fledged mergers or partnerships.

• That will help the likes of Trinity Mirror and DMGT, who have been arguing that the only way regional media outlets can survive is by much great consolidation.

• In another concession for local media players, the coalition has pledged to introduce tougher rules to stop unfair competition by local council newspapers.

• Many of these publications are loss-making, with funding coming directly from local government grants, but still compete with commercial operators for advertising to bring down costs.

EMPLOYMENT
• Employers will be relieved that the government is committed to limiting the application of the European Union Working Time Directive in the UK, which would limit the maximum working week to 48 hours in a seven-day period, with an 11-hour break between shifts.

• However, extending the right to demand flexible working will cause some concern among employers.

• Elsewhere, a pledge to promote equality on the boards of listed companies will raise some eyebrows, especially as there are just two women running fully-fledged Whitehall department in the Liberal-Conservative coalition government.

• However, the plans are likely to be much less onerous than those tabled by Labour’s former equalities minister Harriet Harman, who was proposing a “comply or explain” system for firms that didn’t meet a quota for female board members.

• And plans to phase out the default retirement age, in a bid to reduce the amount spent on pensions, will also prove unpopular among some companies.

REGULATION
• There is much good news for business, with the coalition expressing a clear desire to reduce red-tape.

• “Sunset clauses” that force regulators to prove that regulation is effective and necessary will lead to lots of rules being scrapped.

• And regulatory budgeting, which would force regulators that introduce new rules to reduce the regulatory burden elsewhere, will also be welcome.

• Small businesses are sure to cheer plans to make small business rate relief automatic, potentially easing cash-flow problems for some firms.

• Supermarkets will be worried by some pledges, such as a promise to “level the playing field” for small and large retailers, letting councils consider competition worries when assessing new plans.

• The coalition government has also left the door open to some kind of public interest test for takeovers, saying it will review the range of factors that regulators can consider when approving a takeover.

• Some popular Regional Development Agencies will also be spared the chop.

TAXATION
• As expected, capital gains tax will be hiked to rates similar or the same as income tax, a much-cherished Liberal Democrat pledge that has survived the negotiations. However, the chancellor was keen to stress that there would be “generous allowances” for entrepreneurs and businesses.

• Corporation tax will be lowered, although the Tories have bowed to pressure from the Liberal Democrats and agreed to protect manufacturing allowances. That means the Tories could struggle to lower the rate from 28p to 25p as hoped.

• The personal allowance will be increased gradually over successive years, until it reaches £10,000, taking the lowest paid out of tax altogether and amounting to a tax cut of £700 for most middle-income earners.

• The government will review alcohol taxation, but hopes to ensure that any changes do not punish the struggling pubs industry or responsible drinkers.

• Conservative plans to recognise marriage in the tax system have survived the cut,.

• No mention of VAT, however, leaving door open to a hike.

TRANSPORT
• The Tories and Lib Dems always agreed that the third runway at Heathrow should be stopped.

• British Airways has expressed dismay at the decision. Previously, chief executive Willie Walsh has said he would begin moving the firm’s base to Spain (where he has just masterminded a merger with flag carrier Iberia).

• Gatwick and Stansted will also be forbidden from building new runways, in another blow for the aviation industry.

• There will be some cheer that Crossrail has survived the cut, after strong lobbying by Mayor of London Boris Johnson, while the government will also support rail electrification elsewhere.

• And the government will grant longer rail franchises, allowing operators to make a better return on their investments. The short-term rail franchises granted by the previous Labour government have been blamed for the parlous state of the network.

• But a beefed-up rail regulator will become a “passenger champion”, potentially leading to more customer refunds.

ECONOMY
• The government will “significantly accelerate” the reduction of the structural deficit, with £6bn of in-year cuts to be unveiled on Monday.

• An emergency Budget slated for 22 June will unveil the extent of fiscal tightening next year, while a comprehensive spending review starting in the autumn will reveal which departments bear the brunt of cuts.

• Spending on NHS administration will be slashed by 33 per cent, with the savings being reinvested in front-line services.

• And running costs at the Ministry of Defence will be reduced by 25 per cent, although the funding for the war in Afghanistan is being ring-fenced.

• Child tax credits and child trust funds will be scrapped for middle and high-income earners.

• The number of quangos and their budgets will be reduced.

• The government will work with the Bank of England to investigate how the process of including housing costs in the CPI measure of inflation can be accelerated, to avoid another housing bubble.