New government, new financial era?

Amid the chaos of a hung parliament, Britain finally has a new PM - Conservative leader David Cameron. But in his quest to provide a strong and stable government via a coalition with the Liberal Democrats, will he be able to usher in a new financial era?

The forecast changes depending on who in the sector is asked. Sceptics believe Cameron and deputy prime minister Nick Clegg simply have too much work to do in order to transform the economy.

"I still don't think it will last," David Lea, western Europe analyst at Control Risks, told Reuters. "The differences between the parties are just too great."

Most experts agree that significant changes will be needed to overhaul the country's fiscal health. Spending cuts totalling £6 billion are due to begin immediately, despite the Lib Dems' wish for a delay. And new chancellor George Osbourne will have to work with Vince Cable - known for viewing the financial services sector more harshly than some others - as business secretary, potentially throwing all kinds of difficulties into the job of confronting the budget deficit.

However, Bank of England governor Mervyn King outlined why reining in expenditure sooner rather than later could help to boost confidence within the industry. He was quoted by the Times as saying: "It is the single most pressing problem facing the United Kingdom. It will take a full parliament to deal with. And it's very important that measures are taken straight away to demonstrate the seriousness and the credibility of the commitment to deal with that deficit."

If undertaken correctly - despite some of the snags likely to hold up certain government processes - the coalition could instil even more optimism by rethinking each party's initial plans. For instance, the Conservatives' intention to scrap the Financial Services Authority has been shelved - instead it will report to the central bank and remain intact.

"Abolishing the FSA looked like a really stupid idea, especially as they didn't say who was going to do the work instead," Alistair Milne, Cass Business School lecturer, told Bloomberg in an interview. "This is an example where a coalition government works well. It's definitely sensible to give one institution a role for looking at the big picture."

This move may also spur on further optimism, said Paul Edmonson, London-based lawyer for CMS Cameron McKenna.

"There will be cheers in the City if, as now seems likely, the FSA remains the single regulator for banks and insurers," he explained to the news agency, adding that it was the most sensible course of action and means firms do not have to deal with various regulatory bodies, as was once favoured by the Conservatives.  

Another topic of possible contention in the industry is tax. Both parties agreed that the personal allowance for income tax needs to go up - and they are going to fund this with money that would have been used to maintain the increase in national insurance.

Chief executive of the TaxPayers' Alliance Matthew Elliott is hopeful this will help stimulate the economic recovery. But he warned that supporters who wanted inheritance tax abolished are likely to be disappointed.

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