Treasury in Danger of Being Swamped 
Former Cabinet Secretary, Lord O’Donnell, has claimed that the Treasury is in “danger of being swamped by the pressures placed on it” and should consider receiving funding from the financial services industry.

Speaking for the first time in the House of Lords, since stepping down as Cabinet Secretary last year, Lord O’Donnell warned that the Treasury may be struggling to address the problems caused by the ongoing global financial crisis, with his comments coming amid criticism that the Treasury has failed to develop radical policies to help boost economic growth.

During his speech, Lord O'Donnell suggested that part of the department dealing with financial services and stability could be funded by the financial industry to save taxpayers' money.

Along with suggesting that the Treasury should consider receiving funding from the financial services industry, in a similar way to the Financial Services Authority (FSA) and the City regulator, Lord O’Donnell also warned that too many Treasury officials are leaving and that pay levels were too low.

He told the House of Lords that it was in everyone’s best interests for the Treasury to continue to recruit the best, adding: “Otherwise the Treasury is in danger of cutting off its arms, as well as its nose, to make its hair shirt fit.”

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Too Much Tax Paid by UK Savers 
According to figures released by HMRC roughly 3.5 million UK savers paid too much tax during 2009 / 2010.

The latest figures were released by HMRC following a Freedom of Information Request made by a campaign group, who have stressed that the way in which savings are currently tax needs to be changed.

Currently savers are charged the basic twenty percent rate of tax on interest paid on savings accounts, but there is a lower ten percent rate applicable to those on low incomes with savings of up to £2,560 above their personal tax free threshold.

However, the campaign group have argued that the situation for qualifying savers is complicated and the lower rate is difficult to claim; whilst the figures released from HMRC which relate to the reclamation of overpaid tax on savings income in the 2009/ 2010 tax year, show that 3.5 million savers would have been liable to tax at ten percent, rather than twenty percent.

Following the release of the figures, the campaign group have argues that the current tax system in regard to savings penalises the poorest, whilst the way in which lower tax rates on savings operates is poorly understood and ineffective.

The group also claim that better-off savers are given generous credit terms to pay their tax whilst the poorest have to overpay immediately and then reclaim the overpayment.

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SME Lending Back On Track According To Report 
According to the first annual report on the banking appeals process by Professor Russel Griggs, there has been a “seismic shift” in lending to SMEs since 2008 and goes on to say that the UK has “returned to what many would see as a ‘normal’ state of lending.”

Professor Griggs was appointed as an independent reviewer to oversee the appeals process, which was launched by the Business Finance Taskforce in April 2011. Under the scheme, businesses with a group turnover of up to £25m can appeal to their bank if an application for any form of lending has been refused.

During the year, the participating banks received 827,000 eligible applications for all credit products, ranging from loans and overdrafts to credit cards and asset-based finance. Around 14 per cent of them were turned down and of those, only 2 per cent – or 0.3 per cent of the total – went to appeal.

Griggs said that the banks needed to ensure that all customers knew about the appeal process. “There is a possibility that, if more knew they could appeal, more might apply for credit in the first place”, he added.

Business groups such as the Forum of Private Business (FPB) are now calling for increased awareness amongst SMEs of the appeal's process, with the FPB's senior policy adviser, Alex Jackman, saying:

"The fact that almost 40 per cent of lending appeals have been completely overturned says very clearly that banks are simply not gauging some small business lending risks accurately in the first place, and that has to change.”

"The report is right in identifying an over-centralised banking system that relies far too heavily on automated risk criteria and on data from credit rating companies, many of which appear to use wildly different factors to assess a firm's creditworthiness."

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UK Likely To Resist Elements of Banking Union 
The European Commission unveiled proposals yesterday to create a new “banking union” across all 27 EU member-countries, which could see banks’ shareholders and creditors bearing losses on banks requiring bail-outs before taxpayers have to get involved.

On balance, the UK government would support this idea but is less than enthusiastic about some of the other banking union proposals on the table and Chancellor George Osborne has today spoken out against power being removed from the City of London. He stressed that safeguards would have to be in place to protect the UK’s financial sector if such moves towards a banking union were implemented.

One proposal could see Brussels being able to parachute n a “special manager” to run an ailing bank; another is the idea of "intra-group support agreements", under which banks with operations in several countries across the eurozone would be allowed to transfer resources from one part of the group to another in times of crisis.

Speaking this morning on Radio 4’s Today programme, Mr Osborne said: "There is no way that Britain is going to be part of any eurozone banking union. I think Britain will require certain safeguards if there is a full blown banking union."

He also urged the eurozone to use its bailout fund to recapitalise Spain's banks but said that he did not know how swiftly eurozone leaders would reach an agreement on the issue, as he was "not directly party to these discussions".

However, he said: "I am optimistic they are working hard on solution and I think a solution is coming.”

The Chancellor also stressed the UK government's commitment to a referendum on Europe in the event of a "significant transfer of power and sovereignty" to the EU but said he did not believe that would necessarily happen as a result of the current negotiations.

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Economists Divided Over Quantitative Easing Prediction 
Economists are divided over whether or not the Bank of England’s Monetary Policy Committee (MCP) will maintain or increase its quantitative easing (QE) programme at the monthly policy meeting to be held over the next two days.

The consensus is that interest rates will be held at 0.5 per cent, where they have been since March 2009, but while some economists think that the QE programme will remain at £325bn, others predict that a further £50bn will be released in response to the worsening economic outlook highlighted by poor PMI figures on Friday.

Last month’s minutes from the MPC meeting revealed that several members were close to voting for more QE. An extract from the minutes said that the decision not to expand the QE at this meeting was “finely balanced” for several members and that “there was a case for injecting further monetary stimulus”.

Howard Archer, Chief UK & European Economist at IHS Global said: “On balance, we lean towards the view that the Bank of England will hold fire on more Quantitative Easing at its June meeting, but we certainly would not rule it out.

“Much could depend on the May purchasing managers’ survey for the dominant services sector. And even if the Bank of England does hold off from more QE next Thursday, it is looking ever more likely that it will go back down that road before long,” he added.

And Michael Saunders of Citi commented: “We continue to expect that worsening economic prospects will prompt the MPC to expand QE markedly further – to a total of about £500bn – and that the next instalment will occur soon. On balance, we forecast the MPC will expand QE by another £50bn at the June meeting."

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