Aftermath of the 2007 financial crisis in UK Essay

Aftermath of the 2007 financial crisis in UK - Essay Example The UK government has embarked on a number of missions to sustain the financial sector and the overall economy. This paper will focus on the measures taken by the UK government in the aftermath of the 2007 financial crisis to deal with the effects of the external forces on business organizations. In modern times, has been identified that global financial system is an interdependent system between all the countries (Shiller, 2008, p.xi). The current global financial crisis has created instability of economic systems in most countries including UK to such an extent that the UK government has been compelled to intrude into the financial markets in an unprecedented manner. The financial crisis although has not created problems in the UK constitutional system, nevertheless has proved that the constitution lacks flexibility to cope with financial crisis of such mammoth proportions (Black, 2010, p.1). The crisis has shown that the government has to face legal barriers arising from various u nanticipated sources. The European Union (EU) has a rule imposed on state aid which gives more power to the EU Commission than the Westminster parliament to decide the fate of taxpayers’ money. Moreover, various corporate and financial norms restrict the management capacity of the UK government of investments in the banks (Black, 2010, p.2). UK has â€Å"globally very active financial services industry with cutting edge financial innovation† (Williams, 2011, p.41). Previously, the UK government had a â€Å"tripartite† regulatory system which allowed the Bank of England, the Financial Services Authority (FSA) and the Treasury to contribute towards maintaining economic progress in the country. However, the government felt that this system failed in three ways – a) it failed to assess any troubles that hinder economic progress, b) it could not assess appropriate steps to tackle such hindrances, and c) it failed to act effectively at the onset of the crisis ( Giudice et al., 2012, p.17). The effects of the global financial crisis first created waves in August 2007 and were enhanced throughout 2008. The impact of the crisis reached its peak in September/October 2008. Several financial institutes were rescued like the Northern Rock in UK. However, it was not before late 2008 that any major fiscal and monetary policies were established as response to the crisis. Most of the policies were put into practice only after the fall of Lehman Brothers in September 2008. Even in March 2008, the Treasury claimed that the government is duly abiding by all fiscal regulations and economy is stable. This indifferent perception was changed as a result of the events that occurred in September/October 2008. A reduction was made for a temporary period in VAT from 17.5 percent to 15 percent. In the end of 2009, it was brought back to the original rate. Moreover, the government made provision of ?3 billion for capital spending. In the beginning of the global c risis, the approximate valuation of public sector net borrowing (PSBR) was increased by 2.4 percent of GDP to 5.3 percent. Out of this, 0.6 percent was used for â€Å"discretionary budget changes† (Sawyer, 2011, p.206). In a wider context, the UK government has made plans and policies in response to the economic crisis with three main goals. First, the UK government has provided capital support to banks to reinforce their balance sheets. Secondly, the government has taken steps to enhance the competence of banks so that