Interest rate latest: Bank bosses ordered to pass on 1.5% cut to homeowners after cri

[Legal Beagles]

Alistair Darling summoned bank chiefs to a meeting this morning as he urged them to pass on yesterday's interest rate cut to homeowners.

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[Legal Beagles]

Anna Bawden on what the recession means for public spending


If public finances were tight before, they're going to be even tighter now.
Just as there will be winners (those with tracker mortgages and businesses) and losers (savers) from yesterday's decision to cut interest rates by 1.5%, so some public services will fare worse than others from the forthcoming pre budget report.
More cuts in public spending are looming in order to mitigate the large sums the chancellor has had to find to bail out UK banks. As Carl Emmerson and Gemma Tetlow from the Institute for Fiscal Studies point out, public services were already feeling the pinch even before the credit crunch.
Last year's comprehensive spending review, which set out the plans for public spending in the three years to March 2010, has resulted in real-term cuts for some departments, as budget increases have come in much lower than inflation, now running at 5%.
Of course, as the recession bites, inflation is also likely to tail off. But this will be cold comfort, as Treasury coffers will be further depleted: there are fewer tax receipts and more benefits to pay.
The government has already had to cough up £37bn to bail out some high street banks, on top of its £87bn investment in Northern Rock and the £800m to compensate savers who lost money in Icelandic banks.
And in an attempt to shore up the ailing economy, the chancellor has signaled his intent to spend the UK out of recession, by embarking on a massive building spree.
Public borrowing will bear the strain, causing the government to breach its "golden rule" that net debt remain below 40% of GDP.
Something will have to give. Whitehall departments have already completed one round of efficiencies and are embarking on a second, which is supposed to find £30bn of savings by 2011. A third, the so-called operational efficiency programme, is being drawn up in time for next year's budget, with a focus on cutting costs in procurement, back office services, property and asset management.
But the government is unlikely to countenance cuts in health or education, so other areas will have to take the slack. Jonathan Baume, the general secretary of FDA, the union representing senior civil servants, says the government may want to reduce the administration budget further in order not to have to cut services.
Ultimately, it is public sector workers who are likely to bear the brunt of the fiscal squeeze. Some areas are already looking at redundancies. And the downturn will probably fuel calls to rein in public sector pay and pensions. The Treasury is already insisting pay rises are capped at 2-2.5%, well below inflation. The question is whether the government decides to pick at the old scab of public sector pensions again.
But this course of action will be risky. The last time it tried to reform public sector pensions, only a climbdown prevented 1.5 million workers from striking.
As it is, industrial relations are already sour. On Monday, Public and Commercial Services Union members are holding a one-day strike over civil service pay, while Unite is balloting 100,000 health workers for industrial action.
It is plainly going to be a long, bumpy and painful time for public finances for the foreseeable future, with no prospect of conditions easing up any time soon.

• Public services policy
• Credit crunch
• Recession
• Work & careers

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[Legal Beagles]

How small print allows banks to avoid passing on future rate cuts to country's homeow


Hundreds of thousands of homeowners have been warned they will not benefit from any future cuts in interest rates.

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