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Since the onset of the credit crunch, more than two years ago now, the economy of the UK has been in a state of turmoil, with the banking crisis causing banks to fail and end up being either bought out by their competitors, or being rescued with the aid of a government loan to help bail them out.

The economy in the UK, like many others across the rest of the world, has since been on a downward spiral, leading to a deep and continuing recession, which is the worst that the majority of individuals are able to remember and although we are slowly starting to see the first glimmers of signs of recovery, it is likely to be a long time before we are able to say that the economy has recovered fully and got back to the position it was before the credit crunch struck.

Although many people hold the Government responsible for the current state of the economy, they have taken significant action in specific areas of the economy in order to stop matters becoming worse than they already are. But what has been done to ease the problem, how long will it take to repay the loans and other debts accrued by the government along the way and where are the areas which have directly benefitted the average man in the street, who may be struggling to make his budget stretch to cover his monthly loan commitments and other bills, or possibly looking to take out a new loan to purchase a new car for example, or a home owner loan in order to move house, or get himself onto the housing ladder as a first time buyer.

In this article we will look as a few of the schemes which have been introduced by the Government and what benefit these may or may not have had for various individuals.

Probably the most notable scheme the government has carried out has been the quantitative easing programme of introducing more capital into the economy and the huge loans which have been granted to various banks in order to stop them going out of business.

Although this has cost the tax payer in the UK hundreds of billions of pounds in loans, all of which will have to be paid back in some form of tax increase eventually, these schemes have managed to keep the cash flow of the economy going, allowing people to spend money on the high street and therefore support businesses and it would be hard to imagine a world without a banking system, or a facility for a person to obtain the personal loan or home owner loan they require.

Despite the fact that many of the loans to banks are in the process of being repaid to the government, many of these institutions have been split, with the Government retaining the portion of the businesses which hold the “toxic” loans and other bad loan debts, effectively writing off this portion of the loan debt and placing the burden with the tax payer.

With regard to looking after those people with existing home owner loans and mortgages, who may be struggling to keep up with their loan repayments due to unemployment or reduced pay or working hours, the Government has increased and extended the benefits available under the income support rules for mortgages, as well as tightening up the rules for banks and building societies to be able to take action against borrowers for repossession proceedings, having the effect of keeping more people in their homes, who might otherwise have lost them due to increasing loan arrears.

Of course, the other, more obvious benefit has been that of the Bank of England reducing interest rates on home owner loans to the lowest point in history, thereby having the effect of reducing the monthly home owner loan repayments for thousands of individuals, in some cases by hundreds of pounds every month and making it much easier for these borrowers to manage their monthly budget. 

A couple of the more immediately obvious schemes which have been introduced by the government are the car scrappage scheme and also raising the threshold for stamp duty on house purchases from £125,000 to £175,000.

The car scrappage scheme was introduced for an initial period to encourage people with cars more than ten years old to trade them in for a brand new vehicle, providing that they had owned the car for at least twelve months. The scheme offers a minimum scrap value of £2,000 to the buyer on their old car, if they trade it against a brand new model. This scheme has been very well received by all and has provided a welcome boost to the UK motor industry.

Many car dealers have even extended the offer by increasing the scrap allowance, or reducing the price of a new car, or offering incentives such as a cheap loan or an interest free car loan. the car scrappage scheme has been a success on several fronts; firstly it provides a much needed boost for the motor trade throughout the recession, secondly it allows people to trade up to a brand new vehicle, where they maybe could not have afforded to do so previously and also it removes older, more polluting cars from the road, having a positive impact on the environment.

The car scrappage scheme has now been extended to the end of February next year and we shall see then if it is to be continued after that period.

The other popular government scheme has been the stamp duty holiday.

The housing and home owner loan markets have been one of the worst hit areas of the economy during the recession and to encourage first time buyers back in to the housing market and apply for their first home owner loan, the government has raised the threshold for stamp duty land tax payments from £125,000 to £175,000.

Although many experts were cynical about this scheme, due to the fact that most houses cost more than £175,000, it has proved popular and has worked in attracting first time buyers into the market place, with an increase in both property sales and new loan applications. A total possible saving of £1,750 may not seem to be a lot in the grand scheme of things when it comes to buying a house, but it has been just enough of an incentive for many to make the step on to the bottom rung of the property ladder.

Many experts have called on the Government to make the holiday permanent, or at least review the stamp duty system to make it more realistic for the twenty first century, but the Chancellor, in his pre budget speech recently, said that the holiday would end on the 31st December this year and we have already started to see the impact of this decision on the market, as the number of first time buyer loans and sales has dropped significantly from their peak this summer, when around 43 per cent of home owner loans were taken out by this sector of the market.

So as we look forward to 2010 and many experts are saying that the UK will finally leave recession behind and start to see positive growth once again, it will be interesting to see what action the Government takes to continue or abolish the various schemes it has introduced. This is likely to be a fine balancing act, as continuing the schemes indefinitely will increase government debt and therefore the eventual bill for the tax payer, but if these various schemes are cancelled, it could have a negative impact, throwing the country back into a second wave of recession, an example of which we have already partially seen with the end of the stamp duty holiday.

Either way, we are likely to be in for a long and slow recovery, but it is probably safe to say that we would have been in a much worse position than we currently are, if the Government had done nothing at all. We wish you all a merry Christmas and look forward to hopefully a prosperous new year!