As David Cameron settles into Downing Street Britain is waiting with bated breath to see what his new coalition government with the Liberal democrats will do for the UK economy in order to cut the deficit and speed up the recovery.

Several cabinet appointments are still to be announced and the amalgamation of Nick Clegg and David Cameron’s manifestos are being finalised but several key points have already been announced as priorities.

Firstly, an emergency budget will be held within the first 50 days of the new government so new Chancellor George Osborne can outline their financial plans for the next year.

Already we know that this will include proposed public spending cuts of £6 billion in an effort to accelerate a reduction of the national debt.

The budget is also likely to include plans to shake up the banking sector with plans to implement a new banking levy and an independent commission to look at separating retail and investment banking.

The proposals from the new administration also include a substantial increase in the capital gains tax (CGT) from its current 18 per cent to a figure likely to be around 40 per cent. This is so they can fund a cut in income tax for lower earners offering a relief on the first £10,000 of earnings.

But there is speculation that this could mean a hike in VAT from 17.5 per cent to 20 per cent in order to pay for the income tax cuts.

The Lib Dem plans for a tax on homes worth more than £2million has also been scrapped, and in a compromise the Conservatives have dropped their pledge to raise the inheritance tax threshold to £1million.

The news that a government has now been formed will offer relief to investors, after mounting fears that political indecision could have disastrous effects on the UK economy.

Yesterday, as coalition talks continued five days after the general election,  the pound and the FTSE 100 took a hit and the price of government bonds jumped.  

But the news that talks had broken down between Labour and the Lib Dems yesterday afternoon and that a Lib/Con coalition was likely saw an increase in sterling, which has continued to rise and now sits one cent up against the dollar and 0.17 per cent higher against the euro.

As he entered Number 10 last night new PM David Cameron said: “We have some deep and pressing problems, a huge deficit, deep social problems and a political system in need of reform.  For those reasons, I aim to form a proper and full coalition between the Conservatives and the Liberal Democrats.  I believe that is the right way to provide this country with the strong, the stable, the good and decent Government that I think we need so badly.”

He went on to say: “I want to make sure that my Government always looks after the elderly, the frail, the poorest in our country.  We must take everyone through us on some of the difficult decisions that we have ahead.”

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