The markets applauded the coalition Government’s measures to attack the £155bn deficit, Sterling rose, and gilt yields fell. The Government could not have asked for a better response than a renewed faith in both the currency and government debt especially with memories of the Greek crisis so fresh in the mind. As yields fall, debt servicing gets cheaper, and under the Government’s plans to cut the national debt, taxpayers will save £3bn on the annual interest bill due to the lower borrowing costs from the market.

However, a sustained global recovery is vital for the UK to have any chance of success in meeting its economic challenges. Therefore for our trade to grow requires other markets to grow and foreign consumers to buy UK goods. The Office for Budget Responsibility (OBR), the Chancellor’s new independent economic forecaster, expects trade to be the biggest single contributor to UK economic growth next year.

From 2012 onwards, the OBR expects growth in both exports and business investment to more than make up for weak growth in household spending and a fall in public sector spending.

Deficit reduction may have won over the bond market crowd but the UK needs growth to deliver the other half of the equation. Each of the G20 nations knows that sustainable recovery in the global economy needs to resume as quickly as possible but many countries have decided to take the more prudent approach to their deficits.

Europe and the US are Britain’s largest export markets, and the Eurozone debt crisis and austerity measures to address this issue will affect growth in the region which inevitably will mean that the UK will lose out on trade.

The outcome of the summit in Toronto will prove pivotal to Britain’s prospects for recovery What the G20 leaders need to achieve was to strike the right balance between acting with sufficient speed and toughness to satisfy markets that deficits will fall sharply without taking such harsh action that will affect a recovery which is still so fragile that it can be derailed.

Their view as set out in their communiqué however was that they had to implement more “sound fiscal finances are essential to sustain recovery, provide flexibility to respond to new shocks, ensure the capacity to meet the challenges of aging populations, and avoid leaving future generations with a legacy of deficits and debt. The path of adjustment must be carefully calibrated to sustain the recovery in private demand. There is a risk that synchronized fiscal adjustment across several major economies could adversely impact the recovery. There is also a risk that the failure to implement consolidation where necessary would undermine confidence and hamper growth. Reflecting this balance, advanced economies have committed to fiscal plans that will at least halve deficits by 2013 and stabilize or reduce government debt-to-GDP ratios by 2016”. There is a clear agreement on a synchronised fiscal adjustment in principle if not in degree.

The US will continue to be allowed to follow a less austere route however while Europe pares back. President Obama is worried that suffocating spending in Europe will do little to revive growth globally. This explains a certain amount of tailoring in the final communiqué. The deal was seen as a win for Germany’s Angela Merkel, who said halving national deficits by 2013 globally was “more than I expected.” She has taken the lead in the Eurozone austerity measures in her discussions over Greece and Spain and has announced public expenditure cuts in Germany itself. However, this has not gone down well with the German people.

So, we have a new change of direction from supporting economies through fiscal injection to fiscal austerity. The deal arrived by the G20 in Toronto is focused on cutting deficits quicker. Such reductions by the European markets are bound to have an effect on UK trade which will compound the difficulties that will be felt by its own austerity measures. But where else can economic growth be generated in the meantime Asia, an unlikely scenario given the UK being a net importer from that region.

Even if the Government privately admits it will never achieve the full scale of its planned cuts, there is still a huge amount to achieve. By the end of this Parliament, the chasm in public finances will have been reduced the Government argues but it will still be borrowing. The Government hopes the national debt will be increasing more slowly than the economy is growing, it will be able to shrink the size of the state without inflicting further austerity.

The OBR’s original forecasts at the time of the Emergency Budget were that 100,000 more people unemployed than previously expected. Then there was a leaked report from the Treasury suggested that the cutbacks could result in additional unemployment of up to 1.3 million. The OBR then changed its view and they reforecast saying that 600,000 jobs will go in the public sector. The Government believes these job losses will be offset by job gains in the private sector. However, the impact of the cuts will not only have an effect on the public sector but also of the knock-on effect on the private sector. There will be companies in sectors vulnerable to the public sector cuts and in all likelihood when the cuts are actually imposed, business failures in these areas will mount. The sectors most dependent on public spending, such as construction, IT, recruitment, business services and media, will perform less well than other parts of the economy like manufacturing and retail. Even if the UK avoids a double dip recession, it could experience a twin track recovery, with public sector-facing industries seeing higher rates of business failures than sectors which are less directly linked to government spending cuts.”

The Budget was also a bold attempt to rebalance the economy, undoing 13 years under Labour of growth in the public sector when public employees grew by over 1 million. The offset the Government argues comes from offering business the stimulus to thrive with Corporation Tax cut by 28pc to 24pc by 2014 and Labour’s “jobs tax increase” in National Insurance Contributions scrapped, making the UK more competitive than most of Europe for companies wanting to locate in the UK. These two tax measures alone will cost the Government more than £5bn in 2012. The rise in VAT from 17.5pc to 20pc, to raise £13bn, was used to offset these costs but will inevitably put a further burden on growth. The Government hopes to stimulate the private sector into replacing the lost demand from the public sector but is this enough with Europe going into a period of austerity and a real risk of increasing unemployment in the UK.

There is also a real threat of strikes from the larger unions operating in the public sector. “This Budget signals the battle for Britain’s public services has begun, with the Government declaring war,” said Dave Prentis, general secretary of Unison. Many unions are so entrenched in the public sector that the invoking the cuts will mean that large strike action by public sector workers look inevitable.

The G20 leaders are in line with the austerity policy which is necessary to satisfy the markets and reduce the risk of further problems such as Greece. But it is a gamble that it is too soon and too quick a change in policy and that by working in harmony in terms of the reductions it could have an even greater impact on the economic outcome.

The Act follows years of international criticism of the UK’s failure to adequately address corruption. In 2007, after the Serious Fraud Office (the SFO) dropped its investigation into BAE Systems’ arms deals in Saudi Arabia, the OECD expressed its serious concern over “the deficiencies in UK law on foreign bribery.”

However, in the last year, the SFO has stepped up a gear in enforcement action. It has entered into a number of civil settlements with businesses accused of bribery, and also obtained its first corporate criminal conviction in proceedings against Mabey & Johnson. The SFO’s recently released performance statistics reveal that the conviction rate in cases brought before the courts has significantly increased in the past year.  The conviction rate, measured as defendants convicted over the number tried, has risen from 78% the previous year to 91%. Fines against companies amounted to nearly £12 million pounds this year, having risen from zero the year before.

A person will be guilty of bribery if he, directly or indirectly, offers, promises or gives an advantage to another, intending to induce another person to do something improper or to reward someone for behaving improperly. The key elements are that there must be a financial or other advantage linked to improper performance of a relevant function or activity. A person will also be guilty of bribery if he, directly or indirectly, offers, promises or gives a financial advantage to another person and he knows or believes that the acceptance of the advantage would itself constitute improper performance of a relevant function or activity. Financial or other advantage is not defined in the Act but it will include items of value other than money such as a contract.

There are four types of offence in the Act which are:

• A general offence targeting the payer of a bribe.
• A general offence targeting the recipient of a bribe.
• A specific offence prohibiting the bribery of foreign public officials.
• A corporate offence of failing to prevent bribery.

The Act defines relevant functions or activities to include any function of a public nature, any activity connected with a business, trade or profession, any activity performed in the course of a person’s employment and any activity performed by or on behalf of a body of persons whether corporate or unincorporated. However not every defective performance of one of these functions for financial advantage engages the law of bribery. There must be an expectation that the functions are to be carried out in good faith, or impartially, or the person performing it must be in a position of trust. Improper performance is then defined as the performance which breaches that expectation or that trust.

The Act prohibits bribery of a foreign public official. To be guilty of an offence under this section, the giver of the bribe must intend to influence the recipient acting in his capacity as a foreign public official and must intend to obtain or retain a business advantage. The foreign public official must be neither permitted nor required by the written law applicable to him (not merely custom) to be influenced in his capacity as a foreign public official by the offer, promise or gift. This is a strict liability offence which puts the onus firmly on the individual making the payment to ensure that it is legitimate.

A controversial area of the Act is the introduction of a new corporate offence of failing to prevent bribery. The penalty for an offence under this part of the Act is an unlimited fine. An offence would be committed by a commercial organisation when:

1. a person associated with the commercial organisation bribes another person
2. that person intends to:
   (i)  obtain or retain business for the commercial organisation; or
   (ii)  to obtain or retain an advantage in the conduct of business for the commercial     organisation

Commercial organisations conducting business in the United Kingdom will be strictly liable for bribery carried out by associated persons. A person performing services on behalf of the organisation will be an associated person. Whether a person is performing services will be determined by reference to all of the relevant circumstances and not merely by reference to the nature of the relationship between the person and the organisation. The Act gives examples of someone likely to be performing services as an employee, agent or subsidiary.

The corporate offence applies wherever the commercial organisation is incorporated provided it carries on business in the United Kingdom. Commercial organisations include both companies and partnerships. Crucially, for the corporate offence, it does not matter where in the world the bribe takes place.

The Act provides that it is a defence to the corporate offence to prove that the commercial organisation had in place adequate procedures designed to prevent associated persons from committing bribery. Under the Act, the government is required to publish guidance about procedures that relevant commercial organisations can put in place to prevent persons associated with them from bribing. Guidance is likely to be published later this year. It is essential that businesses operating in the UK take steps to protect themselves from liability by implementing adequate procedures to prevent bribery.

Companies that are compliant with the US Foreign Corrupt Practices Act 1977 (FCPA) cannot ignore the provisions of the Act. The UK legislation is more stringent than the FCPA in a number of respects. In particular, the legislation is not limited to bribery of foreign public officials, there is no carve out to permit facilitation payments and the act of bribery does not have to have a connection to the jurisdiction. The UK corporate offence will apply to all corrupt payments, whether in the public or private sector, anywhere in the world.

The Act provides some defence against accusations of bribery by having adequate procedures in place. For example some simple areas for consideration are to:-

• have policies on gifts, hospitality and lobbying in place.
• have vetting procedures for outside agents and partners on this issue
• train any individual who could commit a breach.
• update employment contracts and policies to reflect the anti bribery ethos of the company and agree bribery as gross misconduct.

Under the previous international banking accords, the banks were obliged to hold only 8pc of safe capital mostly equity on their balance sheets to provide a buffer against insolvency. The new rules sketched out at the G20 summit threaten to go some way further. Capital requirements act as an effective speed-limit for banks, with higher requirements preventing them from making bigger profits and a reduction in lending. The G20’s final communiqué said: “The amount of capital will be significantly higher, and the quality of capital significantly improved, when the new rules are fully implemented. This will enable banks to withstand, without government support, stresses of the magnitude associated with the recent financial crisis.” The rules will be enforced by the G20’s Financial Stability Board, though potential sanctions against banks which fail to abide by them have not yet been agreed.

During the crisis, British banks have had to bolster their balance sheets by £127bn, with around half of this coming from the taxpayer, according to Bank of England figures from the turn of the year. Since then, banks have raised a further £15bn from the open markets as they seek to improve their financial health. The G20 agreement implies that this balance sheet rebuilding and effective fall in bank profitability will have to be permanent. Mr Osborne the UK Chancellor of the Exchequer also stressed that regulators would demand “higher quality capital” which normally are shares rather than other less reliable items such as deferred tax assets and software, so as to ensure banks would not attempt to circumvent the rules.

The consequences for the financial system and wider economy are likely to be far reaching, with banks needing to continue focus cash towards strengthening their balance sheets and therefore reluctant to lend. Any increase capital levels held by the banks whilst being an insurance against failure is also a real cost  to the economy as it makes credit both more expensive and less available.

G20 countries are to be allowed time to implement the rules, so that there is no immediate rush to re-capitalise so that it will not have a negative effect on economic activity. The communiqué said that the countries will adopt the new standards “over a time frame that is consistent with sustained recovery and limits market disruption.” It does introduce a new era and an ongoing reduction on the size bank lending abilities.

The decision on how much the 8pc capital ratio should be increased by will be taken at the next G20 meeting in South Korea in November. The indication is that the target may be well into double figures. However implementation will not take place until 2012. The new rules are likely to be resisted by banks in France and Germany, which hold less capital on their balance sheets than their UK or US counterparts.

The summit concluded that the financial sector should make a ‘fair and substantial contribution’ towards fixing the economic crisis. It added: ‘Some countries are pursuing a financial levy’. However, the UK failed to persuade all other world leaders to follow its lead on a new banking levy. The coalition introduced a £2billion per annum super tax on balance sheets as indicated in the Emergency Budget.

Together with the austerity measures introduced by all major countries in Europe and the potential effects on both the public and private sectors growth could also be affected by these banking changes. It strongly suggests that the UK and most of Europe will not get back to previous growth levels for many years to come.

Whilst the actual findings are confidential areas that were identified by Adaxial included capital expenditure requirements, the cost base of the business and future potential sales levels. This exercise resulted in a full review and re evaluation of the investment in terms of cash requirements and returns.

Denzil Lee Managing Director of Adaxial said that “RCapital asked us to provide an objective outside view of the business and its potential. They then have dealt with the issues we raised in the very forthright and direct manner that one would expect of a venture capitalist company with the wealth of experience they have in turnaround situations.”