is government funding good or bad?

The banking sector is arguably the most helped sector in the UK economy, most people blame the recession on the banking sector as they had to many “bad debts”.

The banking sector struggled because people was struggling to pat back debts and mortgage repayments, which dramatically increased the bad debts that the company had and so made them lose money and their profit margins was under threat. In 2008 and the business lost around £10 billion.

The government decided to help HBOS by buying up a lot of their shares to fund the business and to replace the bad debts they had, HBOS accepted from the government £11.5 billion this was just to keep the bank running and to pay of the bad debts.

The government also made peoples savings safe inside the bank, this kept the money inside the bank because people wasn’t taking their money out and leaving the business without bad cash flow problems.

Another sector the government has helped keep alive is the car industry, even though this has been done indirectly, the government has helped it a lot. They have helped the car industry by the scrappage scheme, this is where a car which is 10 or more years old is traded in and you can buy a brand new car with £2000 off the original price.

This has caused a lot of people trading in their old cars for new cars and so have been helping the car industry by getting rid of their stock pile of vehicles and turning it into cash for the business.

The reason why the government has helped the car industry is because they are struggling and so are cutting down their capacity utilisation, this could mean either more people losing hours, or that people are being laid off, this could cost the government more in the long run as more people are claiming benefits, and people are earning less which means that there is less tax being paid.

Another sector that has been helped out by the government is the service sector , this has been helped by the government dropping VAT rates from 17.4% to 15% this encourage people to spend more as things would be cheaper, and so demand goes up as a consequence of this, this means that the companies earn higher profits and sell more goods and so they can afford to keep running and not go out of business.

Also this could increase the profit margins of the business this is because they could not pass the savings onto the customer and so they could keep the difference increasing their profit margins.

One reason why the all this was a good idea for the government to do is because it saves people going out of work and could create more work for other people. This benefits everyone in the country as more people are in work and so are not claiming of the government and more people are paying taxes which means altogether the government could be better off.

A reason why all this could be a bad idea is that can the government actually afford all these investments? The government are already very high in debt roughly around £175bn so can we keep investing in these companies that would go bankrupt if we didn’t help them.

I think altogether it is a good idea because it helps us get out of the recession faster it creates more jobs and it helps everything along in the long run and so for me it is the best option.