Melanie Bien, director, Savills Private Finance, is a guest commentator. The opinions expressed in this commentary are her own.

It is too early to say whether the latest bank rescue plan will have the desired effect of persuading the banks to start lending again. But it is a step in the right direction and we welcome it as a positive move as it may just remove the remaining stumbling blocks to getting the credit and mortgage markets functioning properly once more.
Clearly, something further had to be done. October’s £37bn bank recapitalisation did little to persuade banks to regain their appetite for lending. Credit continues to be difficult to come by – unless you have a large deposit or equity in your home and a clean credit history.

The latest bailout aims to guarantee lending and insure banks’ bad debts, such as sub-prime lending in the US. The idea is that banks won’t need to hold back vast sums in case of default on loans – something they have been doing until now. What is particularly encouraging is that this is a comprehensive package of measures which taken together is likely to have more of an impact on increasing new lending than addressing one area at a time.

The new £100bn mortgage guarantee scheme to underwrite lending between banks and financial institutions as recommended in Sir James Crosby’s report, is perhaps the most significant development. Before the credit crunch hit, the securitisation market was a key source of funding for the mortgage market, responsible for a third of all lending. This scheme should help rejuvenate the securitisation market, which has all but closed.

There is a danger that it may prove to be too restrictive, however, as only AAA-rated securities are covered.
Much also depends on how honest the banks are about their exposure to bad debt. A fee-based insurance scheme whereby the Treasury and banks will identify bad loans  or toxic debts that will ultimately be covered by the taxpayer should remove some of the blockages in the system that are preventing the flow of mortgage lending. But without an honest and open declaration of exposure by all the banks, it will be very difficult to draw a line under what has gone before and start afresh.

The extension to the £250bn credit guarantee scheme announced in October until the end of this year should also have a positive impact, allowing banks and building societies to roll over new debt, as should the new liquidity scheme to replace the Special Liquidity Scheme allowing banks to swap illiquid assets for gilts.

The change in strategy with Northern Rock is interesting. Instead of encouraging the lender to run down its business and shrink its mortgage book, the government has changed tack. The bank will now encourage existing customers to stay, presumably with more attractive reversion deals. It will also look to attract new borrowers – hopefully those purchasing, not just remortgaging, with more attractive rates.

We wait to see whether this package will have the desired effect and get banks lending again. Mortgages are already becoming cheaper but tend to be most readily available to the lowest-risk borrowers with significant deposits or equity in their homes. An increase in liquidity should encourage more lenders into the market and more competitive rates.

One thing looks to be sure this year - the housing market has further to fall. Some of the gloomiest predictions are for a further 20 percent slump before a recovery may set in.

Our own Reuters poll of 37 analysts at UK banks, published today, predicts that prices are likely to drop by about 11 percent this year and that it will take until 2010 before it gets better.

How much do you think house prices will fall in 2009?

(UPDATED Dec 18 - This post is now closed for questions)

Conservative Party leader David Cameron will be speaking on the economy and the credit crunch at Thomson Reuters’ Canary Wharf office on Monday, followed by a question and answer session.

The Tory leader has argued that two main problems face Britain at present – a recession coupled with a record level of government debt, and that the government is trying to tackle one while ignoring the other.

“Every week this government is in power the mortgaging of the future gets greater. Every week the debt gets larger. Every week the burdens on our children mount up higher,” Cameron has said. He has accused Gordon Brown of “economic crimes” saying the Prime Minister “has brought this country to the brink of bankruptcy and the worst recession in the G7.”

Here is your chance to put your questions to the man credited with making the Conservative Party electable again. We will be putting questions from our Web readers to Cameron at the event.

For full coverage of the event, including a live Web cast from 1000 GMT on Monday, see our David Cameron Newsmaker page.

Readers who use the Twitter micro-blogging service can also use the tag #askDC and we will monitor all the responses.

Eric Auchard is a Reuters columnists. The opinions expressed in this column are his own.

For years, Web retailers have touted their convenience and efficency over conventional retailers, and enjoyed surging double-digit sales growth, especially in the crucial year-end holiday shopping season.    But the steady draining of consumer confidence reflected in recent government data and the latest market research reports suggest the online retail industry is bracing for a humbling first-ever year of flat or even contracting holiday sales.

Ecommerce, for reasons tied to both the global economic crash and Web-specific factors, is poised to fall harder than the much maligned retail store industry, itself struggling with recent high-profile bankruptcies and widespread signs that consumers are looking to sharply curtail their spending.

“Retail spending has not really dropped,” says Gian Fulgoni, chairman of consumer audience measurement firm comScore Inc. “It’s ecommerce growth rates that have fallen off a cliff.”

This week, comScore once again cut its forecast for U.S. holiday shopping, reporting that sales in the first 23 days of November had fallen to $8.2 billion, down 4 percent from a year earlier.

Forecasts for online holiday shopping issued in October or early November took the “glass half full” view of the coming shopping season — predicting low double-digit growth. That would be below prior years, but healthy versus overall retail.

The declining outlook comes after third-quarter U.S. Department of Commerce data showed dismal October growth online. Forecasters who had clung to the notion that online retailers would prove an exception, have changed their tune recently.

Nonetheless, the consumer tracking firm predicted online holiday sales for November and December could end flat at around $29.2 billion, in terms of year-over-year growth, but only if there is no further decline in the economy in coming weeks.  Until recently, comScore had forecast 6 percent growth in U.S. holiday sales, Fulgoni said. Similarly this week, eMarketer cut its 2008 ecommerce forecast to 4 percent from 10.1 percent.

Flat growth this season would compare with a 19 percent rise in 2007 sales, 24 percent in 2006 and 26 percent in 2005.  Overall, the National Retail Federation forecasts total U.S. holiday sales to grow a tepid, but positive, 2.2 percent to $470 billion. The includes both classic stores and Web storefronts.  In statistical terms, online retailers just had farther to fall than their distressed store-based rivals.

Similarly, in Britain, the exception that once applied to ecommerce is losing steam fast. Visits to UK shopping sites this month have declined by 14 percent as of Nov. 24, according to data from online market research firm Hitwise. Declining traffic has come despite heavy Web discounting activity at big retailers such as HMV, Waterstones and Tesco.

The gloomy forecasts come out just ahead of Cyber Monday, next week’s symbolic start to the U.S. online holiday shopping season.  Retail industry promoters of the Cyber Monday concept will tell you this coming Monday is a crucial test of the American consumer’s waning appetite to spend at the holidays. Don’t believe it.

If anything, Cyber Monday is one of the worst days from which to extrapolate year-end holiday sales trends. Rather it’s a day of special, one-off promotional discounts designed to remind consumers they can shop online instead of in stores. A survey by Shopzilla found 84 percent of retailers will have some sort of Cyber Monday promotion this year, up from 72 percent a year ago, with the biggest come-on in the form of discounts.

Despite the media hype that surrounds the occasion, Cyber Monday ranked just ninth among heaviest shopping days in 2007 and is not expected to behave much differently this time around.
ComScore says online shopping has a few remaining bright spots, in categories like video games, sports and fitness products and furniture and appliances.

But apparel is off and “consumer electronics seems to have lost its luster,” Fulgoni said of falling demand for products like big-screen TVs among online buyers.
“When all is said and done, ecommerce is where disposable income is spent,” says Fulgoni, comScore’s co-founder. “Everything has absolutely fallen apart in October and November.”

Some facets of the online industry may be better positioned than others, but none are immune: Not pure ecommerce players such as Amazon.com or eBay Inc, not gift card purveyors, nor multichannel marketers that operate both stores and a Web site.

Major ecommerce companies derive a disproportionate share of their revenue from fourth-quarter sales. Susquehanna Financial analyst Marianne Wolk estimates companies such as Amazon.com Inc <AMZN.O> or Overstock.com Inc <OSTK.O> derive just over one-third of their sales in the final quarter of the year.
GSI Commerce <GSIC.O>, which delivers ecommerce services to retailers who lack their own Web presence, generates nearly 40 percent of its annual revenue and a whopping 83 percent of its annual cash flow in the current quarter, Wolk estimates.

Stifel Nicolaus analyst Scott Devitt says falling sales forecasts have put in peril expectations for many online retailers, who despite their advantages over offline retailers, can’t alter the fact that consumers are using this holiday season to contemplate all the ways they can pare back spending.
–  At the time of publication Eric Auchard did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund.

Mark Schofield is a  tax partner at PricewaterhouseCoopers LLP. The views expressed are his own.

There were a number of initiatives unveiled to kick start the UK economy which will increase the budget deficit for 2009/2010 to £118 billion. The Chancellor assured the House of Commons that finances would be back in balance by 2013/14 at which point the country “will only be borrowing to fund investment”. By that year the net UK government debt will be over £1 trillion representing 57.4% of GDP, compared with an estimate of £602 billion, 39.4%, for 2008/9.

Who wins with fiscal stimulus and who will pay for it? In short, everyone wins with the temporary reduction in the VAT rate to 15%, the deferral of previously announced tax rises, making permanent the compensation for the abolition of the 10p tax rate and extra help for families with children, and pensioners. There was help for business too with the ability for small and medium sized businesses to spread tax payments where they have difficulty making them. The reform of the taxation of foreign profits including the introduction of an exemption from UK taxation of foreign dividends took a significant step forward. The details of these reforms will be published next week and are eagerly awaited to see whether the overall package addresses the concerns raised previously raised.

There is a cost to all this, primarily from the reduction in the VAT rate. That will be financed by extra efficiencies in public spending, increases in National Insurance Contributions for both employers and employees, the restriction of personal allowances for those earning over £100,000 a year, and a new top rate of tax of 45% for incomes over £150,000 a year, the rises all to take effect from 2011.

Overall, a complex package with a number of initiatives intended to stimulate fiscally but also to bring the books back into balance on a year by year basis at a later date. Given the current uncertainties, time will tell whether it achieves the desired effect.

Prime Minister Gordon Brown has suggested he will push expansionary fiscal policies to help boost the economy. Brown's comments were the latest in a series from him and Chancellor Alistair Darling stressing the importance of boosting the economy, which shrank in the third quarter of 2008 for the first time in 16 years and is expected to contract more sharply next year.

Bank of England Governor Mervyn King has also put his weight behind "some fiscal stimulus", just as the Bank predicted in its quarterly inflation report that the economy would shrink sharply next year.

But what is the way forward - tax cuts or higher public spending?

The dividing line between Brown and Tory leader David Cameron is whether to borrow to fund tax cuts. Cameron has argued that Britain's deficit is too high to allow further borrowing. Brown says Cameron's claim that he can pay for his tax cut by savings on welfare benefits isn't realistic.

Tax cutting is a populist measure and it may be tempting for Brown, who no longer appears to be married to fiscal prudence, to go down that road, not least because of the backlash he faced earlier this year over scrapping the 10 percent tax band.

But there are a number of reasons why tax cutting may not result in a boost to the economy: government borrowing gets dangerously high and will limit the economy's ability to recover swiftly from a recession, and people may decide to save rather than spend any extra money they might have in their pocket due to tax cuts.

What's your view - do you think increased public spending will stoke demand, are tax cuts the way forward to boost the economy or should the government go for a mix of both?