Kenneth Clarke has been appointed Lord Chancellor and Secretary of State for Justice as incoming prime minister David Cameron forms his first cabinet.

Details are emerging of the Conservative-Liberal Democrat coalition Government, with key cabinet posts confirmed so far including Clarke as the UK's new Justice Secretary, replacing the outgoing Labour minister Jack Straw.

Clarke, who served in the Conservative cabinets of Margaret Thatcher and John Major, holding roles including Chancellor of Exchequer, Health Secretary and Education Secretary, was appointed by Cameron in 2009 as Shadow Business Secretary before being confirmed as Justice Secretary today (12 May) in the new government.

Clarke was called to the Bar in 1963 and became a QC in 1980, practising at now-dissolved Birmingham set No3 Chambers.

However, Clarke's appointment will be greeted with surprise as he was expected to assume a prominent business portfolio in the new administration rather than join the Department of Justice, whose shadow team was led in opposition by Conservative MP Dominic Grieve.

Grieve has succeeded Baroness Scotland in the role of Attorney General. Shadow attorney general Edward Garnier is likely to take up the post of Solicitor General.

The Bar Council, which had held informal discussions with the Conservative Party ahead of the election, is known to have been caught off guard by Clarke's appointment, while Clarke told the BBC: "I'm completely out of date on issues that are terribly important."

Bar Council chairman Nicholas Green commented: "We are surprised about Clarke taking on the role of Justice Minister as he was not in the running for a law office job, but he does have a legal background and is a pragmatic and canny operator. He will be a sensible person to have a conversation with about how to preserve the civil and criminal justice system in a period of austerity."

He added: "A number of proposals have been discussed between the Bar Council and the shadow justice team over the past six months and we will be discussing those with the new justice team to gauge their reaction."

Meanwhile, other key business posts will see George Osborne take on the role of Chancellor while Theresa May has been named Home Secretary and Minister for Women and Equality.

Liberal Democrat Vince Cable has been appointed as Secretary of State for Business, Innovation and Skills, a post in which he is expected to play a prominent role in overhauling bank regulation.

Fellow Liberal Democrat Chris Huhne is set to become energy and climate change secretary as the incoming government attempts to reinforce the UK's commitment to renewable energy.

Meanwhile, Liberal Democrat David Laws, a former investment banker at both JP Morgan and Barclays de Zoete Wedd, has been appointed as Chief Secretary to the Treasury.

More ministerial posts are set to be announced today.

News of the cabinet appointments came as City advisers pore over details of the new coalition Government's policies, which are emerging this week after the Conservative and Liberal Democrats on Tuesday (11 May) concluded their formal power-sharing deal in the wake of last week's inconclusive general election.

The two parties today published their coalition agreement which sets out in detail their key policy agreements.

Key business commitments of the new administration include a programme of comprehensive banking reform, including new controls on bonuses and the introduction of a bank levy.

The new Government has already given indications that a Conservative manifesto pledge to largely abolish the Financial Services Authority (FSA) could be heavily watered down. Instead the Government is examining moves to transfer market regulation to the Bank of England, leaving the FSA in charge of policing individual institutions.

However, it has been confirmed that the Government will press ahead with the Conservative pledge to introduce a cap on non-EU immigration, a policy which had been unpopular in the City.

Other major policy commitments for the new Government include:

- reform to raise capital gains tax significantly for non-business assets in line in income tax;
- the expansion of nuclear power;
- the introduction of a new civil liberties bill, including the scrapping of ID cards;
- the creation of a new commission to investigate breaking up large banks; and
- accelerated moves to cut the size of the UK's budget deficit, including £6bn of spending cuts this year.

As expected, the Conservative/Liberal coalition is set to lead to a programme of constitutional and electoral reform, with the government set to introduce fixed-term parliaments, a wholly or mainly elected House of Lords and a referendum on voting reform.

It is unclear if the Government plans to honour the Conservative promise to scrap the Human Rights Act in favour of a British Bill of Rights. In 2006 Clarke branded the plan as "xenophobic and legal nonsense", claiming that Cameron would "struggle to find lawyers who agree with him" on the issue.

———————————————————————————————————————————————–

The new government – industry reaction:

Malcolm Hitching, global head of finance, Herbert Smith
"The fundamental point is simply that a stable government is good for the business environment and this is essential at a time when the private sector must play its part in the recovery by delivering strong economic growth while cuts to public spending are dealt with.

"There will be tests along the way when the coalition government gets down to the nuts and bolts of implementing reform and getting our public finances under control, but both parties understand the importance of addressing the deficit mainly via spending cuts rather than higher taxes, which is something we can take confidence from. There is still uncertainty as to the precise nature of banking reform but it is interesting to note that although the sector may face major changes, there is an acceptance of the role banks have to play in a competitive economy."

Jacqui Hatfield, regulatory partner, Reed Smith
"The Conservatives have been openly in favour of the Volcker rule, which would restrict banks from making certain kinds of speculative investments which are not on behalf of their customers. The Conservatives have indicated that if the US agrees to it – which is likely – they would too. They would not wait for a wider international agreement.

"The Liberal Democrats want to have a Glass-Steagall-style barrier in place, separating retail banks from investment banks. A narrowing of banking activities is inevitable in my view – it is a question of when, rather than whether, it will happen. The Conservatives are clearly looking to the US to see what is done on the regulatory front. We should expect more copying and a stronger 'friendship' between Obama and Cameron than between Obama and Brown."

Barney Reynolds, head of Shearman & Sterling's financial institutions advisory & financial regulatory group
"I have never seen it as essential to ditch the FSA and transfer its key roles to the bank of England, so to the extent that the policy is dropped it is not significant. Any transition would create a huge amount of upheaval when there are far more pressing issues to be addressed. Vince Cable is widely admired in many circles but we do not know the full extent of his thinking on the City yet."

Mark Elsey, energy, transport and infrastructure head, Ashurst
"I would be very surprised if the Lib Dems' anti-nuclear stance lasts for long; I just cannot see a viable alternative if we are to meet our emission cuts targets.

"One of the key challenges facing the new Government will be where to make cuts – the expedient route of cutting capital investment which will affect long term economic prosperity or the more politically difficult route of cutting operating expenditure which will directly affect public sector jobs and salaries.

"If capital budgets bear the brunt of the cuts, this will undoubtedly affect volumes of work in the UK infrastructure sector and off balance sheet financing will become more of an imperative."

Charles Brasted, of counsel in Hogan Lovells' UK & EU public law and policy group
"We are in uncharted territory with this new coalition government. Substantive policy and process are uncertain and it remains to be seen how that will affect the shaping of policy and how it can be influenced. Administration change always brings both opportunity and risk for business; both are heightened in these circumstances."

Jeremy Summers, business crime & regulation partner, Russell Jones & Walker
"One of the potential consequences of the planned break-up was the possibility that FSA enforcement would be moved into a new national fraud agency incorporating the SFO and perhaps other law enforcement agencies. There seems to have been something of a media turf war between the SFO and FSA recently positioning to take the lead in any such agency, and a growing consensus that this agency is needed. If it is now to be shelved that might be a serious setback in the UK's future anti-fraud capability."

Oliver s'Jacob, funds partner, Reed Smith
"What is unclear will be the impact of this new coalition government on the UK's relationship with the EU, given the drive for greater regulation at a European level. The Conservatives' highly publicised withdrawal some months ago from key EU group the European People's Party led to fears in many quarters that a Tory government would be ineffectual in persuading other countries to side with the UK in negotiations.

"Will a partially Liberal Democrat government be more within the EU mainstream? One of the first tests for the new government will be the discussions in a few weeks' time to approve the Alternative Investment Fund Managers Directive, which Gordon Brown managed to delay until after the election. As it happens, it is a Liberal Democrat MEP, Sharon Bowles, who is Chair of the Economic and Monetary Affairs Committee in the European Parliament and so it will be interesting to see whether a coalition government involving traditionally Euro-friendly Lib Dems will help achieve concessions in the final Directive that a more isolated Tory-only government might not have done alone."

Simon Gleeson, regulatory partner, Clifford Chance
"There is no mention of abolishing the FSA in the coalition agreement which suggests it will get a reprieve, but then again, parts of it were always going to get a reprieve anyway. Rather than chopping it up into pieces they have given the Bank of England new responsibilities to look at macro issues.

"One of the larger and more interesting consequences of the new cabinet structure is that this might be the time that financial regulation moves out of the treasury and into the business ministry."

Andrew Petry, partner and head of infrastructure finance, Addleshaw Goddard
"Eighteen years after PFI was first launched by a Conservative Chancellor, the industry is at a political crossroads. The stated Conservative policy for the last two years has been critical but has contained little detail of their plans other than that they do not favour the PFI schools building programme. The Liberal Democrats have never had a good word to say about PFI.

"The need to renew and develop our infrastructure – including in many sectors that have not traditionally fallen under the PFI – is greater than ever. This is at a time when the possibility of reverting to more traditional procurement models will be severely restrained by the fact that the new government will have few financial options.

"How to continue investing in our country's vital infrastructure will prove to be a fascinating testing ground for how the greatly divergent instincts of the two coalition parties now in government can be forged into an effective, coherent policy which is supported by both parties."

Desmond Hudson, Law Society chief executive
"The Law Society looks forward to developing a close and constructive working relationship with Mr Clarke and the rest of his ministerial team. The immediate priorities the Law Society will be raising with him will include securing access to justice by settling the future of legal aid and promoting the rule of law at home and abroad. Thereafter issues such as the interrelationship of the previously proposed bill of rights and the Human Rights Act will be areas we are keen to discuss."

Andrew Fearn, private client partner, Langleys
"The new coalition government has, at least, created some certainty about the future of the Nil Rate Band. The Conservative's pledge to raise the figure to £1,000,000 has apparently been shelved for the foreseeable future. Those people who had refrained from tax planning in the hope that the increase would do the trick for them, now need to think again."

Paul Cowan, energy partner, White & Case
"The appointment of Chris Huhne reflects the large amount of common ground on green issues between the Conservatives and the Lib Dems. It also shows that due respect is being given to the Lib Dems' opposition to new nuclear, whilst a broad consensus between the Conservatives and Labour should still allow the projects to go ahead. A lack of Government funding or subsidy shouldn't be a problem, as the private sector was already expecting to have to fund these new projects itself.

"There is still a little uncertainty over the proposed changes to the planning system for new infrastructure projects, but hopefully this will be clarified soon without delaying the approval process for these projects."

• Click here for legal briefings on the General Election