Financial News

  • 28 June 2013, 8:49

Infrastructure Investment To Boost Economy

A 100bn package aimed at kick-starting economic growth has been unveiled, with roads, railways, construction and energy all set for major boosts.

The Government promised to pour money into extra infrastructure spending by 2020, just 24 hours after confirming details of another 11.5bn in Whitehall cuts.

Chief Secretary to the Treasury Danny Alexander outlined the plans, which include cash for new roads, train services, science facilities and nuclear power stations.

Tax breaks and fast-tracked permits for shale gas exploration will also be offered, just as new data suggests Britain has higher reserves of the energy source.

The investment package is due to begin in 2015, with 50bn spent on capital projects that year, but critics have questioned when construction will actually start.

And there is already embarrassment after the Government was forced to admit the cost of one of the most high-profile projects has soared.

The HS2 high-speed rail line is now set to cost nearly 10bn more than was originally allocated, which will raise doubts about other forecasts.

Mr Alexander said 300bn in capital spending by the end of the decade was guaranteed, with 100bn earmarked for key infrastructure projects.

He called it an "ambitious long-term plan to build an infrastructure of which Britain can be proud" that showed the Government was putting "long-term priorities before short-term political pressures".

He insisted the measures could be funded "without adding a single pound to our borrowing forecast" and indicated he would oversee a further review to find more savings.

Labour dismissed the promises as "hot air" and said capital spending was actually going down in 2015/16.

The highly-detailed statement included:

:: 28bn to be spent on road improvements, including 10bn on repairs and fixing potholes;

:: 3bn in extra capital over three years to speed up the construction of affordable homes;

:: Funding for a 2m study into the prospect of a second Crossrail route in London;

:: Extra flood protection for thousands of homes, costing 370m;

:: 10bn for school upgrades, on top of existing plans to rebuild 261 sites;

:: An extra 250m for super-fast broadband to give 95% of the population access by 2017.

Mr Alexander declared the plans would generate the biggest public housing programme for over 20 years and the largest rail investment since Victorian times.

Labour claimed the 50bn for 2015/16 would actually mean a 1.7% cut in real terms and pointed out that infrastructure activity halved in the first quarter of 2013.

Shadow Treasury minister Chris Leslie asked: "When is the Government going to pull its finger out and actually start to build some of these things?"

He said the coalition had spent 5.6bn less on capital investment since 2010 compared to when Labour was in power and warned a stimulus was needed "right now".

He asked Mr Alexander: "Isn't the truth that there is no new money for infrastructure here? And you are spinning a line, rolling multiple years together, to make it sound like a big figure, reheating old announcements in this microwave statement that should have turned into action long, long ago?"

The senior Lib Dem replied: "Only the Labour Party could claim that new figures which showed that we borrowed less in previous years is bad news for the country. They are addicted to borrowing."

Business leaders welcomed the investment plans but warned they needed to be put into action quickly.

Dr Adam Marshall, director of policy at the British Chambers of Commerce (BCC) said: "Infrastructure projects are too often promised and too rarely delivered in this country, and that cycle must be broken.

"If these announcements are to translate into short-term confidence, medium-term construction jobs and long-term competitiveness, the Whitehall machine must be judged by the number of diggers on the ground, not strategies and press notices."

Chancellor George Osborne insisted earlier on Sky News: "Things are happening right now. We have 80,000 homes being built, 80 schools have been built, 40 roads have been completed.

"You can't just build a road overnight, you have to plan for the next road and get permission to build the next school so we also want to create a pipeline for these things."

The coalition's economic strategy has come under intense pressure as Britain's recovery from the financial crisis and recession continues to be sluggish.

Mr Osborne insists the country is now "moving out of intensive care and from rescue to recovery" but poor growth has forced him to extend drastic austerity measures beyond the next election.

His latest raft of cuts includes a new hit on public sector pay, a cap on welfare spending, forcing the jobless to wait a week before claiming benefits and stripping some ex-pats of the winter fuel allowance.

Government departments face further budget reductions of up to 10% in 2015/16, with only the NHS, schools, overseas aid fully ring-fenced.