New plans for growth?

  • 20 September 2011
  • From the section UK Politics
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The BBC can reveal that cabinet ministers believe that the chancellor could increase capital spending by up to £5bn on roads, broadband and other infrastructure projects in order to stimulate economic growth without abandoning its deficit reduction strategy or what's become known as "Plan A".

The government has already announced plans to "accelerate" spending on 40 key infrastructure projects; to reallocate half a billion pounds in unspent departmental budgets on a fund to boost local infrastructure projects - for example, building a link road to allow a housing development to go ahead; and to examine how to maximise the impact of existing plans.

An announcement is expected soon on a plan to increase house building.

The debate which is just beginning in government is whether to go further by increasing capital spending above and beyond the totals outlined in the Budget.

Currently the Treasury is arguing that it would risk a loss of credibility in financial markets to change their plans in any way.

The main business lobby group, the CBI, recently called on the government to "act now to attract vital new investment into the UK's ageing infrastructure. Swift investment across Britain's road and rail networks, digital, waste and energy would ensure we remain internationally competitive and kick-start UK growth".

The government has promised to publish a National Infrastructure Plan to set out the long-term investment needs and priorities for the UK by the end of this year.

Treasury figures show planned capital spending halving over the next five years once depreciation is taken into account.

Today's gloomy IMF forecast is fuelling the private debate in Whitehall as well as the public debate between parties about how to stimulate growth. Both Labour and the SNP have called for increased capital spending.

Note for nerds:

The reason some ministers argue that capital spending can be increased without abandoning Plan A is that the Treasury's so-called "fiscal mandate" aims to target current not capital spending.

Their other target - a fall in the debt to GDP ratio - limits their ability to spend more on capital projects unless the Treasury argues that it can stimulate growth in the future by spending more now.