Chancellor of the Exchequer George Osborne will present a 30 billion-pound ($46 billion) program to finance the construction of roads, railways and infrastructure projects as he tries to stop the British economy sliding back into recession.
The decade-long plan, to be announced by Osborne tomorrow, will seek to attract 20 billion pounds of investment from pension funds, Chief Secretary to the Treasury Danny Alexander said today. A further 5 billion pounds will come from savings in other budgets by 2015 and an additional 5 billion pounds will be made available thereafter.
“Pension funds have not been investing the savings of British people in British infrastructure,” Osborne told the British Broadcasting Corp. yesterday. “We are hopefully going to change that.”
Osborne is trying to boost growth as he drives through the deepest budget cuts since World War II and the European debt crisis crimps demand. He suggested during his BBC interview that the U.K. economy may struggle to expand by more than 1 percent this year, less than the 1.7 percent forecast in March.
The chancellor will present his latest economic forecasts to lawmakers in London tomorrow along with the National Infrastructure Plan and a program to boost lending to small companies. Infrastructure spending will begin as soon as April, with a 600 million-pound program to build more classrooms in inner cities where demand is highest, said a person with knowledge of the program.
Pension Fund Agreement
The Treasury yesterday signed an agreement with the National Association of Pension Funds and the Pension Protection Fund to help the funds invest more in infrastructure. The Treasury is seeking to double the proportion of pension funds’ assets allocated to the asset class from 2.5 percent today.
“We think we can unlock about another 20 billion pounds of pension-fund investment into infrastructure -- a combination of the public sector and private sector working together,” Alexander told Sky News today. “We’ve been working to try and unlock the pension-fund industry in this country to invest in British infrastructure in the way that Canadian and Australian pension funds invest in this country at the moment.”
Alexander told BBC Radio 4’s “Today” show there will be no extra borrowing to pay for the plan, which will be financed by “gathering back in” under-spent funds from departmental budgets and other savings. “We’re making the best use we can for the very limited resources we have,” he said.
Osborne said yesterday he will also guarantee 20 billion pounds of loans for small companies as a policy lever to supplement the Bank of England’s 275 billion-pound quantitative-easing program, in which the central bank creates money to buy government bonds and stimulate the economy.
Opposition lawmakers have said Osborne’s plans to cut the deficit have undermined the recovery in Britain by squeezing spending too hard, cutting too many government jobs and shaking consumer confidence.
Osborne “said a year ago that if we had faster cuts it would lead to private sector jobs, to confidence, to falling unemployment but it hasn’t worked,” Ed Balls, the opposition Labour party’s main Treasury spokesman, told the BBC yesterday. “That has been the fantasy they have peddled for the last year. It was his decisions that choked off the economy.”
Alexander prepared the ground for the Office for Budget Responsibility to downgrade its economic forecasts tomorrow, saying “big headwinds” were facing the British economy in the form of higher commodity prices and the euro-region debt crisis.
Osborne said he is sticking to his plan to remove the U.K.’s structural deficit by the time of the next general election in 2015, vowing to “do what it takes.”