The big theme of the autumn statement is a £30bn infrastucture programme. But a top economist tells Channel 4 News he expects this to be “aspirational”, not “signed, sealed and delivered”.
Chancellor George Osborne’s message on Tuesday will be that Plan A continues: the government’s £81bn programme of spending cuts and tax increases will go ahead, despite the decline in Britain’s growth prospects.
The OECD think tank warned on Monday that the country was likely to slip back into recession in the final three months of 2011 and the first quarter of 2012, and to coincide with the autumn statement, the Office for Budget Responsibility will also cut its growth forecasts.
Declining growth means less money from tax receipts and a bigger welfare bill because of increasing unemployment, making it even harder for Mr Osborne to cut Britain’s deficit.
He has little financial leeway, but knows action is needed to stimulate the economy. That is why he has looked ‘outside the box’ for a possible solution.
How does George Osborne get to an eye-catching £30bn total for new infrastructure spending? To what degree is he, as The Spectator used to accuse Gordon Brown, "telling Brownies" – puffing up numbers for effect?
Read more from Political Editor Gary Gibbon
Channel 4 News understands that of the £30bn infrastructure investment programme over the next decade, £20bn is expected to come from pension funds.
They have reached an agreement with the government that for the first time will see them investing in roads, rail and high-speed broadband. Pension funds will run and possibly own the projects. The remaining £10bn will be borne by the government, £5bn over the next three years.
Treasury Chief Secretary Danny Alexander told the BBC he was looking at “under-spends” in the government’s accounts to fill the gap, such as the money that had been earmarked for carbon capture.
It is these “under-spends”, and bigger than expected cuts in the welfare budget, that are likely to provide the money, rather than an overall rise in spending.
Mr Alexander said: “I have been looking at government funding in the round, at areas where there are under-spends. There are some significant underspends that we can redistribute. There are some programmes, such as, for example, the carbon capture and storage scheme, where the negotiations failed to reach an agreement, where some of that money can be re-allocated in this spending review.”
Mr Alexander said action would also be taken on tax avoidance. The indications are that tax credits will not be increased in line with inflation, saving the Treasury money. The levy on bank balance sheets is also likely to rise from 0.075 per cent.
Paul Johnson, director of the independent Institute for Fiscal Studies, told Channel 4 News the details were unclear, but if the government was relying on pension funds to build roads and schools, they would have to be rewarded financially.
If, for example, they were going to be able to charge motorists a toll fee for using a road they had built, that would be an “interesting” development. But if the government was simply planning to pay funds for their investment, that would be no different from any other borrowing.
It seems to me unlikely that the government is going to announce it has £20bn signed, sealed and delivered. Paul Johnson, IFS
“Infrastructure does not tend to provide an income stream, so why would a pension fund invest in this? Isn’t the government just borrowing from them, just like issuing gilts?”
Mr Johnson said he expected the £20bn figure to be “aspirational”, adding: “It seems to me unlikely that the government is going to announce it has £20bn signed, sealed and delivered.”
Of the £5bn the government was planning to spend, he said this was modest. “Over three years, that is £1.5bn a year, 0.1per cent of government spending. It’s a very small amount of money.”
Mr Johnson said there was further scope to cut the welfare budget, which had “got off pretty lightly” compared with other government spending commitments, but this was a political decision.
Nationwide – £600m school-building programme to create 40,000 extra places, mostly in primaries
London – M25; Crossrail; Northern Line tube extension
Suffolk – widening of A14 to Felixstowe
North west – electrifying Transpennine rail route between Manchester and Leeds, cutting journey times between Liverpool and Newcastle by 45 minutes; new east-west dual carriageway road linking the M56 at Manchester Airport to A6 south of Stockport
North east – Tyne and Wear Metro
South west – Kingskerswell bypass
Yorkshire and Humber – Humber Bridge