Billions to be spent on hospitals and schools
Francis Elliott, Deputy Political Editor
Britain came under international pressure yesterday to inject billions of pounds into the economy as the Chancellor, Alistair Darling, finalised plans for tax cuts and for public spending using money from NHS surpluses.
Dominique Strauss-Kahn, managing director of the International Monetary Fund, called on nations to pump in 2 per cent of their gross domestic product (GDP) in a co-ordinated attempt to stave off a severe global recession.
In Britain that would amount to £30 billion, but senior government sources yesterday dismissed suggestions of a fiscal stimulus package on such a large scale.
Whitehall officials told The Times yesterday that the spending of about £15 billion in NHS surpluses and other capital projects would be brought forward and the details disclosed in the Pre-Budget Report next week. This money is available because Whitehall departments have not proceeded with some building schemes as fast as the Treasury had intended.
Mr Darling will claim that plugging gaps in the order books of construction and other companies with state cash will help Britain to maintain competitiveness through the recesssion. Labour also believes that speeding up spending on schools and hospitals will help to sharpen the widening political divide with the Conservatives.
The Government is also preparing tax cuts for low-income families who would be more likely to spend, not save, the extra cash.
Insiders speculate that the total value of the financial injection will be about £15 billion, or 1 per cent of Britain’s GDP.
Gordon Brown and Mr Darling yesterday returned from the G20 summit of the world’s leading industrial and emerging-market nations in Washington to complete preparatory work on the PBR. Meanwhile, George Osborne, the Shadow Chancellor, signalled a significant recasting of his economic policy ahead of a key meeting with Conservative backbenchers on Wednesday. Many Tory MPs fear that the party is about to be outflanked on the issue of taxation.
But senior Conservative Party sources suggest that Mr Osborne may tell the 1922 Committee that he has identified billions of pounds of cuts to public spending that can be used to fund tax cuts. He did not deny a report yesterday that Oliver Letwin, the Shadow Home Secretary, was looking at possible cuts to spending in 2010-11.
“The choice in British politics is going to be funded tax cuts from the Conservative Party or a tax con by the Labour Party that has abandoned 15 years of rhetoric on fiscal stability,” Mr Osborne said.
He also questioned the Prime Minister’s assertion that the G20 nations had accepted his call for co-ordinated cash injections and tax cuts in order to kick-start economic growth.
“Gordon Brown told us before going to Washington that it was all about getting a global agreement for a fiscal stimulus package,” Mr Osborne said. “He has not done that.”
The Washington talks, which were hamstrung by the absence of Barack Obama, the US President-elect, did not lead to agreement on the details of proposed reforms to the world financial system, including global regulation of the biggest banks and an overhaul of the way the IMF operates.
That is expected to happen at a meeting in the spring which Britain, next year’s G20 leader, is hoping to host. As the search for suitable venues began it emerged that Mr Obama’s first international summit as President could be held at The Grove hotel, near Watford. Government officials said that Birmingham and Manchester were still under consideration but a venue near London was most likely.
Mr Darling refused to be drawn on the nature or scope of any fiscal measures in the PBR yesterday, as Mr Strauss-Kahn relaxed his opposition to tax cuts funded from borrowing. The IMF managing director said it was essential that nations considered them “where you have low inflation”.
He added: “I welcome the emphasis on fiscal stimulus, which I believe is now essential to restore global growth. Each country’s fiscal stimulus can be twice as effective in raising domestic output growth if its major trading partners also have a stimulus package.”
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