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Darling’s ominous plans for industry

Pre-Budget Report outlines new rail work, but fails to offer assurance that conditions will improve

Chancellor Alistair Darling offered the construction industry a number of small life rafts last week, but his Pre-Budget Report set a course for even choppier waters.

The most eagerly grasped announcement for the industry was the green light for a £200 million rail electrification project in the North-west.

There was also a £1 billion pledge to increase lending to smaller businesses struggling to raise capital as a result of the credit crunch.

An indefinite extension was announced to the Time to Pay scheme, which allows struggling firms to spread tax payments. 

Green projects received a boost with £90m for the European Investment Bank’s 2020 fund, which will enable €6.5bn (£5.8bn) of finance for green infrastructure.

Mr Darling also restated the Government’s promise to finance four carbon capture and storage demonstration projects.

And, as had been hoped, he put on ice plans to crackdown on socalled bogus self-employment. Mr Darling also launched a new body, Infrastructure UK, to develop a strategy for infrastructure investment for up to 50 years, and investigate funding sources.

But despite these cursory nods to most of the industry’s demands, the chancellor left contractors in no doubt that things were going to get worse.

Few details were released in regard to departmental budgets, which are set until 2011. Mr Darling said: “We are clear that, following the investments made over the last decade, current spending growth can be set lower

than in the past, and fall to an average of 0.8 per cent a year between 2011-12 and 2014-15.

“That will mean cuts to some budgets, as programmes come to an end or resources are switched to new priorities. And some programmes will need to be stopped altogether.”

Construction Products Association economics director Noble Francis said this could translate into massive cuts to construction programmes.

“In four years’ time, government construction spending will be half what it is now,” he said.

“Certain current levels of spending are being ring-fenced in the education, health and policing sectors. But the implications of that are harsh cuts in defence, transport and potentially housing budgets.”

He added: “Even health and education capital budgets could suffer, as much of the money will go on teachers and nurses rather than new buildings.”

Mr Francis said it was realistic to expect a slowing of spending through the £55bn Building Schools for the Future scheme, among cuts to other programmes. Elsewhere, the chancellor announced the creation of the £500m Growth Capital Fund to target bank lending to small and medium-sized businesses. He said the Government would make an announcement about initial investors and fund structure in 2010.

This fund will be complemented by an additional £500m of lending to SMEs through a 12-month extension of the Enterprise Finance Guarantee.