Ministers are being asked to come up with billions of pounds of cuts to infrastructure projects over the next 18 months, the Guardian reports, despite Chancellor Rachel Reeves promising more investment to boost economic growth. .
Ministers have been asked to model planned investment cuts of up to 10% in annual capital spending as part of this month's spending review, government officials said.
The demands will slow down or completely cancel large-scale projects such as hospital improvements, road building and defense projects as the government looks for ways to fix what has been described as a £22bn black hole in its public finances. will be done.
Economists have warned that such cuts to capital spending could ultimately damage the economy and Britain's creaking public infrastructure.
Prime Minister Reeves told a Labor Party conference last week: “It's time for the Treasury not only to calculate the cost of investing in our economy, but also to recognize its benefits. Growth is the challenge and investment is the solution.”
But Treasury officials argue that cutting infrastructure spending in the short term is the only way to quickly repair the gap.
One Whitehall official said: 'We have heard that the Treasury wants to borrow more for long-term investment, but that will cover the fact that they are being asked to make massive capital spending cuts this year and next. Not,” he said. The Treasury declined to comment on the spending review process.
Reeves will present his first budget as chancellor on October 30th. It is expected to include a number of tax increases aimed at funding public services.
At the same time, she will also reveal how much each department will have to spend for the remainder of this fiscal year and next to close the gap between government revenues and expenditures.
Ministers have blamed the previous Conservative government for the gap, which they say was partly because spending on hotels for asylum seekers was much higher than planned. Refuting this narrative, Tory leaders claim Labor is spending more than necessary to resolve public sector pay disputes, accounting for up to £9bn of the deficit.
economists say A big part of the problem is that departmental spending limits were last set three years ago, before inflation soared and the number of asylum seekers increased significantly.
To close the gap, the Treasury is asking ministers to come up with models for reducing capital spending in areas such as hospital construction, defense infrastructure and road and rail networks. Treasury officials say it is easier to postpone or cancel projects that have not yet begun than to change welfare systems already in place or make large-scale job cuts. There is.
Labor has already said it will review the previous government's plans to build 40 new hospitals, but Prime Minister Keir Starmer has described this as an unfunded initiative.
Treasury Secretary Darren Jones recently sent out a 'budget proposal' to departments to understand the scale of cuts the government wants to make this year and next. Last week, he began face-to-face talks with ministers to hammer out details on exactly how much money each department needs to save and how.
These suggestive budgets have infuriated some ministers who believe the Treasury is once again prioritizing short-term fiscal management over the country's long-term economic interests. Reeves and Jones agree with many economists that you should look for immediate savings, even if they are difficult to find.
Some Whitehall insiders argue that selling capital spending cuts to the public will be particularly difficult, given that Mr. Reeves is also advocating for longer-term increases in government investment to boost growth. There are some too.
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The Prime Minister is working on plans to change the definition of government debt to allow it to borrow billions more to fund capital projects, while sticking to his pledge to start reducing debt within five years. There is.
But officials say that will not alleviate the pressing pressures that this year's spending review must address.
Talks between the Treasury and Whitehall will continue until just before Budget day, by which time ministers hope to have their requests reduced.
Ben Zaranko, senior research economist at the Institute for Fiscal Studies, a think tank, said: “When a government needs to save money quickly, the capital budget is often the first thing it considers. Canceling construction projects that have not yet begun is not an option. , easier than firing staff.
“But these cuts add up over time, making our public services less efficient than we would like, and one of the reasons why large parts of the public realm are in such a dire state. ”
Tom Railton, head of the Invest in Britain campaign, said: 'The only way to end Britain's economic stagnation, repair crumbling public services and ensure we meet our climate change targets is to It's about increasing investment.” Not only do leading economists agree, but so does the general public.
“We need more public investment, not less, and we need a fiscal framework that supports long-term planning, not short-term bookkeeping.”
Mel Stride, the Shadow Work and Pensions Secretary, said: “If the Government sets out plans to cut investment that is essential to boosting productivity, it is a cause for great concern.
“The fiscal rules are deliberately focused on a five-year period to avoid this kind of sudden reduction. We need to find ways to increase capital funding, not reduce it.”
