Chancellor George Osborne this week said there would be no more capital spending reductions in the current financial year, saving major infrastructure projects from the public spending axe.
But he warned that the cuts in the autumn comprehensive spending review would be deeper than originally feared, with most government departments facing a cut of around 25% over four years.
In his emergency Budget on Tuesday, Osborne said no further capital spending cuts will be announced until the comprehensive spending review on 20 October.
This will set out spending plans for the years 2011/12 to 2014/15. “Well-judged capital spending by government can help provide the new infrastructure our economy needs to compete in the modern world,” said Osborne.
“I think an error was made in the early 1990s when the then [Tory] government cut capital spending too much - perhaps because it is easier to stop new things being built than to cut the budgets of existing programmes.
“We have faced many tough choices about the areas in which we should make additional savings, but I have decided that capital spending should not be one of them.”
However Osborne said that only projects that can demonstrate “a significant economic return to the country” would be funded.
Assessing what those projects are will be an important part of the spending review, he said. Osborne added that regional infrastructure schemes would be supported in areas where cuts will be felt the most.
He pledged to continue with the upgrade of the Tyne & Wear Metro, the extension of the Manchester Metrolink, the Birmingham New Street station redevelopment and improvements to the rail lines to Sheffield and between Liverpool and Leeds.
He said that a regional growth fund would be set up to provide finance for other regional capital projects over the next two years.
Osborne also said that new businesses set up outside London, the South East and the Eastern regions would be exempt from up to £5,000 of employer national insurance payments for each of the first 10 employees they hire.
Brian Fitzpatrick, transport partner at cost consultant EC Harris predicted a revolution in road maintenance procurement to promote cost efficiency as a result of the 25% cuts in departmental spending.
“The Highways Agency is probably going to have to look at shared procurement with local authorities,” he said.”And neighbouring local councils will need to look at rationalising their procurement and delivering joint asset arrangements.
Collaboration will be the theme in projects as in politics.”The budget was tough on local authorities, imposing a two year pay freeze for public sector workers from next year.
An independent commission chaired by former work and pensions secretary John Hutton will carry out a review of public service pensions and consider the case for short-term savings in the autumn spending review.
Osborne said the rate of VAT would rise to 20% from January next year. He confirmed that other taxes affecting the construction industry would also rise as planned.
The standard rate of landfill tax will increase by £8 per tonne each year from April 2011 until at least 2014. The aggregates levy rate will also increase from £2.00 per tonne to £2.10 per tonne.
The ICE welcomed Osborne’s decision to protect some infrastructure spending. “We are pleased the new government has taken heed of past mistakes recognising the consequences of slashing infrastructure spending,”
said ICE president professor Paul Jowitt.