Britain must hike infrastructure budget - Ernst & Young

LONDON Mon Dec 3, 2012 12:06am GMT

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LONDON (Reuters) - The British government should focus on infrastructure projects to boost its economy over the next two years, a think tank has said.

A forecasting group backed by accounting firm Ernst & Young said on Monday a 14 billion pounds ($22 billion) hike in infrastructure spending over two years would add 0.5 percent to Britain's GDP, improving short-term economic growth prospects.

The Ernst & Young ITEM Club said infrastructure spending had almost halved to 27 billion pounds over the past four years despite spending being the most effective means of stimulating growth.

"The key to this policy is finding projects for which all the planning and logistics have already been completed, and where all that is missing is the funding to put the shovel in the ground," said Andrew Goodwin, senior economic adviser to Ernst & Young ITEM.

Goodwin said the investment could be allocated to transport projects such as roads or work on hospitals, schools or other public buildings.

The call came as George Osborne prepares this week's half-yearly fiscal statement in which the British chancellor is expected to stick with his deficit-reduction programme.

At his "Autumn statement" on Wednesday, Osborne is set to defend his stringent economic policies as the only credible way of solving the government's biggest political problem - its failure to deliver a strong recovery.

"It's clearly taking longer to deal with Britain's debts, it's clearly taking longer to recover from the financial crisis than anyone would have hoped, but ... to turn back now ... would be a complete disaster for our country," he said in a BBC television interview.

Economists believe Osborne will have to find substantial new savings to meet one of his debt-reduction goals - removing Britain's underlying budget deficit.

British media reported on Sunday that Osborne planned to reduce the amount very high earners can put tax-free into private pensions each year alongside reining in the welfare budget.

Reducing the amount of money people can pay into their pensions with tax relief could raise up to 1.8 billion pounds ($2.88 billion), according to the Sunday Times.

Osborne declined to comment on the reports, but did not reject the proposals directly when questioned in the interview. ($1 = 0.6240 British pounds)

(Editing by Helen Massy-Beresford)

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