Roads, rail top targets as government seeks economy boost through infrastructure

LONDON Thu Jun 27, 2013 5:03pm BST

Britain's Chief Secretary to the Treasury Danny Alexander leaves after attending a Cabinet meeting at Number 10 Downing Street in London March 12, 2013. REUTERS/Andrew Winning

Britain's Chief Secretary to the Treasury Danny Alexander leaves after attending a Cabinet meeting at Number 10 Downing Street in London March 12, 2013.

Credit: Reuters/Andrew Winning

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LONDON (Reuters) - The government promised on Thursday to upgrade roads and carry out what it said was the biggest rail investment in more than 100 years in a strategy to get the economy growing while keeping spending tight.

A day after Chancellor George Osborne announced the latest round of budget cuts, his deputy, Danny Alexander, detailed 100 billion pounds in capital investment plans, calling them "the most comprehensive, ambitious and long-lasting" ever.

Britain's economy is still struggling to generate growth to help narrow one of Europe's biggest budget deficits. Living standards suffered their biggest drop in a generation at the start of 2013, data showed on Thursday.

Alexander said 28 billion pounds would be spent by the government on improving roads from 2014 to 2020 - including enough cash to resurface 21,000 miles - and that it would support 30 billion pounds in rail investments.

A long-awaited announcement of a guaranteed electricity price for renewable energy investors was aimed at making investments in technologies such as wind power and biomass more attractive and less risky to private operators.

The government also announced a guarantee to help build a new nuclear power station at Hinkley Point in the south-west of England, for which French utility group EDF won planning permission in March.

The overall spending plan put some flesh on the bones of 300 billion pounds in capital spending commitments set out until 2020. Thursday's announcement was not a new injection of cash; the significance was in the details of where it would be spent.

The Conservative party, which dominates the ruling coalition, wants to persuade voters it is not just focused on spending cuts as it prepares for the 2015 general election. Its tough austerity drive has been criticised by the International Monetary Fund while two of the three main credit rating agencies have downgraded Britain's prized triple-A status.

Leading economic think-tank the Institute for Fiscal Studies said the capital spending plans showed net public sector investment falling as a percentage of gross domestic product, from 1.6 percent in 2014/15 to 1.5 percent in 2015/16 and dropping further thereafter.

"We are hardly entering a new era of massive infrastructure investment," said IFS Director Paul Johnson.

The government's plans also accounted for 15 billion pounds income from the sale of assets such as its portfolio of student loans as well as unused land and property.

PRIVATE INVESTMENT

Much of Thursday's announcement was aimed at drawing in private sector investment, a key tenet of Conservative plans to get maximum economic benefit out of scarce public cash.

But it did not clear up doubts about how quickly Britain could start to get new projects up and running.

"The construction industry and the broader economy will be disappointed in today's announcement as we will only see an economic boost when the shovels hit the ground on these projects," said Nick Prior, head of infrastructure at business advisory firm Deloitte.

The opposition Labour party, which has called for more short-term spending to revive the economy but has been wary about committing itself to increased borrowing, said no investment had been brought forward to 2013 or 2014.

"When is the government going to pull its finger out and actually start to build some of these things?" said Chris Leslie, a Labour spokesman for economic issues.

The government also promised an injection of 3 billion pounds into building new affordable housing - enough, it said, for 165,000 new homes - along with a 12-year rent guarantee to encourage private housing associations to build new projects.

Alexander said 16 billion pounds from 2015 onwards had been earmarked for rail expenditure, including the government's flagship high-speed rail project, designed to improve links between London, the Midlands and the north of the country.

On Wednesday, Britain's transport secretary said the cost of the rail project had risen by almost 10 billion pounds, highlighting the pitfalls of long-term capital projects.

(Additional reporting by William Schomberg and Rosalba O'Brien Editing by Jeremy Gaunt)

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