Bloomberg News

Osborne Trims Current Budgets to Fund $8 Billion Capital Boost

December 04, 2012

U.K. Chancellor of the Exchequer George Osborne will cut the budgets of government departments to fund a 5 billion-pound ($8 billion) plan to improve Britain’s infrastructure.

Departmental spending on staff and other running costs will be cut by 1 percent in the fiscal year that starts in April and by 2 percent the following year, Osborne told the Cabinet at a meeting in London today, according to Prime Minister David Cameron’s spokesman Steve Field. The chancellor outlined how he will achieve some of the savings, amounting to 3.5 billion pounds by 2015, ahead of tomorrow’s autumn economic statement.

The plan “will be achieved within the government’s fiscal plans,” Field told reporters. “It will be funded by some government resource budgets which will be reduced.”

The move is an effort to allocate money, constrained by the biggest austerity push since World War II, more productively and is a repeat of a shift announced by Osborne in last year’s statement. Field said that the measures, together along with a separate 2 billion-pound annual increase, will lift capital spending above the average during the previous 13-year administration under the Labour Party.

About 1 billion pounds of the additional funds have been allocated to a school-building and expansion project, with the rest going to transport, science and skills. All of the extra money will spent within the next two fiscal years, Field said.

“We are committed to solving today’s problems, but also preparing for tomorrow’s challenges by investing in our future and equipping Britain for the global race,” the Treasury said.

Osborne will also announce tomorrow an overhaul of privately financed state services with the aim of deepening cuts to government running costs, said people familiar with the plan.

He will tell Parliament that about 1.5 billion pounds have been saved so far and another 1 billion pounds is expected from the changes, said the people, who declined to be named because the plans aren’t yet public. The Private Finance Initiative model will be replaced with a system that aims to speed up the tendering process and provide more clarity for taxpayers.

To contact the reporters on this story: Gonzalo Vina in London at gvina@bloomberg.net; Robert Hutton in London at rhutton1@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net


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