The U.K. government announced it will sell off 15 billion pounds ($23 billion) of state-owned assets by 2020 to help bring down its debt, as it detailed future spending on infrastructure to boost growth.
Chief Secretary to the Treasury Danny Alexander said 10 billion pounds would be generated by selling corporate and financial assets such as the mortgage-style student loan book, along with 5 billion pounds of land and property. He pledged 300 billion pounds of capital spending by the end of the decade, highlighting the construction of the high-speed rail link from London to northern England.
“Government is the custodian of the taxpayers’ assets,” Alexander told lawmakers in Parliament in London today. “When we no longer need them, we should sell them back at a fair price -- not act like a compulsive hoarder.”
Alexander’s statement was the second in as many days by U.K. Treasury ministers of plans for the years following the next election in 2015. He gave specifics today about 100 billion pounds of spending proposals after Chancellor of the Exchequer George Osborne set out 11.5 billion pounds of budget reductions for 2015-16. The government has extended its austerity program to 2017-18 amid weaker-than-expected economic growth.
The investment program doesn’t reflect an increase in net capital spending, the independent Institute for Fiscal Studies said today, saying Osborne’s announcement had been accompanied by “woeful” levels of information and explanation. Most spending plans were already known, IFS Director Paul Johnson told reporters in London.
“We are hardly entering a new era of massive infrastructure investment,” Johnson said. “Despite the hype, net capital spending is not set to rise.”
Public-sector net investment will fall in 2015-16 to 1.5 percent of gross domestic product from 1.6 percent in 2014-15, Johnson said. The IFS projects that it will also fall further as a share of national income in the two following years.
The government is hoping infrastructure investment will help kick-start the recovery it needs to meet its austerity targets. The deficit-cutting program, the most ambitious since World War II, has helped keep bond yields low. Ten-year gilts yielded 43 basis points more than German bunds on average since the Conservative-led coalition took office in May 2010, versus 96 basis points the day before the election.
The minister set a budget of 42.6 billion pounds for construction of the HS2 north-south rail link and said 7.5 billion pounds will be spent on rolling stock at 2011 prices. The budget for the plan over the next Parliament, between 2015 and 2020, was set at 16 billion pounds. Alexander also announced a 28 billion-pound investment in roads, as well as spending on expanding the broadband network and in renewable energy.
“As we move from repair to renewal, we also need to invest in the fabric of our nation,” Alexander said. “And I can do that because we have chosen to find savings from day-to-day budgets which allow us to recycle billions back into long-term capital spending, not the easy choice, but the right one.”
Alexander also said the U.K. has 1,300 trillion cubic feet of shale gas, double previous estimates. He said the government will provide an additional 800 million pounds to the Green Investment Bank so it can expand further and give it the power to borrow 500 million pounds from the government in 2015-16.
Other announcements included 3 billion pounds for 165,000 new affordable homes; 10 billion pounds on repairing 261 schools; 250 million pounds for superfast broadband; and new government guarantees for the Hinkley Point nuclear-power station on the west coast of England to be built by Electricite de France SA. (EDF)
According to the IFS, the U.K. is only halfway through a squeeze that will reduce central government spending by about 20 percent, the fifth-largest program of cuts among 29 advanced economies.
Taxes will need to rise by 6 billion pounds after the 2015 election if the government is to meet its target of an 80 percent to 20 percent split between spending cuts and tax increases, the IFS said.
“We are on course not for sharing the consolidation 80 percent on spending and 20 percent on tax as the government originally planned but for an 85:15 split,” Johnson said.
The coalition government is seeking to convince voters it is investing in measures to boost jobs and growth, while also pushing the Labour opposition to come up with an acceptable alternative in the run-up to national elections.
The Conservative-Liberal Democrat coalition should “pull its finger out” as its plans for construction and growth have been a “total flop,” Labour Treasury spokesman Chris Leslie told Alexander in Parliament. Leslie said the U.K. has spent 5.6 billion pounds less on capital investment over the past three years than the Labour Party would have done.
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