Pressure increases on Osborne to boost economy by investing in infrastructure

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  By a Newsnet reporter

Conservative Chancellor George Osborne is coming under increasing pressure from business leaders and economists to invest government funds in infrastructure projects as a means of kick-starting the UK’s ailing economy. 

As economists continue to forecast minimal growth, the Scottish Government, opposition MPs and backbench Coalition MPs have added to demands that the Treasury change tack.

However the Chancellor has resisted such pressure, citing the need to reduce the country’s debt and signalling his intention to press ahead with the UK Government’s savage cuts in public spending.  Mr Osborne has blamed the crisis in the eurozone for the UK’s economic woes

Critics are unconvinced, saying that the economy is shrinking and austerity is not helping.  In July the economics and financial consultancy Capital Economics noted: “The Government should think again about ploughing on with the austerity plans as they are.” 

As gloomy financial forecasts seemingly bear out the critics’ fears, the Chancellor is becoming increasingly isolated, with almost half of the economists who backed him before the 2010 election now calling for him to change course.

This weekend the pressure on the Chancellor was ratcheted up another notch, as Martin Gilbert, chief executive of Aberdeen Asset Management – which manages funds with a value of £183 billion – added his voice to critics demanding that the UK Treasury urgently release funds to invest in major infrastructure projects.

Speaking to the Aberdeen Press and Journal this weekend, Mr Gilbert said:

“I would like to see more infrastructure investment. The 1930s showed that one way out of this current downturn would be to invest in selective projects that have a big economic impact.”

Commenting, SNP Westminster Treasury spokesperson Stewart Hosie MP said:

“Mr Gilbert’s intervention is a welcome one and is advice that George Osborne would do well to take extremely seriously.

“It is the latest voice to add its support to the SNP’s consistent calls to boost the economy through investing in infrastructure projects.

“As more and more respected individuals line up to tell him that he is wrong, George Osborne’s credibility is in tatters.

“If he will not make the investments needed to get the economy moving, then it is him that should be moved.

“Things cannot go on like this, with one individual’s stubbornness blocking our prospects of economic recovery.

“George Osborne’s position is becoming increasingly untenable as people across the country are paying the price for the Tory-led coalition’s austerity agenda.”

In response to the growing clamour for significant investment, this weekend the Treasury announced the the Infrastructure (Financial Assistance) Bill, which aims to support £40bn of construction projects in the private sector by using the government’s low interest rates to underwrite them.  

According to the Treasury statement, qualifying projects must be “nationally significant”, and ready to start construction within the next 12 months.  However it remains uncertain whether Scotland will benefit from any investment boost as a result of the new initiative, as construction projects in Scotland are rarely deemed to be “nationally significant” by the UK Government.

Despite this, certain projects based in and around London are regularly deemed to be of “national significance” by Westminster.  Earlier this year the Scottish and Welsh governments reacted angrily to reports that a major sewer upgrade in London was to be built using UK Reserve Funds after the UK Government ruled that the project was of national significance.  

Scottish and Welsh taxpayers contribute to the UK Reserve Fund, which is supposed to be used solely on “UK national” expenditure, but projects funded out of this money do not attract any Barnett Consequentials – monies added to the Scottish and Welsh budgets by way of “compensation” for UK Government spending on purely English projects.  The main beneficiaries of the project will be the privatised water companies operating in the South East of England.

Projects which are being touted as possible contenders for help under the new Infrastructure (Financial Assistance) Bill include some whose economic benefit to Scotland is either non-existent or marginal, such as the proposed High Speed Railway line between London and Birmingham.  For others, such as the proposal to build an additional runway at Heathrow Airport, it is highly questionable whether Scotland will achieve any economic advantages.