Pension funds urged to join £30bn infrastructure plan

Chancellor George Osborne plans to attract billions of pounds from British pension funds to boost £30bn worth of infrastructure schemes.

The government is expected to provide £5bn of the money by 2014-15 while it is "targeting" £20bn to come from big British funds.

But the Institute for Fiscal Studies said the £5bn figure was "pretty small" compared with cuts to capital spending.

It comes as the OECD forecasts the UK is likely to slip back into recession.

The OECD, an economic think tank, said the UK's GDP would shrink in the final quarter of 2011 and the first quarter of 2012 - if the economy shrinks for two quarters in a row it is officially said to be in recession.

The infrastructure announcement comes ahead of Tuesday's Autumn Statement in which Chancellor George Osborne will outline spending plans.

The aim is for government and private investors to support both social and economic schemes over the coming decade. The government will provide £5bn up to 2015-15, then a further £5bn in the next Parliament.

The Treasury hopes two-thirds of the £30bn earmarked for infrastructure schemes will come from the National Association of Pension Funds and the Pension Protection Fund. Separately it is also seeking more investment in infrastructure from insurance companies and from China.

Chancellor George Osborne said: "We are finding the resources in difficult times to build the railways, to build the roads. Britain's got to get away from the quick-fix debt solutions that got us into this mess.

"We have got to weather the current economic storm and we have got to lay the foundations for a stronger economic future.

"We have got to make sure that British savings in things like pension funds are employed here and British taxpayers' money is well used."

About £5bn will be provided in the next two to three years, and a further £25bn allocated in the long-term, ministers say. Some of the money will come from areas where there have been "under-spends" in government, including the carbon capture and storage negotiations, and a crack-down on tax avoidance.

The 40 highlighted projects for support from the plan include the Transpennine Express line between Leeds and Manchester, the Metro system in Tyne and Wear as well as improvements to the M25, M3 and M56.

But Paul Johnson, director of the Institute for Fiscal Studies, told BBC Radio 4's World at One that £5bn of government investment over three years was a "pretty small number", as capital spending was expected to be cut from £40bn in 2010-11, to £24bn in 2013-14.

The money raised from private investors appeared to be "aspirational" rather than guaranteed - unless the government was planning to offer incentives, which might turn out to be expensive.

Business Secretary Vince Cable said they were not planning incentives - but would offer long-term investors assurances and clarity about a "steady return" on their money: "We will create an environment in which that can happen."

Spending cuts

Asked about the OECD report, the Lib Dem cabinet minister said a double dip recession was "certainly possible" - but said the think tank's "best estimate" was there would be some growth in the UK economy next year - "not very much but some - about the same as Germany, considerably better than France and southern Europe".

He said the government was "obviously" doing contingency planning - but had to operate on a "plausible set of assumptions", which would be set out by the Office for Budget Responsibility on Tuesday. And he said slowing down spending cuts was not part of the plans: "There isn't any proposal to go along that line."

Labour leader Ed Miliband said the government was not doing enough to get the economy back on track: "We can do something about that - cut VAT to put more money in people's pockets so we can actually get our economy moving again.

"Have a bank bonus tax to put the young unemployed back into work, not cutting tax credits - robbing Peter to pay Paul. And that's what the government seems to be doing - any changes they're making are being offset by changes elsewhere. In other words they're giving with one hand and taking with another - I don't think that's going to be the thing that gets our economy moving."

The TUC has issued its own economic plan, which contains measures including cutting VAT, reversing the public sector wage freeze and giving a one-off increase in child benefits before Christmas.

TUC general secretary Brendan Barber said: "The chancellor's economic plan A has sent unemployment to a 17-year high and the UK's economic outlook is the gloomiest it's been since the end of the recession."