Government to cut projects worth £2 billion
Updated on 17 June 2010
Chief secretary to the Treasury Danny Alexander announces £2 billion cuts to spending projects, including cancelling a loan worth £80m to engineering firm Sheffield Forgemasters. Economics Editor Faisal Islam writes that this "cuts frenzy that has very little to do with efficiency savings."
The loan was announced by the then Business Secretary Lord Mandelson in March so the company could manufacture parts for the next generation of nuclear power plants.
To shouts of "shame" from Labour MPs, Mr Alexander said that ministers had to make "difficult and painful" decisions, but insisted that the last government had committed to spend money "it simply did not have".
Ministers had embarked on a "pre-election spending spree in the full knowledge that the government had long since run out of money," he told MPs.
What's on this page:
- Faisal Islam: this is not efficiency savings
- National Trust chairman says Stonehenge cancellation 'extraordinary'
- Gary Gibbon: concerned mood among Lib Dems
- Victoria Macdonald: where will the Free School money come from now?
- Victoria Macdonald: no obvious reason why Hartlepool Hospital was cancelled
- Full list: projects to be scrapped or suspended
Answering questions in Brussels, Prime Minister David Cameron said: "What we said very clearly is that it was right to review the decisions that were taken very close to the election by the last government.
"There was a suspicion that while some of these decisions might have been good decisions, not all of them were good decisions and not all of them were good value for money.
"We are going to have to take difficult decisions; we have a budget deficit of 11 per cent of GDP. I was very struck sitting around that table (at the EU leaders' summit) about the amount of other countries that are having to take impossibly difficult decisions.
"Our budget deficit isn't one of the best in Europe, it's one of the worst in Europe, so we're going to have to take difficult decisions. And we should start rightly with reviewing decision that the last government made when it was close to the election, when it wasn't always thinking about value for money. They might have been thinking of something else."
Deputy Prime Minister Nick Clegg, whose constituency is in Sheffield, said: "Sheffield Forgemasters is a great British company and as a Sheffield MP I regret that the Government cannot afford to support its expansion.
"The truth is that this loan was promised by the outgoing Labour Government as a calculated ploy to win support in Sheffield just ahead of the election, when they knew all along that there simply wasn't the money to keep to that pledge in first place.
"In front of TV cameras Labour made all sorts of lofty promises, but behind closed doors they left notes telling this Government that there was no money left. This was a breathtakingly cynical way of raising false hope of everyone in Sheffield.
Economics editor Faisal Islam writes:
Sheffield Forgemasters boss Peter Birtles received a shock phone call from officials in the Department for Business.
Hopes had been raised that funding signed off by the previous government for the development of a massive forge for steel superstructures (such as the cores of nuclear power stations) would be honoured by the new government. The £80m loan was to develop a steel forging facility that would be unrivalled in Europe and enable a deprived part of the country to create jobs in a global growth industry.
But in the phone call Mr Birtles was told "No", just minutes before Chief Secretary to the Treasury Danny Alexander appeared in parliament.
The big picture here is a cuts frenzy that has very little to do with efficiency savings. The total amount this year is likely to be well above the £6bn mentioned at the election. The government will argue it is a reflection of the fiscal reality.
Today is the day the cuts agenda got very real.
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Mr Alexander also said that he had identified a £9bn "black hole" in spending commitments which were reliant on underspends and reserve funds that were not available. He indicated at least £1bn of those commitments would have to be cancelled.
Programmes axed
Twelve commitments were axed and a further 12 programmes, worth £8.5bn, were suspended. Apart from Sheffield Forgemasters, the other projects to lose out include Stonehenge's visitor centre, the new build of North Tees and Hartlepool Hospital and various projects to boost employment.
"We are determined to tackle the unprecedented budget deficit and bad financial management we have seen over the past decade, but are equally determined to do this in a way that is fair and responsible," Mr Alexander said.
"As a result of the poor decisions made by the previous government, I have taken the decision to cancel certain projects that do not represent good value for money, and suspend others pending full consideration in the Spending Review.
"We have also found another spending black hole in the previous government's plans - projects had been approved with no money in place to pay for them. I am determined to deal with this problem head-on and ensure we never see this kind of irresponsible financial planning in government again."
Mr Alexander said only the highest-priority hospital schemes would go ahead and the Education Secretary Michael Gove was also looking at the whole "building schools for the future" programme, which had been "heavily over-committed" and where "tough decisions" needed to be taken.
Among spending to have been spared the axe was that for flu pandemic medicines, some hospital projects, support for Post Offices and spending on "crucial military equipment" in Afghanistan, he told MPs.
Political editor Gary Gibbon writes:
I was on a train with Nick Clegg at the start of the election campaign in Sheffield and remember him proudly pointing out the window at Sheffield Forgemasters. It’s actually in a neighbouring constituency to his own but it’s a big part of the Sheffield employment landscape.
With the pulling of the government’s loan to the company, announced by his own former Chief of Staff now Chief Secretary to the Treasury Danny Alexander, Mr Clegg has seen the first sizable bit of coalition pain on his own doorstep.
In London yesterday I hear Liberal Democrat MPs had a meeting. It was quite a letting off of steam. MPs saying they didn’t come into politics to have to take all these lousy decisions, take all this flak. They’re quite a prolix bunch and I’m told it was all a bit "woe is us".
There was no focal point, no mounting revolt against a particular cut or budget measure that may or may not be coming up, like VAT for instance… more a general malaise as politicians who are used to finding themselves feted when lobby groups come to Parliament, prepare to be disliked. "What am I going to tell my constituents?" was the general cry.
Nick Clegg is no doubt working out his own answer to that question right now. But his answer in general to Lib Dem MPs is: Lib Dems have been liked for years and it only gets you so far in political life. The party had a political deficit in respect. Getting stuck in to the difficult decisions ahead, it is hoped, will address that and get them respected.
There will be other Lib Dem MPs with local projects also hit as part of the £2b list of cuts announced today and they will be having to compose the first of what could be many constituency letters saying why they support the coalition cuts.
There are also, by the way, regular weekly meetings of the Liberal Democrat ministers in the government as well. The mood in these, I hear, is often one of concern or worry as well.
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"Extraordinary" decision
The announcement was met with soem shock from organisations responsible for the projects. In a statement today English Heritage, which was responsible for the development of the Stonehenge visitors centre said: "Stonehenge is a project of global significance. It is Britain's premier World Heritage Site. It was a key feature in Britain's bid for the London Olympics.
"Transforming the monument's setting and the visitor experience is vital to Britain's reputation, and to our tourism industry, especially in 2012 but also thereafter."
Simon Jenkins, the chairman of National Trust which owns the Stonehenge site, told Channel 4 News the decision was "extraordinary".
"All the other cuts are last minute back-of-the-envelope-jobs mostly cutting quangos," he said.
"This is an absolutely specific quite profitable project that has been on the cards for years. Quite why it has been singled out is a mystery."
Ian Dalton, chief executive of NHS North East where the North Tees and Hartlepool hospital was due to be built, said: "We understand the significant financial challenges the country is facing and that the government has some very difficult budget decisions to make.
"We will work closely with all local NHS organisations in Hartlepool and North Tees, to make sure that people continue to have access to the best possible health services in their local area."
Of the suspended projects, the "Successor Deterrent Extension to Concept Phase Long Lead Items" relates to the successor to Trident. Malcolm Chalmers, from the Royal United Services Institute for Defence and Security Studies (RUSI), told Channel 4 News that it may be these long lead items are ones that could be procured later without too much extra risk.
"It could be an early indication that the renewal timetable has slipped a bit," he said.
The TaxPayers' Alliance pressure group welcomed the cuts.
Chief executive Matthew Elliott said: "This announcement may be controversial but large-scale spending cuts must be made as soon as possible.
"Taxpayers are under no illusion - we cannot continue to live beyond our means as a nation and the Government must tighten its belt.
"These proposals represent real, sizeable ways to save money and it is hugely encouraging that the Government are facing up to the issue openly, honestly and swiftly."
Social affairs correspondent Victoria Macdonald writes:
On its website, Partnerships for Schools says "the Department for Education has not taken any decisions on the Building Schools for the Future (BSF) programme". In fact, the suspicion is they have. They are just waiting for the right moment to break the bad news - and that moment is likely to be soon.
Danny Alexander, Chief Secretary to the Treasury, said in the House of Commons today that the BSF programme is "very heavily overcommitted". And in the briefing document on the Government's spending cuts they say "tough decisions will need to be made on reducing costs and addressing where spending has been over-committed". What clearer signal could there be that Labour's pledge to rebuild and refurbish the nation's schools is in for a cull?
The £55bn programme was already being scaled back but there are more than 1,000 school rebuilds currently being planned. It is thought that those that had not reached the preferred bidder stage have already been stopped. But all will be open to review now.
While many have praised the BSF programme, there have been criticisms that it was cumbersome and wasteful. Some commentators suggested it should be focused on the truly delapidated buildings, especially in this time of fiscal belt-tightening.
The problem will be persuading local authorities, who will have been anticipating their bright, shiny new school, that this is all for the good of the nation's purse. During the election, the then shadow Education Secretary Michael Gove made no secret of the fact that he would have BSF in his sights, so any announcement will come as no suprise but there will be an outcry from local MPs on all sides who will not fancy going back to their constituencies to say "sorry, you will have to keep using that bucket to catch the rain coming through the roof for some time to come".
The BSF programme is also likely to face pressure from the new Academies and Free Schools being set up under the new Government. Again in Opposition the Conservatives had already said they would use 15 per cent of the BSF budget to fund free schools. Now it is a matter of waiting to find out 15 per cent of what.
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List of cancelled projects (figures for the lifetime cost of the project):
- Stonehenge Visitor Centre (Department for Culture, Media and Sport) - £25m
- Local Authority Leader Boards (Communities and Local Government) - £16m
- Sheffield Forgemasters International Limited (Business Innovation and Skills) - £80m
- Rollout of the Future Jobs Fund (Department for Work and Pensions) - £290m*
- Six-month offer recruitment subsidies (DWP) - £30m*
- Extension of Young Person's Guarantee to 2011/12 (DWP) - £450m
- Two-year Jobseeker's Guarantee (DWP) - £515m
- Active Challenge Routes - Walk England (Department of Health) - £2m
- County Sports Partnerships (DoH) - £6m
- North Tees and Hartlepool hospital (DoH) - £450m
- Local Government Local Authority Business Growth Initiative (LABGI) - £50m*
- Outukumpu (Regional Development Agencies scheme) - £13m
Suspended projects:
- Libraries Modernisation Programme (DCMS) - £12m
- Sheffield Retail Quarter (CLG) - £12m
- Kent Thameside Strategic Transport Programme (CLG) - £23m
- University Enterprise Capital Fund (BIS) - £25m
- Newton Scholarships (BIS) - £25m
- Health Research Support Initiative (DoH) - £73m
- Leeds Holt Park Well-being Centre (DoH) - £50m
- Birmingham Magistrates' Court (Ministry of Justice) - £94m**
- Successor Deterrent Extension to Concept Phase Long Lead Items (Ministry of Defence) - £66m
- Search and Rescue Helicopters (MoD element) - £4.7bn
- Search and Rescue Helicopters (Department for Transport element) - £2.3bn
- A14 road (DfT) - £1.1bn
* Previously announced
** 2010-11 element previously announced
Social affairs correspondent Victoria Macdonald writes:
There is a poignancy to the Government's cancellation of the North Tees and Hartlepool Hospital. The new £450 million, 568-bed hospital was to be the greenest in England, generating its own electricty and it was also to be the first to have all its patients in private rooms.
Now if there was one thing the Conservatives liked to berate the Labour Government for it was their failure to deal with mixed sex wards. The patients of North Tees and Hartlepool will now have to wait a little longer for that privacy.
There is no obvious reason why the project has been cancelled. There will be those cynics who point to it being in a Labour stronghold or payback for the revelation in 2006 that seven out of 10 new hospitals had opened in Labour areas.
But one would like to think the truth is more prosaic: plans for the hospital were only voted through by Hartlepool Borough Council last October and the contracts would not have been signed. It is, therefore, an easy one to cancel since it had barely begun. Whatsmore, this was a hospital to be 90 per cent public-funded so it would not even have been on the PFI books.
But it would be a pity if a swathe is cut through hospital building projects. The vast improvement in the very fabric of the NHS because of the new hospitals built (about 118 since 2000) was one of Labour's success stories. That it was done controversially under the Public Finance Initiative is another matter. But it is by far a much more pleasant experience (even under difficult circumstances if you are the patient) to go into a rebuilt or new hospital than it used to be. They are quite simply brighter, lighter and friendlier as a result.
Indeed, the Health Secretary Andrew Lansley is himself keen on plans to rebuild Addenbrooke's and the famous heart hospital Papworth - all on one site in Cambridge. Not least because he is the local MP.
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