£2bn Labour projects axed

Press Association

Thursday, 17 June 2010


The Government axed £2 billion of projects agreed in the last months of the outgoing Labour administration today in a bid to cut the budget deficit.

Treasury Chief Secretary Danny Alexander set out a total of 12 commitments to be halted - accusing Labour of "spending 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.

Among victims of a review of all spending decisions taken since January was an £80 million loan to Sheffield Forgemasters and public support for a visitor centre at Stonehenge.

A £450 million hospital investment was also deemed to be among projects which were not affordable, did not represent value for money or were not a Government priority.

Another 12 programmes, worth £8.5 billion, have been suspended while they are considered as part of the wider Whitehall spending review.

Mr Alexander said he had identified a £9 billion "black hole" of spending commitments reliant on underspends and reserve funds that were not available.

At least £1 billion of those would also have to be cancelled, he indicated.

"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".

The review of 217 projects - totalling £34 billion - was ordered last month amid coalition claims that Labour had made a series of last-ditch pre-election promises.

Deputy Prime Minister Nick Clegg, who is a Sheffield MP, expressed his "regret" that the Forgemasters funding - to support the civil nuclear supply chain - was to be scrapped.

But the Liberal Democrat leader said the blame lay with Labour ministers' "breathtakingly cynical way of raising false hope" in the city ahead of the May 6 poll.

Union leaders had warned that withdrawing the loan would lead to thousands of job losses and jeopardise Britain's preparations to build a new generation of nuclear power stations.

Among NHS projects cancelled was a plan to build a new £450 million hospital north of Stockton to replace outdated general hospitals.

The £2 billion figure included £370 million of cutbacks to employment measures such as the Future Jobs Fund already announced as part of the Government's £6 billion savings programme.

By far the biggest commitment put on hold was a £7 billion PFI deal for a new generation of search and rescue helicopters operated by the Ministry of Defence and the Coastguard.

Shadow chief secretary Liam Byrne said the announcement was a "moment of abject humiliation" for Mr Alexander as it flew in the face of several former Liberal Democrat policies.

The projects detailed amounted to 0.05% of Government spending, "nailing the myth" that Labour had operated a "scorched earth" policy in the run-up to the election, he said.

"Both the country and the Liberal Democrat party beyond will be aghast this afternoon at your attack on jobs, your attack on construction workers, your attack on the industries of the future and the cancellation of a hospital.

"Let me ask you: what could be more front line than this? In five minutes this afternoon you have reversed three years of Liberal Democratic policy of which you were the principal author.

"What a moment of abject humiliation."

TUC general secretary Brendan Barber said: "This announcement appears to go against everything the Government has said about its cuts programme.

"Cutting a further £2 billion from public contracts with the private sector will shrink the economy, rather than stimulate private sector growth - and will do nothing to rebalance the economy.

"Ending funding for job guarantees will throw people on the dole and goes against a desire to be fair.

"Particularly disappointing is the decision to cancel the loan to Sheffield Forgemasters to build components for nuclear power stations as it not only damages manufacturing but also threatens energy security and the transition to a low-carbon economy."

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.

Details of where another £1 billion of savings would be made from projects due to be funded from underspends would be set out in Tuesday's emergency Budget, he said.

"There was no reason to suppose that underspends would have occurred on anything like that scale and there is insufficient in the contingency to cover the remainder.

"The last government committed to spend money it simply didn't have. It made commitments it knew the next government could not fulfil and in doing so cynically played politics with the hopes of many communities," the Chief Secretary told MPs.

"The actions I've set out show that this Government will take responsible spending decisions - guided by fairness and the overriding need to tackle the deficit.

"We didn't make this mess but we will clean it up."

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."

But shadow business secretary Pat McFadden MP condemned the decision to halt the Forgemasters loan as "short sighted, damaging and wrong".

"The Sheffield Forgemasters proposal was never just about aid to one company. It was about the UK having an ambition to be a success in the growing world supply chain in civil nuclear power," he said.

"The new Government is tearing up the roots of future industrial success and employment growth. It exposes them as behaving like the very banks they like to criticise.

"A deficit reduction strategy needs to be accompanied by a plan for growth and future industrial success. With this statement the Government shows they have no such plan."

£2bn Labour projects axed - UK Politics, UK - The Independent

Makes sense. Governments always wheel out massive (and frequently irrelevant) public spending programmes when they're up for re-election. Anyone sensible would have been on the lookout for them.

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Anti-industry spending cuts echo 1980s' short-termism

The decision to scrap the £80m loan provided by Gordon Brown's administration to Sheffield Forgemaster is a reality check


o Larry Elliott, economics editor
o guardian.co.uk, Thursday 17 June 2010 23.02 BST


So much for government action to rebalance the economy in favour of manufacturing. So much for investment in a low-carbon future. So much for painless cuts that simply eliminate waste. The decision to scrap the £80m loan provided by Gordon Brown's administration to Sheffield Forgemasters to support the civil nuclear supply chain is a reality check for those who imagined cutting Britain's deficit would be a painless process.

Nick Clegg, a Sheffield MP, put a brave face on the announcement, saying the government simply could not afford to support the company. In a sense, the deputy prime minister had little choice but to grit his teeth and accept the flak that inevitably came his way. Clegg could hardly plead for clemency in his own back yard when so many other projects were facing the Treasury axe. As is now customary on these occasions, he cited the "no money left" letter left by the departing Labour chief secretary, Liam Byrne, to justify the policy move.

But while Byrne's missive was an act of unparalleled political stupidity, Clegg's justification is not good enough. Nor is the other government get-out: that Sheffield Forgemasters should obtain funds from the financial markets. In the world of theoretical purity occupied by free-market ideologues, that may be true, but in the real world finance is expensive and hard to come by. What is more, countries that are serious about supporting manufacturing or developing green technologies provide support through soft loans, tax breaks and procurement policies. Labour's support for Sheffield Forgemasters was an example of the smart industrial interventionism deployed elsewhere. It is one of only two companies in the world that make the specialised large forgings for the nuclear industry. The other is in Japan, and one can only imagine the mixture of bemusement and glee with which this example of cheese-paring was greeted in the Far East.

What does this decision mean? At a micro-level, it means the company's expansion plans will be mothballed. The 180 jobs that would have been created in the private sector will be lost. But there is more to it than that. Both parts of the coalition talked in the run-up to the election about the need to make Britain less dependent on financial services and property speculation as the engines of economic growth. They talked about setting up green investment banks and the onward march of Britain's biotechnology industry. They talked the talk but clearly have no intention of walking the walk. The Treasury has always been at its most comfortable counting the candle ends: by rescinding this loan ministers have shown that the blinkered, short-termist, anti-industry mind set of the 1980s is back with a vengeance.

Anti-industry spending cuts echo 1980s' short-termism | Business | The Guardian

Overall, governments, even the lauded Japanese MIT, have been known to make more industrial mistakes than the markets.

Too many white elephants and inappropriate investments where return on capital isn't the main objectives.

But it sure seems stupid in that particular case. There's nothing inheritently wrong with gvts helping companies - if they have a valid business model.

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Quote:

It is one of only two companies in the world that make the specialised large forgings for the nuclear industry.

If that's so and if the nuclear energy industry is going anywhere, why does it need to suckle on the government teat? Do I sense that the nuclear industry will never be cost-effective in electricity generation, regardless of carbon taxes or cap 'n' trade regimes?

Tbf I think that the other one is Bouygues, which is totally in bed with its government.

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So, Zichao, are you suggesting that Sheffield Forgemasters should also have been in bed with government, or that Bouygues should not? Or both? Or Neither?

Hey, I'm a lover not a fighter. Everyone should be in bed with someone. Live in the mountains, eat mountains. Live by the water, eat water.

No, seriously. Japanese-style capitalism is the only way to go.

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So maybe a Japanese or Chinese investor will see value in Sheffield Forgemasters that the UK government fails to understand... a happy rescue from the jaws of despair.

Or not.

Forgemasters decision is political folly

The scrapping of an £80m loan to Sheffield Forgemasters is a short-sighted move by the coalition with far-reaching implications


o Gregor Gall
o guardian.co.uk, Friday 18 June 2010 12.35 BST


The decision to scrap an £80m loan to Sheffield Forgemasters could turn into an act of considerable political folly for the still-young coalition government.

The loan was given to allow the company to install a new forging press for producing nuclear plant components. Its rationale was part of a policy to support successful businesses – especially in areas of high unemployment and low wage, unskilled jobs – to expand and prosper. The withdrawal of the loan not only threatens hundreds of jobs at the company and its suppliers, as well as the company's business strategy. It may also impede the ability of the new tranche of nuclear power plants to come on stream, for the company is almost alone in Britain in producing such steel products.

This decision appears particularly short-sighted, for it was a loan (rather than a non-returnable grant or gift) and to a company that is far from being a basket case or a lame duck. Not only does Sheffield Forgemasters have a long and illustrious history, but it is one of the few businesses from that age of the industrial revolution to have survived, grown and developed when others around it withered and failed. It now manufactures general and specialised high-quality steels, in either rolled or cast formats.

Some observers may say a successful company should not need state aid – they would say this almost axiomatic. Yet, the £80m loan was matched by the same amount raised in private money markets by the company, so this was not exactly a case of the government bailing out a company or encouraging it not to stand on its own two feet. Rather, relative to the worth and assets of the company, it would not have been able to raise such sums of money without government help.

On top of this, steel and Sheffield have a kind of resonance in the political fabric of Britain unlike many others industries and places because of the parts they played in the industrialisation of the economy. Indeed, in what many consider the last great Clash song, Joe Strummer sang "This is England … This knife of Sheffield steel." By the same token, bringing into doubt the future of a successful smokestack company speaks to a long-running sore in British political life, namely, that of deindustrialisation. The contrast with Corus, the owner of former British Steel operations, could not be greater. It has recently shut down and mothballed many of its production facilities.

But what will really give foundation to the loan withdrawal being an act of political folly for the price of a returnable £80m is that the MP for the constituency in which the company is based is the deputy prime minister, Nick Clegg. This makes his statement of lament in response look rather hollow and insincere.

However, the icing on the cake will be the extent to which the Labour opposition can land a blow on the coalition government for bringing about the danger of a "double dip" recession by cutting too much too soon. This was the political fault line in this year's general election between the main political parties. With Clegg as the local MP, Labour's leadership contenders should be able to have a field day. Added to this mix will be the accusation that the Liberal Democrats are no different from the "slash and burn" Tories. Or, put another way, rather than moderating the Tories, the Liberal Democrats have given in to them in return for a few ministerial Mondeos.

And at the back of all this, the longstanding Tory dogmas that people should get on their bikes to look elsewhere for work and that there is nothing wrong with becoming a nation of hairdressers are likely to fall on increasingly deaf and unreceptive ears. To many, it will look like the new face of the Tories under Cameron is pretty much the same as the old one under Thatcher.

Forgemasters decision is political folly | Gregor Gall | Comment is free | guardian.co.uk