Spending Review: Osborne pledges HS2 and massive infrastructure improvements to offset a further £11.5bn of cutbacks

A PLEDGE to deliver the HS2 high speed rail programme and a promise to fund £50bn of capital investment – the bulk of it in transport infrastructure – in 2015-16 have been outlined by Chancellor George Osborne in his latest Spending Review.

The review was designed to trim a further £11.5bn off Government spending during 2015-16, with many central departments faced with cutbacks of around 10% to their annual budgets.

To soften the impact of the cutbacks and in an attempt to stimulate long-term investment, Mr Osborne paved the way for the public investment – the details of which will be announced by Chief Secretary to the Treasury, Danny Alexander tomorrow.

He said the Department for Transport would be faced with making a 9% saving in its day to day spending, with this being funded through cutbacks in the running costs of Transport for London and rail administration.

However, the DfT’s capital budget will rise to £9.5bn, the largest rise of any part of Government and this will be repeated every year to 2020.

“We’re already massively expanding investment on major road schemes; but we will do more,” said the Chancellor.

“We’re announcing the largest programme of investment in our roads for half a century. We’ve already expanded our investment in the railways. But we will do more.

“So we’re committing to the largest investment in our railways since the Victorian age, and with the legislation before this House today, we should give the green light to HS2 – a huge boost to the north of England and a transformation of the economic geography of this country.”

The Chancellor also pledged to support reforms on the way the Government spends money in the regions and confirmed plans to support the economic reforms outlined by Lord Heseltine in his No Stone Unturned economic review – a move which could see £10bn injected into the regions during the next Parliament.

Lord Heseltine recommended devolving more responsibility to the regions and granting improved spending powers to the 39-strong network of Local Enterprise Partnerships.

“We’re embarking on major reforms to the way we spend money locally through the creation of the Single Local Growth Fund that Lord Heseltine proposed,” said Mr Osborne.

“This will be £2bn pounds a year – that’s at least £10bn over the next Parliament – that Local Enterprise Partnerships can bid for.”

Full details of the bidding process will be outlined tomorrow.

However, local authorities are likely to find things tougher as the local government resource budget will be reduced by 10%. Although funding will be forthcoming to allow them to freeze council tax levels for a further two years.

Elsewhere, Mr Osborne said the economic risks to the UK remained real and because of this deficit spending had to be cut back further so that any recovery could be sustained.

“If we abandon our deficit plan, Britain would be back in intensive care. So the figures today show that until 2017-18, Total Managed Expenditure – in other words, the total amount of government spending – will continue to fall in real terms at the same average rate as it is falling today,” he said.

In the public sector, pay rises will be limited to an average of up to 1% for 2015-16 and Mr Osborne also announced he was scrapping automatic progression pay for the Civil Service – although the Armed Forces will be excluded from this.

He also confirmed forecasts by the Office for Budget Responsibility that a further 144,000 jobs would be lost from the public sector by 2015-16. This is in line with predictions of a 500,000 fall during the lifetime of the current Parliament.

However, he said the job losses would be offset by a rise in new private sector jobs.

The Department for Culture Media and Sport will make savings of 7% but elite sports will be protected while the funding of community sports, arts and museums will be reduced by just 5%.

The defence resource budget will be maintained at £24bn, while the equipment budget will be set at £14bn and will grow by 1% in real terms. There will also be a 3.4% increase in the combined resource budget for the intelligence services, with a special focus on improving defence against cyber crime.

The Foreign Office will make savings of 8% but there is a pledge to strengthen the embassy network in high-growth markets to improve trade links.

While the Department for Business, Innovation and Skills faces a 6% cutback, better resources will pledged for apprenticeships and to UK Trade & Investment to support export growth.

Support for innovation and science has also been promised as has a pledged to open 20 more University Technical Colleges.

The HM Revenue & Customs will have its funding cut by 5% but more resources will be diverted to combat tax evasion in an attempt to claw back more than £1bn in tax revenues.