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Darling frees up cash for public sector jobs

Billions of pounds of cash, which had been allocated to fund future public sector construction projects, is to be fast-tracked into next years’ spending plans, the Chancellor has said.

In an interview with the Sunday Telegraph, Alistair Darling said cash allocated for the 2010-11 public sector spending cycle would be made available to fund building projects now as the Government seeks to use “taxpayers’ billions to shore up the jobs market at a time of rising unemployment”.

The news that more money will be poured into current social housing projects, Building Schools for the Future programmes, Crossrail and London 2012 will provide some relief for specialist contractors coping with reduced workloads, rising costs and harsher borrowing terms.

But analysts anticipate that the Government will need to increase public sector borrowing to fund the extra spending as a looming recession, which led to falling tax revenues, has left public finances weakened. In doing so it stands to break its fiscal rules, which state that net Government debt must not exceed 40 per cent of gross domestic product.

Figures from the Office of National Statistics show that in September net debt was £563.4 billion, equivalent to 37.9 per cent of GDP. Analysts expect borrowing to surge by a further £100 billion by 2010-11.

In the clearest signal yet that the Government is set to break its long-standing fiscal rules, a Treasury spokesman said: “As the Chancellor has said, faced with unprecedented world shocks, it is right to increase borrowing this year to help support the economy.

“World economic problems are affecting the UK economy, along with every other country in the world, and the global credit crunch is affecting the UK’s tax receipts.”

Details of the spending plans will be revealed in the Pre-Budget Report, expected in November.

Rod Pettigrew, HVCA head of legal and commercial, welcomed the move to fast-track public sector building projects to assist the ailing economy. He said: “We are in unusual times which require unusual measures. In the normal course of events we might be concerned about the capacity of the construction industry to undertake so much public sector work.

“This is an eminently sensible measure by the Government and one, we hope, will provide a degree of continuity in terms of work across the industry. This is great news from the Government.”

Professor Rudi Klein, chief executive of the Specialist Engineering Contractors’ Group, said: “We are pleased to hear that the Treasury is bringing forward public sector building projects. It will take a little while, however, for the economic benefits of this policy to feed through to firms on the ground.

“If the Government wishes to help SMEs then it needs to think about getting payment security issues resolved now for those businesses delivering projects.

“This involves getting rid of retentions, introducing project bank accounts and implementing the fair payment charter right across the public sector.”