The government is set to announce £2.5bn of further spending cuts in today's Budget, with the savings going to large-scale infrastructure projects designed to boost economic growth.
Most Whitehall departments will have to cut 2% off their spending over the next two years. This is on top of the 3% spending reductions announced for the next two years in last year's Autumn Statement.
Chancellor George Osborne told Tuesday's cabinet meeting that some departments will be exempted, including HMRC, health, schools and overseas aid will also be shielded from the cuts, while local government and police budgets will be protected for the first year.
However, departments such as environment, energy, transport and justice will have to find the 1% annual savings to day-to-day 'resource' budgets in full.
The TUC estimated that the extra £2.5bn a year the new cuts will provide for infrastructure investment would 'boost growth by a measly 0.06%'.
In its latest report, the Ernst & Young ITEM Club says previous additional capital spending announced in the Autumn Statement was too small to have any significant economic impact and was a 'missed opportunity'.
The report calls for a £10bn package of 'shovel ready' infrastructure projects in each of the next two years. Its research suggests that although this would be financed by borrowing initially, it would largely pay for itself after three years.
Andrew Goodwin, senior economic advisor to the Ernst & Young ITEM Club said: 'To provide a short term economic boost, government needs to look at projects where the planning and logistics have already been completed. It could be repairing pot holes, building roads or even maintaining schools, but they need to be up and running quickly.'
Richard Threlfall, KPMG's UK head of infrastructure said the Chancellor should use the Budget to 'get the infrastructure story back on track'. He called on government to launch a format consultation on re-introducing tax relief for investment in buildings and infrastructure, claiming the UK is currently at a competitive disadvantage as the only G20 country which fails to provide this investment incentive.
