High-speed rail link 'will get economy back on right track'

CHANCELLOR George Osborne should spend billions of pounds on grand plans such as a direct high-speed rail line between Scotland and London to kick-start Britain out of a "lost decade" of low growth, one of the country's leading economists has said.

Quarterly GDP figures have shown the UK grew by a barely noticeable 0.2 per cent in the second quarter, a factor blamed partly on the fact people took their foot off the gas in April, with unusually warm weather, the royal wedding, an extended Easter break and the first round of Olympic ticket sales.

International factors such as the Japanese tsunami and the draining effects of rocketing commodity prices were also blamed for Britain's sluggish figures, which suggest the economy in parts of the country, including Scotland, may have actually shrunk.

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With warnings that Britain is facing a major crisis of consumer confidence, Mr Osborne faced fresh calls last night to inject cash back into the economy, either in tax cuts or extra spending.

Professor Brian Ashcroft, director of the Fraser of Allander Institute, said contenders should be a temporary cut in VAT and a clear commitment to boost the country's creaking transport network.

Top of that list should be a clear commitment to a high-speed rail line between London and the Central Belt of Scotland. Such a multi-billion-pound proposal would have the double advantage of boosting economic growth in the short term while providing the country with a major new asset, paid for while interest rates were low.

The move is backed by the Scottish Government, which has repeated its call for Mr Osborne to boost capital infrastructure spending, which it believes is the best way to feed immediate economic growth.

However, amid claims of a rift between Mr Osborne and Prime Minister David Cameron over plans to boost growth, the two men put on a show of unity yesterday to insist they would not deviate from their priority of bringing down Britain's huge fiscal deficit.

It was reported that No 10 had urged the Treasury to refocus on measures to boost growth, as Mr Cameron was concerned that there was too much emphasis being placed on cutting debt.

Mr Osborne strongly denied that yesterday. "The absolutely fundamental requirement is economic stability. Without that, you have nothing," he said. "Would we really take the risk of yet more debt? Would we risk the sky-high interest rates, the economic instability? I think most people would think that is an absolutely mad course for us to head down."

Mr Cameron said: "Unlike previous governments, there is one team at the heart of this government. That is the Chancellor and the Prime Minister working together to make sure we do everything possible to get our economy growing."

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However, economists say Britain's key problem is exceptionally weak household spending, reflecting the huge mortgage and credit card debts built up during the boom, which has led to excessive caution in family homes across the country.

As a result, without a stimulus, it is feared the economy could limp along for months.

Prof Ashcroft said government claims that any increase in spending or reduction in tax would immediately prompt a market panic in Britain's fiscal position were "inaccurate". As a result, there was room for tax cuts and spending increases.

He said: "You deal with low household demand by cutting indirect taxation, and cutting VAT. This is also a good time for significant investment in infrastructure. I would invest in high-speed rail and, from Scotland's point of view, that means bringing forward the train line from Edinburgh and Glasgow to London. That would bring the Scottish economy close to the London economy and Scotland needs to see it as an opportunity not a threat."

The figures on growth continue to confirm the impression that Britain is facing a long slow recovery from recession. The UK's growth of 0.2 per cent between April and June was down from the 0.5 per cent the previous quarter. Year-on-year, the UK grew by 0.7 per cent in the 12 months to the end of June, the lowest rate of growth since the first quarter of 2010.

However, the Office for National Statistics said the second-quarter figure would have shown growth of up to 0.7 per cent if it had not been for one-off factors such as the extra bank holiday for the royal wedding and the disruption to British manufacturing supply chains caused by the Japanese tsunami.

The markets responded positively to the data, with the pound strengthening against the dollar.

But shadow chancellor Ed Balls said the trend of negligible decline was proof that the Chancellor's "gamble" on tough spending cuts was not working.

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Colin Borland, of the Federation of Small Businesses in Scotland, said: "Even if we pin the blame on one-off events, government badly needs to find ways to improve confidence and kick-start the recovery."