George Osborne taps pension funds for big projects

GEORGE Osborne is to sign a deal with global pension funds to pour tens of billions of pounds into major infrastructure projects across the UK in an attempt to boost the economy.

With official forecasts due this week to predict stagnant growth for the coming year, the Chancellor hopes the move will counter claims he is doing little to foster economic expansion, saying the deal will pay for 40 key construction projects in energy and transport bringing a major employment boost.

The Chancellor will see the move as a clever remedy to a dilemma, as the pension fund money will be “off the balance sheet” and not count as national debt and therefore should not spook the markets or threaten the country’s credit rating.

The Treasury has said it will work with the Scottish Government to ensure that projects north of the Border benefit from the Chancellor’s proposals to stimulate construction, which will be announced in his Autumn Statement on Tuesday.

“A lot of policy is devolved to the Scottish Government, but we will be working with the Scottish Government on this,” a Treasury spokeswoman said. “But we are looking for these projects to be across the UK so we will be working with Scottish ministers.”

The list of key projects to be announced this week is likely to include upgrading the West Coast rail line that links Glasgow with London, Manchester, Birmingham and Liverpool.

Major projects that could benefit from the Chancellor’s plan include the new £2 billion Forth crossing, the new Southern General Hospital in Glasgow, a new Borders rail link and the V&A museum in Dundee.

SNP ministers have also identified £2.5 billion worth of infrastructure projects of their own to be paid for through up-front borrowing, including building the Aberdeen Western Peripheral Route and revamping the Royal Hospital for Sick Children in Edinburgh.

Yesterday, a Scottish Government spokesman said: “The Scottish Government has made clear its belief that we must have more capital investment to stimulate the economy. If there are any new sources of investment to put into capital projects arising out of the UK Chancellor’s autumn statement, the Scottish Government would welcome that opportunity.”

The Treasury hopes the new method of funding will benefit the whole of the UK. So far, a group of four fund managers and UK pension funds have signed a “memorandum of understanding” with the Government to invest in schemes such as railways, roads and energy projects.

The group of four, which have £50 billion of funds under management, are Hermes GPE, the Greater Manchester Pension Fund, the London Pensions Fund and Meridiam Infrastructure. More funds are expected to join them. The funds will pay the up-front costs, with the taxpayer then paying annual instalments, guaranteeing the funds a regular return.

Officials said they would be removing the bureaucratic blocks which have previously prevented the pension funds from supporting such projects.

The Treasury Minister Lord Sassoon said: “As an asset class, UK infrastructure is generating about as much interest as there was with the privatisation programme of the 1980s and 1990s.”

Pension fund managers said they were giving conditional backing to the ideas. Andrew Milligan, head of global strategy at Standard Life Investments, said: “The Government is very keen on outside capital, such as pension funds, supporting long-term infrastructure projects, which they would do – on the right terms, over the right time frame, and with the right Government guarantees.”

In his Autumn Statement, the Chancellor will seek to respond to likely confirmation from the Office of Budget Responsibility (OBR) that Britain will have to borrow even more because growth has failed to materialise in the economy.

It means Britain’s total debt by the end of this parliament is likely to rise from £900 billion to more than the £1.3 trillion previously predicted.

Osborne’s infrastructure plan is likely to be touted as a major job-creating measure, with ministers desperate to reduce youth unemployment figures following accusations last week they were creating a “lost generation”.

Other measures include moves to introduce “credit easing” – where government cash will be channelled direct to firms who are struggling to find loans.

The dire economic situation has led to Osborne’s critics arguing that he must do more to loosen spending by adopting a “Plan B” to boost growth, by cutting taxes or boosting spending.

But speaking to Scotland on Sunday, Chief Secretary to the Treasury Danny Alexander ruled the u-turn out, saying a “Plan Balls or a Plan Berlusconi” will not work, adding: “The country cannot afford to add further to a deficit which continues to be one of the highest annual shortfalls since World War II.”