Osborne signals U-turn on economy with growth plan

Package to create new jobs in the private sector seen as a shift of emphasis towards 'Plan A+'

George Osborne is drawing up plans for a major growth package to boost the British economy, in what critics will say is a significant shift from his Plan A of austerity and spending cuts.

In what has been described in government circles as Plan A+, cabinet ministers have been told to identify big-ticket infrastructure projects that can be speeded up to jump-start growth.

The move follows President Obama's $450bn (£280bn) plan to create new jobs and cut payroll taxes, and comments on Friday by Christine Lagarde, head of the International Monetary Fund, who gave only qualified support to the UK Government's deficit reduction plan and said that Britain needed to show "readiness" to respond to flatlining growth.

While the British plan will not involve new money, schemes already in the pipeline are to be accelerated, in an attempt to encourage private companies to take on more workers. Projects will include transport upgrades, housebuilding and the expansion of green energy and super-fast broadband.

Some ministers are pressing for the Chancellor to go further and introduce tax cuts for businesses, including cutting VAT on home repairs from 20 per cent to 5 per cent.

This week Nick Clegg, the Deputy Prime Minister, will deliver a speech on the economy, in which he is expected to outline a "plan for growth", coinciding with the publication of unemployment and inflation figures that Downing Street sources are warning "will be bad".

The new plans emerged on the eve of Sir John Vickers's report on banking reform, to be published tomorrow, which will call for a partial ringfencing of banks' risky investment arms from high street retail banking.

The shift in policy will be seen as a further victory for the Liberal Democrat wing of the coalition, after Tory climbdowns on the NHS and free schools. In an interview this year with The Independent on Sunday, Vince Cable, the Business Secretary, set out his proposal for "shifting the emphasis on to growth-enhancing interventions". MPs on the right of the Conservative party have also called for a Plan A+, based largely on tax cuts, though the issue of scrapping the 50p rate for those earning over £150,000 remains politically toxic.

Mr Osborne has been under pressure to act after figures showed that the economy grew by only 0.2 per cent in the three months to June, while unemployment jumped by 38,000 to 2.49 million in same quarter.

The Chancellor has also been urged to introduce tax cuts for low earners, including speeding up a planned raising of the lower threshold of income tax to £10,000 in the new year.

On Friday, appearing alongside Ms Lagarde at Chatham House in London before the G7 summit in Marseilles this weekend, Mr Osborne insisted that his Plan A was on track: "Britain will stick to the deficit plan we've set out. It's the rock of stability on which our recovery is built."

Nevertheless, ministers and government advisers hope President Obama's initiative, unveiled last week, will clear the way for a new growth plan. In his speech on Wednesday, Mr Clegg will say that the Government has a "key role to play in stimulating growth". On Thursday, ministers will use a major conference to warn councils and business leaders in the new Local Enterprise Partnerships that they are at the "front line" of the economic recovery.

One cabinet minister said: "You do what you can to really move along infrastructure investment. There's vast infrastructure needs, transport, energy, broadband, all the rest of it."

A £530m plan to take super-fast broadband to rural areas by 2015 could be brought forward. At the same time, Chris Huhne, the Energy Secretary, is anxious to accelerate his Green Deal to create 100,000 jobs in making Britain's homes more energy efficient. It is seen as a flagship policy to generate demand, which the private sector will meet. "The Green Deal is a good example where you create a market, and government intervenes," a senior cabinet source said.

Officials have been told by Philip Hammond, the Transport Secretary, to draw up plans to upgrade diesel-powered Cross Country Voyager trains to run on electric lines. If feasible, this could mean a £120m contract for the train builder Bombardier, which has a factory in Derby but lost the £1.4bn Thameslink contract to German rival Siemens, putting 1,400 jobs at risk.

However, it is not all plain sailing. The Government's Employment Red Tape Challenge to make it easier for firms to hire and retain staff has become the subject of inter-Whitehall wrangling after it emerged that the Treasury and HM Revenue and Customs – which oversee payroll and tax laws – were excluded from it. Ministers at the Department for Business, Innovation and Skills "hit the roof" when they discovered the exemption.

Start your day with The Independent, sign up for daily news emails
Sport
England's women celebrate after their 3rd place play-off win against Germany
Women's World CupFara Williams converts penalty to secure victory and bronze medals
Arts and Entertainment
Ricardo by Edward Sutcliffe, 2014
artPortraits of LA cricketers from notorious suburb go on display
News
newsHillary Clinton comments on viral Humans of New York photo of gay teenager
Arts and Entertainment
The gang rape scene in the Royal Opera’s production of Gioachino Rossini’s Guillaume Tell has caused huge controversy
music
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Sales Administrator - Spanish Speaking

£17000 - £21000 per annum: Recruitment Genius: This is a fantastic opportunity...

Recruitment Genius: Sales Administrator - German Speaking

£17000 - £23000 per annum: Recruitment Genius: This is a fantastic opportunity...

Recruitment Genius: Sales Administrator - Japanese Speaking

£17000 - £23000 per annum: Recruitment Genius: If you are fluent in Japanese a...

Recruitment Genius: Graphic Designer - Immediate Start

£16000 - £25000 per annum: Recruitment Genius: This is a fantastic opportunity...

Day In a Page

The Greek referendum exposes a gaping hole at the heart of the European Union – its distinct lack of any genuine popular legitimacy

Gaping hole at the heart of the European Union

Treatment of Greece has shown up a lack of genuine legitimacy
Number of young homeless in Britain 'more than three times the official figures'

'Everything changed when I went to the hostel'

Number of young homeless people in Britain is 'more than three times the official figures'
Compton Cricket Club

Compton Cricket Club

Portraits of LA cricketers from notorious suburb to be displayed in London
London now the global money-laundering centre for the drug trade, says crime expert

Wlecome to London, drug money-laundering centre for the world

'Mexico is its heart and London is its head'
The Buddhist temple minutes from Centre Court that helps a winner keep on winning

The Buddhist temple minutes from Centre Court

It helps a winner keep on winning
Is this the future of flying: battery-powered planes made of plastic, and without flight decks?

Is this the future of flying?

Battery-powered planes made of plastic, and without flight decks
Isis are barbarians – but the Caliphate is a dream at the heart of all Muslim traditions

Isis are barbarians

but the Caliphate is an ancient Muslim ideal
The Brink's-Mat curse strikes again: three tons of stolen gold that brought only grief

Curse of Brink's Mat strikes again

Death of John 'Goldfinger' Palmer the latest killing related to 1983 heist
Greece debt crisis: 'The ministers talk to us about miracles' – why Greeks are cynical ahead of the bailout referendum

'The ministers talk to us about miracles'

Why Greeks are cynical ahead of the bailout referendum
Call of the wild: How science is learning to decode the way animals communicate

Call of the wild

How science is learning to decode the way animals communicate
Greece debt crisis: What happened to democracy when it’s a case of 'Vote Yes or else'?

'The economic collapse has happened. What is at risk now is democracy...'

If it doesn’t work in Europe, how is it supposed to work in India or the Middle East, asks Robert Fisk
The science of swearing: What lies behind the use of four-letter words?

The science of swearing

What lies behind the use of four-letter words?
The Real Stories of Migrant Britain: Clive fled from Zimbabwe - now it won't have him back

The Real Stories of Migrant Britain

Clive fled from Zimbabwe - now it won’t have him back
Africa on the menu: Three foodie friends want to popularise dishes from the continent

Africa on the menu

Three foodie friends want to popularise dishes from the hot new continent
Donna Karan is stepping down after 30 years - so who will fill the DKNY creator's boots?

Who will fill Donna Karan's boots?

The designer is stepping down as Chief Designer of DKNY after 30 years. Alexander Fury looks back at the career of 'America's Chanel'