£2bn Labour projects axed

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The Government axed £2 billion of projects agreed in the last months of the outgoing Labour administration today in a bid to cut the budget deficit.

Treasury Chief Secretary Danny Alexander set out a total of 12 commitments to be halted - accusing Labour of "spending money it simply did not have".

Ministers had embarked on a "pre-election spending spree in the full knowledge that the government had long since run out of money"," he told MPs.

Among victims of a review of all spending decisions taken since January was an £80 million loan to Sheffield Forgemasters and public support for a visitor centre at Stonehenge.

A £450 million hospital investment was also deemed to be among projects which were not affordable, did not represent value for money or were not a Government priority.

Another 12 programmes, worth £8.5 billion, have been suspended while they are considered as part of the wider Whitehall spending review.

Mr Alexander said he had identified a £9 billion "black hole" of spending commitments reliant on underspends and reserve funds that were not available.

At least £1 billion of those would also have to be cancelled, he indicated.

"We are determined to tackle the unprecedented budget deficit and bad financial management we have seen over the past decade, but are equally determined to do this in a way that is fair and responsible," Mr Alexander said.

"As a result of the poor decisions made by the previous Government, I have taken the decision to cancel certain projects that do not represent good value for money, and suspend others pending full consideration in the Spending Review.

"We have also found another spending black hole in the previous Government's plans - projects had been approved with no money in place to pay for them. I am determined to deal with this problem head-on and ensure we never see this kind of irresponsible financial planning in Government again".

The review of 217 projects - totalling £34 billion - was ordered last month amid coalition claims that Labour had made a series of last-ditch pre-election promises.

Deputy Prime Minister Nick Clegg, who is a Sheffield MP, expressed his "regret" that the Forgemasters funding - to support the civil nuclear supply chain - was to be scrapped.

But the Liberal Democrat leader said the blame lay with Labour ministers' "breathtakingly cynical way of raising false hope" in the city ahead of the May 6 poll.

Union leaders had warned that withdrawing the loan would lead to thousands of job losses and jeopardise Britain's preparations to build a new generation of nuclear power stations.

Among NHS projects cancelled was a plan to build a new £450 million hospital north of Stockton to replace outdated general hospitals.

The £2 billion figure included £370 million of cutbacks to employment measures such as the Future Jobs Fund already announced as part of the Government's £6 billion savings programme.

By far the biggest commitment put on hold was a £7 billion PFI deal for a new generation of search and rescue helicopters operated by the Ministry of Defence and the Coastguard.

Shadow chief secretary Liam Byrne said the announcement was a "moment of abject humiliation" for Mr Alexander as it flew in the face of several former Liberal Democrat policies.

The projects detailed amounted to 0.05% of Government spending, "nailing the myth" that Labour had operated a "scorched earth" policy in the run-up to the election, he said.

"Both the country and the Liberal Democrat party beyond will be aghast this afternoon at your attack on jobs, your attack on construction workers, your attack on the industries of the future and the cancellation of a hospital.

"Let me ask you: what could be more front line than this? In five minutes this afternoon you have reversed three years of Liberal Democratic policy of which you were the principal author.

"What a moment of abject humiliation."

TUC general secretary Brendan Barber said: "This announcement appears to go against everything the Government has said about its cuts programme.

"Cutting a further £2 billion from public contracts with the private sector will shrink the economy, rather than stimulate private sector growth - and will do nothing to rebalance the economy.

"Ending funding for job guarantees will throw people on the dole and goes against a desire to be fair.

"Particularly disappointing is the decision to cancel the loan to Sheffield Forgemasters to build components for nuclear power stations as it not only damages manufacturing but also threatens energy security and the transition to a low-carbon economy."

Mr Alexander said only the highest-priority hospital schemes would go ahead and the Education Secretary Michael Gove was also looking at the whole "building schools for the future" programme, which had been "heavily over-committed" and where "tough decisions" needed to be taken.

Among spending to have been spared the axe was that for flu pandemic medicines, some hospital projects, support for Post Offices and spending on "crucial military equipment" in Afghanistan, he told MPs.

Details of where another £1 billion of savings would be made from projects due to be funded from underspends would be set out in Tuesday's emergency Budget, he said.

"There was no reason to suppose that underspends would have occurred on anything like that scale and there is insufficient in the contingency to cover the remainder.

"The last government committed to spend money it simply didn't have. It made commitments it knew the next government could not fulfil and in doing so cynically played politics with the hopes of many communities," the Chief Secretary told MPs.

"The actions I've set out show that this Government will take responsible spending decisions - guided by fairness and the overriding need to tackle the deficit.

"We didn't make this mess but we will clean it up."

The TaxPayers' Alliance pressure group welcomed the cuts.

Chief executive Matthew Elliott said: "This announcement may be controversial but large-scale spending cuts must be made as soon as possible.

"Taxpayers are under no illusion - we cannot continue to live beyond our means as a nation and the Government must tighten its belt.

"These proposals represent real, sizeable ways to save money and it is hugely encouraging that the Government are facing up to the issue openly, honestly and swiftly."

But shadow business secretary Pat McFadden MP condemned the decision to halt the Forgemasters loan as "short sighted, damaging and wrong".

"The Sheffield Forgemasters proposal was never just about aid to one company. It was about the UK having an ambition to be a success in the growing world supply chain in civil nuclear power," he said.

"The new Government is tearing up the roots of future industrial success and employment growth. It exposes them as behaving like the very banks they like to criticise.

"A deficit reduction strategy needs to be accompanied by a plan for growth and future industrial success. With this statement the Government shows they have no such plan."