New US budget impasse risks federal shutdown

Government agencies and Pentagon at risk of closure unless Congress can reach spending deal

The US Congress is struggling to meet a deadline of midnight tonight to pass a budget bill authorising spending for the coming nine months or face the immediate shutdown of much of federal government.

All main government agencies in Washington were on alert last night for that possibility even as Capitol Hill negotiators hinted they might be able to bridge party differences on the bill and on a law to extend tax breaks for the middle classes.

"What we're going to try to do during the next few hours is work toward resolving some of the outstanding issues," Harry Reid, leader of the Democrat-controlled Senate said.

He acknowledged there were still obstacles to passing the £645bn spending bill before the midnight deadline but added: "Those issues should be resolvable."

With public approval of Congress at an all-time low, no-one is eager to see a shutdown and both sides have been manoeuvring to ensure the other side gets the blame should the lights go out across the government.

Similarly, neither the Republicans nor the Democrats want to be seen blocking the tax-cut measure that the White House says is vital to boost the economy. It should pad out the wallets of 160 million Americans by an average of about £645 over a year.

"The sooner we put this useless, partisan charade behind us, the sooner we can negotiate a solution that protects middle-class workers," Mr Reid said.

The payroll tax bill also includes measures to boost the number of weeks workers can claim unemployment benefits if they lose their job.

Spending for the current fiscal year should have been approved before the end of September. A shutdown – which would hobble all main government departments, including the Pentagon, and leave tens of thousands of workers unpaid – was averted on that occasion only when the two sides agreed an ad hoc three-month budget. It is that deal that is set to expire tonight.

Mr Reid, backed by the White House, balked at a draft bill tabled by the Republican-controlled House of Representatives on Wednesday because of the conditions attached.

They include steps to reimpose curbs on travel and dollar remittances to Cuba, introduced by President Obama, and the repealing of light bulb energy standards.

Separately, Democrats last night signalled they would consider jettisoning demands that the cost of the tax cuts should be funded by a surtax on people earning more than £645,000 a year.

However, Republicans seemed intent on using the payroll tax bill to accelerate the construction of an oil pipeline from Canada to the Gulf of Mexico recently put on hold by Mr Obama for environmental reasons.