Announcing revised spending plans for 2015-16, Mr Osborne said that total managed expenditure would be pegged at 拢745bn, requiring 拢11.5bn to be cut from public spending.
He said that although the deficit had come down by a third since the coalition came to power, from 拢157bn that the previous government was borrowing to 拢108bn this year, at 7% it remained too high and more cuts were needed.
However, the government appears to have yielded to lobbying by the construction industry and the CBI and committed to 拢50bn pounds of capital investment in 2015.
The chancellor said: 鈥淔rom roads to railways, bridges to broadband, science to schools. It will amount to over 拢300 billion of capital spending guaranteed to the end of this decade. My right honourable friend the chief secretary will tomorrow [Thur 27 June] set out the next stage of our economic infrastructure plan, with specific plans for more than 拢100bn of infrastructure projects.鈥�
The capital spending boost will be funded primarily by ending automatic annual pay rises for civil servants, who have traditionally climbed the pay scale simply by staying employed.
Although the Department for Transport鈥檚 current spending will be cut by 9%, its capital budget will rise to 拢9.5bn, the largest rise of any government department. "And we will repeat that commitment for every year to 2020,鈥� said Mr Osborne.
鈥淲e鈥檙e announcing the largest programme of investment in our roads for half a century,鈥� he promised.
The Scottish government has also been given licence to increase its spending on capital projects from 拢29.bn to 拢3.3bn for 2015/16. This includes increased capital borrowing powers 鈥� set at 拢296m in 2015/16, up to an overall limit of 拢2.2bn 鈥� which are provided by the Scotland Act 2012.
Industry reaction
Civil Engineering Contractors Association director of external affairs Alasdair Reisner:
鈥淭oday鈥檚 spending round constitutes a welcome recognition of the case made by CECA that infrastructure spending is the most cost-effective means available to government to drive growth in the wider economy.
鈥淩ecent research produced by the Centre for Economic & Business Research for CECA has argued that the multiplying factor of infrastructure investment is such that the 拢100bn worth of projects should return more than 拢280bn to the economy. Our estimates indicate that this could support 200,000 construction jobs, and 600,000 jobs in the wider economy.
鈥淲hile we are keen to see the details of these projects, and recognise that this return will only occur through their actual delivery, industry should welcome today鈥檚 announcements as evidence that the Treasury has recognised the substantial multiplying factor infrastructure investment will return to the British public.鈥�
Federation of Master Builders chief executive Brian Berry:
鈥淭he government clearly now recognises the importance of investing in Britain鈥檚 infrastructure. Our housing stock is a vital part of that infrastructure; it is ageing and inefficient, yet the refurbishment sector remains a Cinderella in terms of public investment. The government can expect to raise an average of 拢4bn a year over the next 15 years from the European Emissions Trading Scheme and the Carbon Floor Price, but its flagship refurbishment programme, the Green Deal, has seen only 拢125m invested in incentives for homeowners to carry out this kind of work.
鈥淭he right package of direct investment and fiscal incentives could unleash the huge potential of this market. This would offer greater certainty and hope to the thousands of firms who work in this market, support jobs and growth for years to come and help future-proof Britain against the ever-rising price of energy. This should be a key plank of the government鈥檚 long-term economic plan, but at present there is no sign that it is.鈥�
WSP head of infrastructure Duncan Symonds:
鈥淕overnment appears to be recognising and addressing two fundamental issues that have long plagued this vital sector. One, that effective and efficient infrastructure is key to economic growth and the UK鈥檚 is below par, and two, that we can鈥檛 afford to lose specialist skills, confidence and momentum through long periods of inactivity between projects.
鈥淗owever, we mustn鈥檛 forget that while the big red tape projects are important, the smaller less sexy projects, like flood defences and maintenance programmes are equally important and in some case can have more immediate impact on the economy, creating jobs and building asset value.鈥�
Pinsent Masons infrastructure partner Patrick Twist:聽
"The Chancellor's speech on infrastructure announcement is yet another wish list. Announcing that additional money will be available for infrastructure projects over the rest of the decade doesn't mean it's going to be spent in the timescale that the chancellor is talking about.聽 Our economy might be out of intensive care but the infrastructure sector is on the verge of flat lining.
"We welcome the commitment to increase infrastructure spending but there's no certainty that these projects will be delivered. Additional funds for rail infrastructure would be very welcome and Network Rail undoubtedly would be able to ensure that those funds are spent on capital projects. There is a separate question here as to how these additional funds would need to fit in with the Office of Rail Regulation's requirement that Network Rail reduce their overall spend on assets.
"If the additional funds being available for roads are to be invested it will be important that Government doesn鈥檛 use overly complex procurement models.聽 Any new models will need to be as straightforward as possible. They will always need to address the intractable problem as to how road users may be required to take their car out of the garage.聽 Maybe Danny Alexander will have the answers tomorrow.聽
鈥淕iven that the Office for National Statistics said last week that April spend on infrastructure repair and maintenance was down 21.6% on March's figures, any news about future investment is obviously welcome.
鈥淗owever, the big numbers George Osborne has been talking about are not just a long way down the road but possibly over the rainbow too.聽
鈥淥verall it's too late to make real difference to the struggling construction sector in the short term as most of this money will be spent in the next parliament leaving the infrastructure sector in limbo until the next election. The lack of shovel ready projects has been the bane of the National Infrastructure Plan (NIP) since it was first announced. Today's announcement hasn't changed this position 鈥� it's groundhog day all over again."
Turner & Townsend public sector director Jon Poore:
"With its references to Britain's past as the place 'where the future was invented', the Chancellor's speech was long on vision, but short on detail.
"But the parallels were compelling 鈥� Britain is to spend more on roads than it has for half a century, and more on rail than it has since the Victorian era.
"Two and half years after the chancellor pledged to do something very similar with the National Infrastructure Plan, cynics will be queuing up to say they've heard it all before.
"That sense of deja-vu extends to the numbers being quoted. 拢50.4billion of capital investment in 2015/16 is exactly the same as that previously announced for 2014/15.
"Maintaining that level of government spending is admirable, but still fails to address the elephant in the room - the private sector's continued reluctance to heed the Chancellor's calls for it to invest in infrastructure too.
"The chancellor left many questions unanswered, including exactly which are his priority projects for infrastructure investment. The industry will be waiting anxiously for more clarity from Danny Alexander on Thursday."
CBI director-general John Cridland:
鈥淭he Chancellor has carefully walked a tightrope of protecting growth, while making sizeable savings to pay down the debt.
鈥淚nfrastructure is rightly singled out as the most effective engine for growth, as we urged. While the government talks a good game on infrastructure we鈥檝e seen too little delivery on the ground so far.
鈥淚t is critical we see a real pipeline of projects announced tomorrow, so investors know what schemes are going ahead, where and when.
鈥淥ther pro-growth areas including science, innovation, skills and exports have also been shielded from cuts. The 拢185m boost for the Technology Strategy Board 鈥� a crucial anchor for innovation 鈥� is particularly welcome.
鈥淲ith stretched government finances it is tough but necessary to target automatic progression pay in the public sector. It is encouraging to see that Government will have greater control of the welfare budget through the new cap.
鈥淭he next big challenge to address is the issue of ring-fencing to ensure that efficiency flows across all parts of the public sector.鈥�
Institution of Civil Engineers director general Nick Baveystock:
"The severe infrastructure investment cuts made in the 2010 spending review have begun to bite and are undermining the sector鈥檚 ability to stimulate growth or job creation, so we are encouraged to see a review with actual infrastructure investment at its heart. The increase in capital expenditure and funding certainty for key programmes appears to be positive news and could provide a platform for the industry to deliver on national needs more effectively.
"It is, however, not all good news for infrastructure. Departmental cuts will inevitably place further pressure on local authority budgets, with road maintenance likely to suffer the brunt. The poor condition of many local roads is a drag on the economy and the reactive 'quick fix' approach to maintenance is costly. Local authorities must increase efficiency and make the transition to cost efficient, planned maintenance going forwards. But first and foremost, we need a focused, joint central and local government programme to finally clear the backlog."
Ucatt general secretary Steve Murphy:
鈥淭he Chancellor鈥檚 statement means more misery for those who can least afford it and who are already suffering the most from government cuts.
鈥淐ouncil services have already been cut to the bone and a further 10% of cuts will see vitally needed services, being closed or cut back even further.
鈥淭here are five million people on council housing waiting lists; the proposed funding is a drop in the ocean to what is needed to solve the housing crisis. A crisis made far worse by the government鈥檚 previous cuts in funding for vital needed new social house building.鈥�
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