Whitehall told to seek private investment first

The Treasury will block all capital spending by Whitehall departments unless they have first considered whether the projects could be financed by the private sector, Kenneth Clarke, the Chancellor, announced yesterday.

Mr Clarke, in a speech to the annual CBI conference in Birmingham, said the order would mean that public money would be concentrated on the areas where it was most needed.

He made his announcement just before a Cabinet meeting which all but agreed public spending plans for the next three years. Downing Street said confidently that the details would be settled at a further Cabinet tomorrow.

Initial signs were that the Chancellor had been able to reduce the pounds 263bn planning total by pounds 5bn or more because of the faster than predicted fall in unemployment and lower than forecast inflation.

With Whitehall sources insisting that most of the path to a deal tomorrow had been cleared, the main hitch was still thought to be the social security budget. Earlier problems which had emerged between the Treasury and Gillian Shephard, Secretary of State for Education, were thought to have been overcome.

A big cut in the roads programme and a tight settlement for local authority expenditure are expected to be features of the deal when it is announced on 29 November.

John Major's weekly audience with the Queen was delayed for 30 minutes as the Cabinet attempted to complete its deliberations, which took almost four hours. But Downing Street said that the Cabinet had had ``a detailed and very productive examination'' of the spending totals between 1995-6 and 1997-8.

The Treasury was thought to have been taking a tough line with Peter Lilley, the Secretary of State for Social Security, insisting on a cap on housing benefit payments in the private rented sector and limits on modifications to the Child Support Act to deal with the grievances of fathers.

On private finance for public sector projects, Mr Clarke said that by the end of this financial year half a billion pounds will have been brought in under the Private Finance Initiative launched last year. Although most projects have been in transport, Mr Clarke said: ``The opportunities for private finance are almost limitless and spread right across government. Those departments who take up the challenge will be able to deliver more projects than those who do not.''

Projects already under way range from privately financed prisons and water and sewage projects to the pounds 150m replacement of the National Insurance Recording System, one of the largest computer systems in the country. Mr Clarke said that expansion of private financing would mean fewer ``scandalous'' over-runs.

He said that in PFI projects, the private sector must genuinely assume risk without guarantees that the taxpayer will foot the bill if things go wrong but that the returns would be greater than in traditional public sector projects.

Howard Davies, director general of the CBI called for a private finance Bill in place of the aborted attempt to privatise the Post Office. It would allow motorway tolls and give grant-maintained schools more borrowing powers.

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