Coalition government axes £2bn of projects

The coalition government has cancelled 12 projects totalling £2bn agreed to by the previous Labour government since the start of 2010.

These include an £80m loan to Sheffield Forgemasters and new programmes for the young unemployed, Chief Secretary to the Treasury Danny Alexander told MPs.

Mr Alexander said the cuts were necessary to tackle the budget deficit and would be done in a "fair" way.

Labour accused him of an "attack on jobs" and industries of the future.

But Mr Alexander said the previous government had gone on a "pre-election spending spree in the full knowledge that the government had long since run out of money".

He said a further 12 projects with a value of £8.5bn approved since January would be suspended or referred for consideration by the spending review process over the coming months.

They included the libraries' modernisation programme and a £7bn PFI deal for a new generation of search and rescue helicopters, which the Treasury says will be reviewed "as a matter of urgency".

He told MPs they wanted to tackle the budget deficit and what he called "bad financial management" in a way that was "fair and responsible".

"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 12 projects were axed - and a further 12 suspended - after a review of 217 projects worth £34bn was ordered, amid claims the previous Labour government had embarked on a pre-election "scorched earth" spending policy.

In an angry response, shadow chief secretary Liam Byrne accused the Lib Dem minister of a U-turn over public spending and asked how many jobs would be lost as a result.

He told Mr Alexander: "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."

He also said the spending projects being axed, which amount to a tiny fraction of total government spending, "nailed the myth" that Labour had operated a "scorched earth" policy.

The £2bn includes £370m of cuts to government employment schemes that had already been announced as part of a separate plan to cut £6.2bn of public spending this year.

BBC chief economics correspondent Hugh Pym said the £2bn figure represented the total cost of the projects over their lifetimes - while the actual money saved this year amounted to less than £0.5bn.

Mr Alexander said only the highest priority hospital schemes would go ahead and they were looking at the "building schools for the future" programme which had been "heavily over-committed".

He said the government had approved a number of projects including funding for essential medicines in case of a flu pandemic, some hospital projects, support for post offices and spending on "crucial military equipment" in Afghanistan.

Sheffield Forgemasters was told in March it would receive the £80m loan to build a world-leading 15,000 tonne press to supply specialist components for the nuclear industry. It aimed to help the firm to bid for contracts on the next generation of nuclear power stations.

The BBC's Danny Savage said although cancelling the loan would not mean redundancies, it had been hoped the loan would help create 200 jobs at Sheffield Forgemasters and 200 jobs outside as well - one worker told him people were "absolutely gutted".

The announcement was met by cries of "shame" from Labour MPs.

Forgemasters Chief Executive Graham Honeyman said it was "a huge disappointment to all at the company," but he said it would now focus on other elements in its development.

Energy Secretary Chris Huhne said it seemed like "a very strong commercial deal" adding: "I don't see any reason why it shouldn't be able to be financed from financial markets. I believe that company can go ahead with that project."

Deputy Prime Minister Nick Clegg, a Sheffield MP, told the BBC he was "angry" that they had had to take the decision to cancel the loan "because of the dishonesty of the outgoing Labour government making promises to the people of Sheffield, raising false hopes among the people of Sheffield, making pre-election bribes with money that didn't even exist".

But TUC general secretary Brendan Barber said the withdrawal of the loan would damage manufacturing and threaten Britain's "transition to a low carbon economy".

A string of North East Labour MPs attacked Mr Alexander in the Commons over the decision to cancel the planned "super hospital" on Teesside, accusing the Tories and Lib Dems of tearing up their manifesto commitment to protect front line health spending.

He was also attacked for scrapping the Future Jobs Fund and the planned extension to a scheme guaranteeing work or training for the young unemployed. He said it would be replaced by a more effective scheme next year.

The chief secretary also announced an urgent review of inherited spending commitments for 2010-11, totalling at least £1bn, where funding was reliant on underspending.