Doubts cast on government growth strategy after Treasury demands ban on new bank raising capital until 2014
Doubts were cast over a key part of the government's growth strategy due to be unveiled in the budget on Wednesday when it emerged that its new green investment bank will be unable to raise additional capital until at least 2014.
The government has pledged to establish the bank with �1bn of capital to fund clean energy and low-carbon projects.
A cabinet committee appeared to have resolved the long-running conflict over the bank's borrowing powers by agreeing to let it raise capital, so speeding up a range of green projects. There has been a long dispute over whether it should be a fully fledged investment bank that can borrow money and raise capital, or simply a finite fund.
The row over the bank is critical as ministers need to kick start a green technological revolution to create jobs and meet climate change targets through a low carbon energy infrastructure.
In the past few days the Treasury has intervened again to argue that the Office for National Statistics will classify the bank as part of the public sector, so undermining the government's deficit reduction strategy. The Treasury is insisting that a decision on whether the bank can borrow will not be made until the next spending review, in 2014, or even if it is agreed that it can borrow in principle, it will not be able to do so for the life of this parliament, with the decision reviewed in three years.
The bank is due to be launched in 2012. Some economic ministers argue that it is reasonable for it to start small.
George Osborne's "budget for growth" will also see a downgrading of the economic forecast by the Office for Budget Responsibility of 2.1% growth for 2011 and 2.6% in 2012. There will be a freeze on a planned 1p a litre rise in fuel duty and possibly more wide-ranging tax reforms. He will also endorse plans for a flat-rate pension of about �140 a week.
Announcements are expected on a replacement for the education maintenance allowance, planning law changes and enterprise zone incentives, confirmation that local authorities can retain business rates and a moratorium on new labour market regulations for small firms.
It is expected that Osborne, endorsed this week by the OECD economic thinktank, will formally rule out using a fuel stabilisation fund. The uncertainty in the Middle East is likely to lead to an increase in inflation forecast this year of 1% and a rise in the unemployment forecast.
The costs of any military intervention in Libya will come from the contingency reserve, but will lead to last-minute pressure from the Ministry of Defence to reverse some spending cuts.
There is Liberal Democrat and thinktank pressure for the government to curb youth unemployment by offering subsidised wages for employers who take on young people out of work.
One senior cabinet minister said the budget was not going to mark a serious change in economic policy. "We threw the dice in the spending review last year. That sets the course for the next four years."
Source: http://www.guardian.co.uk/politics/2011/mar/18/green-revolution-hit-curbs-bank
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