George Osborne will attempt to shore up the government's credibility on economic revival on Monday when he accepts a recommendation from Lord Heseltine to target billions of pounds before the next election at boosting regional growth.
As the Treasury braces itself for another downward revision of economic growth forecasts by the Office for Budget Responsibility before Wednesday's budget, the chancellor will hail Heseltine's "bold" idea to promote growth.
"We asked Lord Heseltine to do what he does best: challenge received wisdom and give us bold ideas on how to bring government and industry together," the chancellor will say. "He did just that, and that is why we are backing his ideas today."
The acceptance of 81 of 89 of Heseltine's recommendations in his report – No Stone Unturned – will be one of a series of announcements by the government in the runup to the budget. These are designed to show the government is focused on promoting growth and is still able to provide some help despite gloomy economic forecasts.
David Cameron and Nick Clegg are on Tuesday expected to unveil an extra childcare tax break of up to £1,000, though this may be delayed until after the next election. Osborne announced on The Andrew Marr Show on BBC1 that the reforms to the funding of long-term care for elderly people will be introduced in 2016 – a year earlier than planned – and he will also reduce the maximum amount anyone will have to pay to £72,000, rather than the £75,000 proposed by the health secretary, Jeremy Hunt, last month. Andrew Dilnot, who chaired a review into long term care, had proposed a cap of around £35,000.
The changes will be funded by introducing the new single-tier pension in 2016, a year earlier than planned, benefiting an extra 400,000 people. By abolishing the current two-tier pension system, the government will end the system of contracting out, thereby generating an extra £5.5bn for the exchequer in higher national insurance contributions (NICs). This will help to fund the increased costs in social care, estimated at £1bn a year, and the new pension system.
The Treasury, which is sensitive to charges that it massaged the figures at the time of the autumn statement last December to ensure that borrowing did not rise, went out of its way to show how the new single-tier pension will net additional revenues.
More than half (£3.3bn) will come from NICs by public sector employers, £0.6bn from NICs by private sector employers and £1.6bn from employee NICs. Treasury sources insisted this would "not be used as a net revenue raiser for the Treasury".
Osborne will try to move the focus on to growth on Monday when he accepts Heseltine's recommendation for a single pot for funding dedicated to promoting regional economic growth. In his report, Heseltine estimated that this would have been worth £49bn, covering six areas, if applied to the current spending period, which runs from 2011-12 to 2014-15.
The Treasury will, however, massively reduce the funding for the pot from Heseltine's £12.25bn annual amount to what is being described as the "lowish billions". It will cover three main areas – skills, though not apprenticeships, housing and transport. Heseltine said that local infrastructure, worth £14.8bn over the current spending period, employment services, business support services and innovation and commercialisation should be included.
Heseltine issued a cautious response at the publication of a report into the Greater Birmingham Project: the Path to Local Growth, his blueprint for the nationwide scheme. "It is important that government clarify its position as far as the single pot is concerned.
"I hope this report provides further reassurance to the chancellor that this approach is one that can unlock the potential of the regions and bring about a step-change in the performance of the UK economy."
Osborne used his appearance on The Andrew Marr Show to make clear that his budget would show the economy faces a lengthy recovery. "We have got to change a lot of things," he said. "It is painstaking work. It is difficult work. There is no easy answer to Britain's problems. There is no miracle cure because of course if there was a miracle cure it would have been deployed. It is just a lot of hard work dealing with Britain's debts, helping businesses create jobs and helping families who work hard and want to get on."
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