Autumn Statement: £5bn Investment Boost

Deeper cuts in some Whitehall budgets are to be used to fund an extra £5bn investment in schools and other capital projects.

Government departments will be expected to cut day-to-day spending by 1% (£950m) in 2013/14 and 2% (£2.5bn) in 2014/15.

But under plans to be confirmed in the Autumn Statement, health, schools, international aid, HM Revenue and Customs and nuclear decommissioning will all be protected.

The new investment will target transport, skills, science and education, with an extra £1bn for new academies and free schools.

The cuts only directly apply to England but there will be knock-on effects for Scotland, Wales and Northern Ireland under the complicated formula which determines UK funding.

Labour claimed the move was an effective admission that the coalition's spending cuts had been a "catastrophic mistake" that has weakened the economy.

But Tory sources insisted the coalition was spending billions more on capital projects than the Labour plans the Government inherited.

David Cameron said the money would "make our country work better" and Nick Clegg added that it would ensure useful cash is not tied up in Whitehall.

George Osborne has very little wriggle room

Local authorities will be exempt from cuts in the first year because they are already having to cut back to deliver a council tax freeze but they will have to meet the second target.

Meanwhile, the Ministry of Defence will have more flexibility to roll over its underspend to help ease pressure on their budget.

An overhaul of the heavily criticised Private Finance Initiative (PFI) and plans to approve new gas-powered electricity power stations are also expected in Wednesday's mini-budget.

Chancellor George Osborne will outline plans for a "faster and more transparent" system of private funding for public infrastructure projects.

It is understood that safeguards will be built into the new system, to be dubbed PF2, to make sure the costs and risks to the taxpayer are minimised.

These will include limits on the type of services, such as maintenance, that can be incorporated into contracts and more flexible terms allowing the state to opt out.

The taxpayer will also take a minority shareholding in the delivery companies to ensure a share in any profits and allow closer oversight.

Some previous projects have taken up to five years but a new, strict 18-month limit will be imposed on the procurement process and cash reallocated if the deadline is missed.

Efforts will also be made to make the scheme more attractive to long-term investors like pension funds in a bid to reduce the amount of debt involved in the financing.

The reforms will promise more transparency over future liabilities facing the taxpayer, placing a cap on the total charges controversially going "off balance sheet".

Mr Osborne will claim up to £2.5bn in savings has been identified from existing PFI contracts following his review of the "discredited" system.

Safeguards will be built into the new private finance scheme

Set up under John Major's government in 1992, PFI was expanded dramatically under Labour and has been continued under the present coalition administration.

It allows private firms to build, operate and maintain public facilities like hospitals, schools and courthouses under contracts lasting as long as 35 years.

But it has faced harsh criticism over escalating costs, inefficiency and "perverse incentives" to use it over more cost-effective funding methods.

The anticipated approval of up to 30 gas-fired power stations sparked accusations of a "reckless dash for gas" from environmental campaigners.

It is thought Mr Osborne will also try to encourage investment in gas with tax breaks and a new regulatory regime for "fracking" - the extraction of gas from shale.

This week's statement will contain further bleak news for welfare claimants as well as the wealthy in the form of a possible benefit freeze and big cuts to pension tax relief.

And economists expect the Chancellor to make an embarrassing climbdown over one of his key goals - to have debt falling as a share of national income by 2015/16.

He conceded at the weekend that it was "clearly taking longer to deal with Britain's debts, it's clearly taking longer to recover from the financial crisis than one would have hoped".

On the eve of the statement, the British Chambers of Commerce (BCC) became the latest respected body to slash growth forecasts.

It now expects the economy to grow 1.2% in 2013 and 1.8% in 2014, compared with previous estimates of 1.2% and 2.2% respectively.

The organisation demanded a "laser-like focus" from the Chancellor on growth-boosting measures such as delivering key infrastructure projects and creating a business bank.

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