Rail link sell-off will raise £2bn for green energy projects

Chancellor insists budget measures will be 'sensible and workmanlike' rather than pre-election giveaway

Larry Elliott and Patrick Wintour
guardian.co.uk, Sunday 21 March 2010 20.28 GMT
Alistair Darling will use the proceeds from the state sell-off of the Channel Tunnel rail link to pay for a £2bn green infrastructure fund, in a budget designed to help business and tackle Britain's emerging energy crisis, Treasury sources said tonight.
The chancellor, who insisted today that Wednesday's package of measures would be "sensible and workmanlike" rather than a pre-election giveaway, plans to earmark the first tranche of cash from the privatisation of High Speed 1 for seedcorn capital for low-carbon energy projects.
The projects likely to benefit from the fund will include low-carbon cars, wind energy, green waste projects and a new generation of nuclear power stations. Darling will claim that the fund will create 400,000 low-carbon jobs by 2015.
Without the investment, Britain would struggle to meet its targets for the next decade of cutting CO2 emissions by 34% and producing 15% of its energy from renewable sources.
Darling will also announce that Britain's banks will contribute £250m to a £500m growth capital fund, designed to ease the financial pressures on the small and medium-sized companies most affected by the credit crunch.
"A little bit of government help can unlock a lot of private sector investment, and that is going to be the focus this week," Darling said in a BBC interview.
He picked out the creative industries and the pharmaceutical sector as two industries warranting extra government help.
The overall aim of the budget is to set out a pathway for growth, and to give fresh details on the deficit reduction plans outlined in December.
The chancellor ruled out rises in VAT and indicated he would dedicate any windfall from lower than expected borrowing figures and unemployment to investments in the future, rather than extra departmental spending.
"If a politician offered Christmas trees the voters would roll their eyes and say, 'Oh well, you know you've clearly lost touch'," he argued.
Darling is expected to provide fresh detail on how government departments are meeting efficiency targets, deemed to be essential to plans to halve the deficit by 2013-14.
He also insisted there would not be an emergency budget after the election, and said he hoped the 50p income tax rate on those earning £150,000 or more would be a temporary feature of the tax landscape.
The government is expected to announce fresh measures to reduce youth unemployment, as well as some extra cash for defence.
Overall, the budget will represent a shift to a more European interventionist industrial policy. Darling and Lord Mandelson, the business secretary, believe the case for a more hands-on approach has been made by the success of limited state support for Nissan in Sunderland, which last week announced plans for a new electric car, and for Sheffield Forgemasters, one of only two plants in the world capable of making reactor vessels for the nuclear industry.
The High Speed 1 rail link was taken into public ownership last year, and Darling intends to use £1bn from the sell-off to attract a further £1bn from the private sector for a fund to be set up in 2011.
Other state assets earmarked for sale include the Dartford crossing and the Tote.
Treasury sources said Britain needed to spend £165bn over the next 15 years to replace 40% of its energy infrastructure, and public money had to be found – even in tough financial times – to attract private finance for new and unproven technologies. Mandelson's business department are also looking at using more active industrial policies – such as government procurement policies and small-scale loans – to help business recover from the deepest and longest recession since the second world war.
The budget is likely to set a target for the percentage of government business that should go to SMEs and propose an updated form of 3i, set up after the war to provide venture capital for start-up companies. "The fund is needed to deal with the problem of barriers to entry for private sector investment in technologies perceived to be high risk", a Treasury source said.