UK set for biggest stimulus in decades for infrastructure

U.K. Chancellor of the Exchequer Rishi Sunak will promise record spending on infrastructure across the country, as the government is set to use a huge increase in borrowing to end the era of austerity.

The finance minister will pledge 600 billion pounds ($770 billion) by the middle of 2025, according to people familiar with the matter.

The money will be targeted on roads, railways, housing, digital connectivity and research and development, in a spending spree that is critical to Prime Minister Boris Johnson’s mission.

He won an election last December on a promise to revive the economically “left behind” regions of the U.K. and put an end to more than a decade of austerity following the 2008 financial crisis.

But the extra investment in the Budget, which Sunak will announce Wednesday afternoon, is set to be overshadowed by the growing coronavirus crisis. After the Bank of England announced an emergency cut in interest rates on Wednesday, Sunak is preparing to offer businesses and the healthcare sector financial relief to cope with the fallout.

Sunak will still insist his budget is delivering on the key promises Johnson’s Conservatives made to voters in last year’s election, “wherever they live.”

“This is a Budget for people right across the country—no region will be left behind,” Sunak said in a statement. “We will re-balance opportunities and lay the foundations for a decade of growth for everybody.”

The Treasury said the chancellor will triple the average net investment seen over the past 40 years, putting public investment at the highest levels in real terms since 1955.

One casualty of the plan may be the government’s so-called fiscal rules. They require day-to-day spending and revenue to be in balance or surplus in three years. Even before the virus crisis, there were doubts that ministers could meet the rules without tax increases or further cuts to public spending.

Sunak will announce a review of capital investment, and promise to unveil details of infrastructure plans in the months ahead. Programs already announced include a new high-speed rail link between London and the cities of Birmingham, Manchester and Leeds to the north, and 5 billion pounds for broadband internet services.

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The National Health Service has already been promised 34 billion pounds more in funding each year by 2023-24. Sunak is expected to focus extra support on the NHS to help it cope with the added demands of coronavirus.

The Budget could deliver the biggest fiscal stimulus for the U.K. since the early 2000s, when the Labour Party was in power. Bloomberg Economics says it could be a “watershed moment” for U.K. fiscal policy after a decade of austerity.

It expects new forecasts by the government’s fiscal watchdog to show the budget deficit widening to 3% of GDP by the fiscal year ending March 2024. That compares with a decline previously seen.