From hospitals to free swimming, government halts spending

LONDON (Reuters) - The Conservative-Liberal Democrat coalition said on Thursday it would cancel or suspend 11.5 billion pounds of government projects, offering a taste of the deficit reduction pain that lies ahead.

Chief Secretary to the Treasury Danny Alexander arrives for a cabinet meeting at Number 10 Downing Street in London June 3, 2010. REUTERS/Toby Melville

Lib Dem Chief Secretary to the Treasury Danny Alexander accused the previous Labour administration of spending money it didn’t have and said the measures were necessary to tackle the country’s biggest peacetime fiscal gap.

Alexander’s statement followed a review of all 217 government projects approved since the start of the year at a total cost of 34 billion pounds.

“We are determined to tackle the unprecedented budget deficit and bad financial management we have seen over the past decade,” he told parliament.

“I have taken the decision to cancel certain projects that do not represent good value for money, and suspend others pending full consideration in the spending review.”

The one-month-old coalition, due to present an emergency budget on Tuesday and a detailed spending review later in the year, said 12 programmes that would have cost nearly 2 billion pounds would be scrapped.

A further 12 programmes, costing 8.5 billion pounds, would be suspended.

The frozen projects include a 7 billion pound contract for search and rescue helicopters. The preferred bidder -- a consortium including French defence firm Thales, Sikorsky and Royal Bank of Scotland -- must wait to see if it gets the nod.

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In a sign of what cutting a deficit that stands at 156 billion pounds will mean in practice, the government cancelled a 450 million pound project for a hospital in northern England, scrapped guarantees to help the unemployed find work and shelved road improvements.

A visitor centre at prehistoric monument and UNESCO World Heritage Site Stonehenge also fell under the axe -- as did free swimming for the young and old.

“We have also found another spending black hole in the previous government’s plans -- projects had been approved with no money in place to pay for them,” Alexander said.

He said the government would have to cancel at least 1 billion pounds of unfunded commitments for 2010-11.

Economists expect heavy spending cuts across most government departments, as well as tax hikes, will be required to rein in a deficit running close to 11 percent of national output.

The scale of deficit reduction will be outlined in the June 22 budget. Labour, in power for 13 years until the May 6 election, had feared that slashing spending too fast would endanger Britain’s frail economic recovery.

The coalition argues that, given the market turmoil over the euro zone fiscal crisis, Britain needs to act swiftly to restore investor confidence and keep interest rates lower for longer.

An 80 million pound loan for Sheffield Forgemasters to help the company build a manufacturing facility for the nuclear industry was also cancelled.

The loan was announced in March by the former Labour Business Secretary Peter Mandelson, who said it would be complemented by funding from U.S.-based firm Westinghouse.

(Additional reporting by Matt Falloon, Kylie Maclellan and Avril Ormsby)

Editing by Susan Fenton, John Stonestreet