Ministers fight to keep capital funds

MINISTERS are fighting hard to defend capital projects - roads, schools, hospitals and rail programmes - as the Government's new-style spending round moves towards its climax.

With the construction industry flat on the floor, ministers are arguing that building and infrastructure projects must be protected to avoid worsening the recession - but are acknowledging that unpalatable decisions to cut social security benefits and other current expenditure will be needed to achieve that.

The desire to preserve capital as against current spending in part explains ministers' determination to screw down public sector pay - a message underlined yesterday by John MacGregor, Secretary of State for Transport, who said some public sector pay demands were 'wholly unrealistic'.

'There has to be restraint on public sector pay. We are going to be very tough on public sector pay this year and I think that's absolutely right,' he said on BBC Television's On the Record. 'One of the difficult choices you always have in government is the choices between current and capital, and I think it's important we maintain as much of our capital programme as we can'. It was 'very important for the economy', but 'in a situation like this you have to contain your ambitions'. Some projects might have to be put off to later years.

Mr MacGregor is defending the transport programme as Michael Howard, the Secretary of State for the Environment, is attempting to protect housing, with most local authority housing expenditure now limited to repair and renovation.

Sir George Young, the housing minister, has pointed to the manifesto commitment of another pounds 300m for housing associations. He told an Institute of Housing meeting at last week's Conservative Party conference that he was also very conscious that housing associations were raising private finance to match government money and the continuity of the programme was important to housing associations' future standing with the banks and developers.

Health ministers too want to protect capital - in part because the Tomlinson report on London health care will require some spending to achieve the closures and changes recommended.