Government axes Labour's 'breathtakingly cynical ' £80m loan to Sheffield Forgemasters

Chief Secretary to the Treasury Danny Alexander said the loan was among 2billion of spending commitments being pulled by the coalition Government.

Should the government have axed the loan? Join the debate and add your comment below

He accused Labour of "cynically playing politics" with the hopes of communities, and said the loans and grants being axed were either not affordable, or not value for money.

The money had been pledged by former Business Secretary Lord Mandelson shortly before the election, and would have funded a new press to allow the company to manufacture components for new nuclear power stations.

Mr Alexander said a further 12 projects with a value of 8.5 billion approved since January would be suspended or referred for consideration by the spending review process over the coming months.

They included the health research support service, the Kent Thameside strategic transport programme and the libraries' modernisation programme.

Deputy Prime Minister Nick Clegg, whose constituency is close to Forgemasters, said: "Sheffield Forgemasters is a great British company and as a Sheffield MP I regret that the Government cannot afford to support its expansion.

"The truth is that this loan was promised by the outgoing Labour Government as a calculated ploy to win support in Sheffield just ahead of the election – when they knew all along that there simply wasn't the money to keep to that pledge in first place.

"In front of TV cameras Labour made all sorts of lofty promises, but behind closed doors they left notes telling this Government that there was no money left. This was a breathtakingly cynical way of raising false hope of everyone in Sheffield. I believe Sheffielders should be treated with greater honesty.

"At a time when the Government is spending more in interest on debt than it does on defending the nation or policing our streets, we have to take difficult choices to make sure taxpayers' money is spent as wisely as possible.

"This Government will do all it can to help secure private finding for the expansion of Sheffield Forgemasters. I want us to give the company real help, not false promises of money that doesn't even exist."

Business Secretary Vince Cable also today pulled funding for Yorkshire Forward's 13 million Outokumpu project, which would have purchased and developed the Outokumpu site at Shepcote Lane, Sheffield, into an industrial park.

Dr Cable said Sheffield Forgemasters was "a worthwhile project" but that money had run out.

He said: "Sheffield Forgemasters is an important part of the UK's ability to develop a civil nuclear supply chain and its specialist forging skills are in demand globally.

"However, we have to find a balance between reducing the deficit while helping the economy to grow. Against a backdrop of reduced public spending, the Government's role is to create the right business environment and the right skills base. The Government cannot simply keep writing out cheques.

"The Government hopes the company secures private investment for this worthwhile project."

Mr Alexander insisted the decisions, though painful, had to be faced up to "in these difficult economic times".

He said only the highest priority hospital schemes would go ahead and the Education Secretary Michael Gove was looking at the whole "building schools for the future" programme, which had been "heavily over-committed" and where "tough decisions" needed to be taken.

"Together these decisions will significantly relieve burdens on departmental budgets that will be under major pressure in the spending review."

He added to Labour jeers: "While conducting this review, I have discovered yet another black hole in the books we inherited.

"I can tell the House that billions of pounds of spending commitments were made for this financial year that relied on underspends or access to the reserve.

"There was no reason to suppose that underspends would have occurred on anything like that scale and there is insufficient in the contingency to cover the remainder.

"I will therefore be cancelling at least 1 billion of commitments where there simply isn't the money to pay for them."

Action to tackle this further "hole" will be announced in next Tuesday's Budget.

"The last government committed to spend money it simply didn't have. It made commitments it knew the next government could not fulfil and in doing so cynically played politics with the hopes of many communities.

"The actions I've set out shows that this Government will take responsible spending decisions - guided by fairness and the overriding need to tackle the deficit.

"We didn't make this mess but we will clean it up," Mr Alexander pledged.

Shadow business secretary Pat McFadden MP condemned the decision to halt the Forgemasters loan as "short sighted, damaging and wrong".

"The Sheffield Forgemasters proposal was never just about aid to one company. It was about the UK having an ambition to be a success in the growing world supply chain in civil nuclear power," he said.

"The new Government is tearing up the roots of future industrial success and employment growth. It exposes them as behaving like the very banks they like to criticise.

"A deficit reduction strategy needs to be accompanied by a plan for growth and future industrial success. With this statement the Government shows they have no such plan."

Senior Tory Michael Fallon (Sevenoaks) said: "It's pretty clear that some of these projects were hastily scribbled cheques."

He said Labour should have carried out a comprehensive spending review last year, building in a "sustainable" reserve.

Mr Alexander said: "If there had been a spending review we wouldn't be in this position now.

"As it is, out of 34 billion of commitments that they made in that period we have had to cancel 2 billion and put 9 billion into the spending review.

"The choice is obvious: profligacy on the one side, responsibility on the other."

Labour's Jon Trickett (Hemsworth) said there would be "fury" at the decisions in his constituency where a local hospital needed 70 new beds.

"Any cancelled patient operations as a result of these decisions today will be laid entirely at your door," he warned.

Mr Alexander said: "I do understand that some of these decisions are difficult and indeed there will be genuine anger, which you express.

"But I have to say, that anger should be directed at your own frontbench who took irresponsible decisions that could not be afforded."

Mr Alexander appeared to suggest that jobs would be lost as a result of today's announcement.

He was asked by Tory Angie Bray (Ealing Central and Acton): "Do you agree that job losses are the tragic consequence of 13 years of mis-government and massive over-spend?"

Mr Alexander replied: "I'm afraid that is at least partly the case. The challenge that we face now is about how do we go about tackling the fundamental economic problems that this country faces."

Labour's Denis MacShane (Rotherham) told the Treasury Chief Secretary that the Sheffield Forgemasters decision would make Nick Clegg unpopular in his own Sheffield Hallam constituency.

"The Deputy Prime Minster can send back his Ipsa travel allowances, because he will never be welcome in Sheffield or South Yorkshire again," Mr MacShane said.

Next page: Full list of cancelled projects This is the list of projects cancelled by the coalition Government as part of its review of all spending decisions taken since January 1.

The figures given are for the lifetime cost of the project.

Stonehenge Visitor Centre (Department for Culture, Media and Sport) - 25 million.

Local Authority Leader Boards (Communities and Local Government) - 16 million.

Sheffield Forgemasters International Limited (Business Innovation and Skills) - 80 million.

Rollout of the Future Jobs Fund (Department for Work and Pensions) - 290 million*.

Six-month offer recruitment subsidies (DWP) - 30 million*.

Extension of Young Person's Guarantee to 2011/12 (DWP) - 450 million.

Two-year Jobseeker's Guarantee (DWP) - 515 million.

Active Challenge Routes - Walk England (Department of Health) - 2 million.

County Sports Partnerships (DoH) - 6 million.

North Tees and Hartlepool Hospital (DoH) - 450 million.

Local Government Local Authority Business Growth Initiative (LABGI) - 50 million*.

Outukumpu (Regional Development Agencies scheme) - 13 million.

These projects have been suspended:

Libraries Modernisation Programme (DCMS) - 12 million.

Sheffield Retail Quarter (CLG) - 12 million.

Kent Thameside Strategic Transport Programme (CLG) - 23 million.

University Enterprise Capital Fund (BIS) - 25 million.

Newton Scholarships (BIS) - 25 million.

Health Research Support Initiative (DoH) - 73 million.

Leeds Holt Park Well-being Centre (DoH) - 50 million.

Birmingham Magistrates' Court (Ministry of Justice) - 94 million**.

Successor Deterrent Extension to Concept Phase Long Lead Items (Ministry of Defence) - 66 million.

Search and Rescue Helicopters (MoD element) - 4.7 billion.

Search and Rescue Helicopters (Department for Transport element) - 2.3 billion.

A14 road (DfT) - 1.1 billion.

* Previously announced

** 2010-11 element previously announced