Tunnel sell-off to fund £2bn green boost

Chancellor Alistair Darling is expected to announce on Wednesday that the fund will be paid for from the proceeds of selling off the Channel Tunnel rail link.

Both he and Prime Minister Gordon Brown said at the weekend that state efforts to stimulate private investment would be central to the pre-election package.

But the Chancellor faced fresh pressure to make cuts today amid fresh concerns over the strength of the recovery and figures showing public spending at record levels.

Mr Darling promised a "sensible, workmanlike" Budget yesterday as he renewed his message that there would be no pre-election giveaways.

Better-than-expected tax and borrowing figures have given the Chancellor more leeway than anticipated - up to 12 billion, according to experts.

But he said voters expected him to be realistic about the UK's precarious economic recovery and prioritise measures to stimulate growth.

As he put the finishing touches to his Budget, a business group predicted that the UK's economic recovery would not pick up pace until the middle of next year.

The CBI said the end of stimulus measures such as the reduction in VAT and the car scrappage scheme and subdued consumer spending meant the economy would remain fragile in the medium term.

A leading forecaster, the Ernst & Young Item Club, said Mr Darling needed to find another 10 billion through a "credible, detailed and more aggressive plan", the Times reported.

And, adding to the pressure for cuts, official figures were reported to show Government spending now accounted for more than half of the UK economy for the first time.

Statistics from the Organisation for Economic Cooperation and Development (OECD), the Daily Telegraph said, put the figure at 52 per cent of GDP, one of the highest among developed nations.

Mr Darling is not expected to announce any details of planned spending cuts as Labour believes immediate cuts - as advocated by the Tories - would wreck the recovery.

But the Financial Times reported that he would identify which Whitehall departments would bear the brunt of savings from 2011, ahead of a spending review planned for the autumn.