The Grand Union canal would link to the Great Ouse
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The first section of a new canal between Bedford and Milton Keynes could be cut late next year.
Bedford Borough Council has voted in favour of allowing construction company Balfour Beatty to use clay from a local wood in exchange for cutting the canal.
The clay is needed to build embankments along a section of the A421.
The council hopes the 500-yard section could be cut by Christmas next year, with planning approval needed by the end of next September.
Bedford mayor Frank Branston described the decision as "a big step forward".
The proposal before the council was for Balfour Beatty to dig clay for the embankments from the council-owned Berry Wood at Wootton.
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By Christmas 2009 the first length of the first new canal to be built in Britain in 200 years could be cut
Frank Branston, Bedford mayor
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Councillors considered four options of how the clay would be paid for.
One would have seen the company paying the council £100,000 for the clay while another would have led to the hole left after its removal being turned into a lake.
Balfour Beatty would then have been required to build infrastructure to transform the lake into a leisure facility.
However Mr Branston said the option which won favour with councillors was for Balfour Beatty to cut the first 500-yard length of the 20-mile canal linking the River Great Ouse at Bedford with the Grand Union Canal at Milton Keynes in return for the clay.
He said the canal idea would involve building it in stages to match development in the area.
Writing in his blog, he said: "Getting it done will require the Bedford-Milton Keynes waterway group to get planning permission and technical details approved by 30 September next year.
"By Christmas 2009 the first length of the first new canal to be built in Britain in 200 years could be cut."
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