UK Politics

Spending review: George Osborne 'secures deals' on 30% cuts

Chancellor George Osborne Image copyright PA
Image caption Mr Osborne will reveal his spending review later in the month

Four government departments have provisionally agreed to cut their spending by an average of 30% over the next four years, Chancellor George Osborne has announced.

The transport, local government and environment departments, plus the Treasury, have all agreed deals ahead of the spending review on 25 November.

The cuts will help the public finances back into surplus, he said.

A Treasury source told BBC News the agreements were "really good progress".

The departments will be expected to cut day-to-day spending over the next four years through a combination of efficiency savings and closing low value programmes.

Negotiations are continuing with others, the source added and it has been revealed there are plans for nine new prisons to replace old jails.

The chancellor has asked most parts of the government to come up with savings of between 25% and 40% by the end of the current parliament. A number of departments, including health and overseas aid, have had the bulk of their budgets protected.

In a speech in London, Mr Osborne warned that if the government does not control spending and reduce levels of national debt there is a risk of loss of confidence in the economy.

"I know some ask: why do we need this surplus?" he said. "I'll tell you why: to protect working people.

"A surplus will make our country more resilient, safe and secure. It means that next time we have the money to help us through the tough times when the storms come. Let me put it another way: if our country doesn't bring the deficit down, the deficit could bring our country down.

"That's why, for the economic security of every family in Britain, the worst thing we could do now as a country is lose our nerve."

Analysis by BBC chief political correspondent Vicki Young

After defeat in the Lords over cuts to tax credits George Osborne wants to restate the economic case for balancing the books. He's trying to get the message across that he's not reducing spending because of an ideologically driven desire to shrink the state, but because paying billions in debt interest is a waste of money and leaves the country vulnerable if there's another economic downturn.

Thirty per cent cuts sound dramatic but they apply only to day-to-day spending and in departments such as transport, the bulk of expenditure goes on infrastructure such as road and rail upgrades, which won't be affected.

The chancellor insists negotiations are going smoothly but many larger, high-spending departments are still to settle. Revealing that four departments have reached an agreement puts pressure on others such as Theresa May and Iain Duncan Smith.

The settlement with the four departments will see their day-to-day spending cut by 8% in each of the next four years. This will be achieved, Mr Osborne said, through a combination of further efficiencies, stopping some areas of spending and refocusing others.

He insists this will not affect capital spending and investment in infrastructure such as road and rail upgrades, flood defences and broadband.

During the election campaign, Mr Osborne ruled out increasing income tax, VAT and national insurance to help pay down the annual deficit, the difference between the money the government raises and what it spends, which is forecast to total £69.5bn this year.

Image copyright PA
Image caption Mr Osborne wants to bring the budget into surplus by 2019-2020

Paul Johnson, the director of the Institute of Fiscal Studies, said these pledges meant cuts of the magnitude being talked about would be needed if the government was to hit its target of reaching a budget surplus by 2019-2020.

And the Local Government Association said that while the settlement with the Department for Communities and Local Government did not include council funding, should town halls see a similar reduction in resources, it would leave them £16.5bn worse off by 2020.

One department which has not yet reached an agreement is the Department for Work and Pensions, from where Mr Osborne is seeking £12bn in welfare savings.

The chancellor is currently seeking new ways to save £4bn after the House of Lords rejected legislation paving the way for working tax credit cuts.

But Work and Pensions Secretary Iain Duncan Smith is strongly resisting attempts by the Treasury to make Universal Credit less generous by increasing the penalties faced by claimants who take extra work, the BBC understands.

Universal Credit is a new type of benefit designed to support people who are on a low income or out of work.

It is replacing six existing benefits - income-based jobseeker's allowance, income-related employment and support allowance, income support, child tax credit, working tax credit, and housing benefit.

'More about politics than economic'

Speaking on Monday, Prime Minister David Cameron said the spending review was about putting the security of UK families first.

"By making the further savings we need over the course of this parliament, we can prioritise what matters for working families - schools, the NHS and our national security," he told the CBI annual conference.

For Labour, shadow chancellor John McDonnell said the government's approach was "more about the politics than the economics". He accused ministers of getting their priorities wrong and undermining "those people who are working hard by cutting their tax credits".

He told the BBC Labour would stop tax cuts to the wealthiest and would continue to oppose cuts to corporation tax.

He insisted that Labour would make sure corporations and the wealthiest paid their taxes and warned that cuts to HMRC's budget would mean that even more tax collectors were laid off.

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