Spending review: Osborne spells out government cuts

The Chancellor George Osborne took the despatch box in the House of Commons to deliver the biggest round of spending cuts since World War II.

Outlining a four-year plan to to save £81bn and put public services and the welfare state on a sustainable footing for the long term, the Chancellor said today was the day “Britain steps back from the brink and we confront the bills from a decade of debt.”

“To back down now and abandon our plans would be the road to economic ruin,” Mr Osborne said. “We will stick to the course. We will secure our country’s stability. We will not take Britain back to the brink of bankruptcy.”

The Spending Review outlined heavy cuts to government departments affecting services and jobs.

Mr Osborne confirmed that the Office for Budget Responsibility had estimated that 490,000 could be cut over the next four years.

Those on the highest incomes will contribute more towards the fiscal consolidation, not just in cash terms but also as a proportion of their income and consumption of public services combined, Mr Osborne said.

Welfare and benefits
£7bn in cuts were announced to Britain’s benefits bill including changes to child benefit and Council Tax benefit.

The Chancellor announced more welfare reforms, including a fresh crackdown on benefit fraud, aimed at making #7 billion worth of cuts on top of previously announced savings of £11bn.

The current “complex” system of means-tested working age benefits and tax credits will gradually be replaced by a Universal Credit that will “sharpen” work incentives and reduce fraud and error, Mr Osborne said.

But he pledged that low income families with children would be protected from the adverse effects of the “essential savings”.

One way this would be achieved, he said, was through an increase in the child element of the Child Tax Credit by a further £30 in 2011-12 and £50 in 2012-13 above inflation.

He defended the decision to axe child benefit for high earners and scotched speculation that it would be scrapped for all children over 16. Mr Osborne described the benefits package as “tough but fair”.

The package of welfare reforms includes freezing the working tax credit for three years from next April, changing working tax credit eligibility and ending payment of the mobility component of the Disability Living Allowance.

Heating allowance
Mr Osborne also pledged to maintain universal benefits for pensioners including free eye tests, prescription charges, bus passes, TV licences for the over 75s and winter fuel payments. The temporary increase in the Cold Weather Payment will be made permanent the Chancellor said.

The BBC will save the Treasury £340m a year – an equivalent to a 16 per cent saving in the BBC budget over the savings period. The licence fee will be frozen for the next six years and the corporation will take over funding of the BBC World Service and BBC Monitor.

Pension age
The Chancellor announced that people would have to work longer before receiving state pension. He told the House the state pension age for men and women will reach 66 by the year 2020 – four years sooner than previously expected.

He said this would involve a gradual increase in the state pension age from 65 to 66, starting in 2018.

As expected Mr Osborne confirmed that spending on the NHS, schools and overseas aid would be ring-fenced. But he said spending on police would fall by 4 per cent each year.

Overall, the Home Office budget will fall by an average of 6 per cent a year. The Ministry of Justice’s budget will be cut by 6 per cent a year. And the Law Officers Department will reduce its budget by a total of 24 per cent over the four years, with the Crown Prosecution Service “greatly reducing its inflated cost base”, Mr Osborne said.

Savings of 24 per cent in the Foreign and Commonwealth Office budget were also announced.

Spending Review Snowcloud
Read between the lines of the Chancellor's Spending Review in an interactive Snowcloud.

Schools
The Department for Education will make savings of only 1 per cent a year with cuts affecting central administration. Five educational quangos will also go.

Mr Osborne said there will be an increase in money for schools for each of the next four years with the schools budget rising from £35bn to £39bn.

A new £2.5bn pupil premium to support the education of disadvantaged children will be introduced and Sure Start services will be protected. The government will also introduce 15 free hours of early education and care for all disadvantaged two-year-olds.

Mr Osborne confirmed that spending on health would be ring-fenced and overseas aid would be protected.

Spending review 'conceals a lot of pain'
George Osborne is making much of having undershot Labour's notional departmental spending average of 20 per cent, writes Political Editor Gary Gibbon.

But that's a dubious comparison. And it conceals a lot of pain…on public sector jobs, public sector pensions, welfare, still on capital spending, despite the £2bn uplift.

There's detail still to come on the impact of the housing budget cuts, just what various constabularies intend to cut in terms of police numbers and much much else.

The £6bn forecast for administrative savings on top of all the savings already announced will be classified by some as a "heroic assumption" – for the record it's the one third cut the Tories promised in opposition. It will be largely jobs as that is what administrative costs are largely taken up by.

Labour says it will prove later on that the money flashed around by Nick Clegg last week for the pupil premium was raided out of other parts of the education budget and makes a nonsense of the schools budget being protected.

They'll also say that the tiny increase in spending on schools doesn't anyway match 0.7 per cent increase pencilled in by Ed Balls as schools secretary which he always said was necessary just to stand still with increasing school rolls.

Read more analyses of the spending review of the politics blog

The Chancellor also told the House that even the Queen was doing her bit by agreeing to a one year cash freeze in the Civil List.

“Going forward, she has also agreed that total Royal Household spending will fall by 14 per cent in 2012/13 while grants to the Household will be frozen in cash terms,” Mr Osborne said.

Read in full: Spending Review

Shadow chancellor Alan Johnson accused the Government of taking a “reckless gamble with people’s livelihoods” which could damage the economic recovery.

Amid noisy scenes in the Commons he declared: “We’ve seen people cheering the deepest cuts to public spending in living memory.

“For some members opposite this is their ideological objective…this is what they came into politics for.”

In response Mr Osborne said Mr Johnson was a “deficit denier”.