Ministers Agree Further Spending Cuts With George Osborne


Chancellor George Osborne has reached agreement with Cabinet colleagues over the extent of cuts to their budgets.

Over the weekend Defence Secretary Philip Hammond and Business Secretary Vince Cable settled on the extent of their departments' contributions to the £11.5 billion of cuts for 2015/16 which will be announced on Wednesday.

A Treasury spokesman said: "We've completed the spending round savings early and without all the arguments you normally get.

"This shows our determination to take the tough decisions needed to deliver our economic plan and to turn Britain around."

Mr Osborne indicated there would be job losses at the Ministry of Defence (MoD) but no further reduction in military manpower under the settlement agreed with Mr Hammond.

The Chancellor also indicated that universal pensioner benefits such as the winter fuel allowance could face cuts after Prime Minister David Cameron's promise to protect them for the duration of this Parliament expires.

Mr Osborne reached agreement with the Defence Secretary on Saturday night, in a deal which will see fines paid by rogue bankers used to support the welfare of troops and veterans.

But the Chancellor said there would be further cuts in the number of civilians employed in the MoD.

He told BBC1's Andrew Marr Show yesterday: "It's going to involve some tough choices. The civilian headcount is going to have to reduce in our defence department, we are going to have to renegotiate, with some of our big suppliers, the contracts.

"But I can tell you there will not be a reduction in our military capability, we are not going to reduce the number of our sailors, soldiers and airmen.

"In fact we are going to be able to spend some more money on things like cyber, which is the new frontier in defence."

Mr Osborne promised £10 million a year to help uphold the military covenant: "We can do this in part because we are using the money we have taken off bankers involved in the Libor scandal.

"So the people who demonstrated the very worst of British values in the Libor scandal, in the City, are now supporting those who have demonstrated the very best of British values - our soldiers who gave so much to defend the country."

Mr Cable and his fellow Liberal Democrat Cabinet minister, Treasury Chief Secretary Danny Alexander, reached an agreement yesterday morning.

The Business Secretary was understood to be holding out until he was sure that he had reached a settlement which would safeguard measures to boost growth.

Before the 2010 election Mr Cameron pledged to protect universal pensioner benefits such as bus passes and winter fuel allowance for the duration of the Parliament.

But Mr Osborne would not commit to funding pensioner benefits beyond the 2015 poll, acknowledging "we have got to look at how we can afford them".

He said: "We made a very clear promise about this Parliament and the winter fuel payment in this Parliament. We believe in keeping our promises to the British people.

"When it comes to pensions and pensioner benefits, our society is getting older, we are going to be spending more on our older people, I want to make sure that's sustainable."

He added: "All those pensioner benefits, not the basic state pension, all those other pensioner benefits of course we have got to look at how we can afford them.

"I do think the simplest thing that we can do is to increase the pension age as we have done and set out those increases to 66 and 67.

"I don't want pensioners to be impoverished, I want pensioners to have a standard of living that reflects the fact they have worked hard and saved hard all their lives.

"I would focus instead on the fact that we are living longer than trying to cut the benefits that are going to pensioners."

He said that after 2015 "we will have to consider the promises we make for the next parliament but I think having looked at the way we have behaved in this Parliament, not only have we kept our promises but we have made sure that this country can afford the budget".

Labour would scrap winter fuel payments for the richest pensioners, and the party has also committed to stick to the day-to-day spending limits set by Mr Osborne in Wednesday's spending review.

But shadow chancellor Ed Balls indicated that a Labour government could borrow more to pay for infrastructure investment.

He told the Andrew Marr Show: "On capital spending, we're saying this year and next year, the Chancellor should be investing to get the economy growing.

"I'm not going to say to you today, two years ahead, what our judgment will be, we'll wait until nearer the time.

"But do I think there's a case, there could be a case, in two years' time, for still investing in roads and our infrastructure to get the economy moving and the deficit down, yes."

Asked if he had left the door open for more borrowing if Labour were in government, he said: "Yes, of course. The reason is because if the economy is still weak then, living standards are still falling, if youth unemployment is still high, and if there's still a case on our long-term infrastructure to get things moving with interest rates low, of course there's a case for doing that.

"It would be economically very foolish to deny that.

"If George Osborne had done that last year and the year before we wouldn't have had such a flatlining economy.

"I think he is so complacent and out of touch, I'm not going to make the same mistake."