George Osborne unveils £6.25bn spending cuts

The coalition government today outlined more than £6bn of immediate spending cuts, most of which will be used to reduce Britain’s £156bn fiscal deficit, which is now the highest in the EU.

George Osborne, the chancellor, and his Liberal Democrat deputy, David Laws, declared that there was an urgent need to act as they outlined plans to scrap child trust funds and freeze civil service recruitment.

The Conservatives and Lib Dems had clashed during the general election campaign over the wisdom of imposing £6bn of spending cuts this year from Whitehall efficiency savings.

The Lib Dems, who warned during the campaign that the cuts would “undermine the much-needed recovery”, now believe that the debt crisis in the eurozone shows the need for early action.

David Laws, the chief secretary to the Treasury, whose first act in office was to scrap his chauffeur-driven Jaguar, said: “We cannot afford to continue to increase public debt at the rate of £3bn each week. “Our huge public debts threaten financial stability and if left unchecked would derail the economic recovery. Public borrowing is only taxation deferred, and it would be deeply irresponsible to continue to accumulate vast debts which would have to be paid off by our children and our grandchildren for decades to come.”

The plans will lead to £6.243bn of cuts this year. But £500m of that will be reinvested in apprenticeships, further education and social housing, which means that around £5.7bn will be directed towards paying down the fiscal deficit this year.

The main cuts are:

• Scrapping government contributions to the Child Trust Fund, saving £320m this year and £520m next year. Contributions at birth will be reduced from £250 to £50 for better off families and from £500 to £100 for lower income families; and contributions at the age of seven will be stopped this August. From next January, all contributions at birth will be stopped.

• A civil service recruitment freeze will apply across all government departments and agencies. There will be a few exceptions such as the graduate fast stream already underway.

• Civil service pay remits for this year will have to be approved by Laws. Any central government pay package above the prime minister’s salary will have to be approved by Laws. David Cameron’s voluntary pay cut means the threshold will be reduced from £150,000 to £142,500.

• Ministers will be banned from having a dedicated chauffeur-driven car. The only exceptions will be on security grounds. Laws said: “Ministers will be expected to walk or take public transport where possible, or use a pooled car. The pooling of cars will allow big savings to be made.”

• Full first-class travel, which cost £45m in 2008-09, “should be avoided by public servants wherever possible”.

• Quangos will have their budgets cut by £600m.

• Efficiency savings, identified on behalf of the Tories by Sir Peter Gershon and Dr Martin Read, will lead to cuts of £1.15bn in discretionary areas like consultancy and travel costs; £95m through savings in IT spending; and £1.7bn from delaying and stopping contracts and projects with the 70 major suppliers to government.

• £1.165bn savings from local government which will be achieved by reducing grants to local authorities. The government says it will give local authorities greater flexibility over their budgets by removing restrictions on £1.7bn on grants in 2010-11.

• The Treasury issued a list of cuts to the budgets of 15 Whitehall departments plus the devolved administrations in Scotland, Wales and Northern Ireland. The biggest casualty is the business department which faces cuts of £836m, though the net figure is £636m because it will receive £200m of the £500m for job training.

Osborne said: “We have conducted the fastest and most collegiate spending review in recent history. That is what this new government is all about.

“Rolling up our sleeves, getting on with the job, working together in the national interest, delivering on our promises, getting a grip. There were many who said it couldn’t be done. That we alone in Europe were concerned about debt. That only cuts to frontline services were feasible because all the efficiencies possible had already been found.

“We have comprehensively demolished all of these arguments. I am not claiming that it has been easy. We have worked incredibly hard over the past week.”

The government softened the blow by announcing that extra areas had been protected. Osborne had said that any savings identified in the NHS, defence and overseas aid budgets would be reinvested in those departments. That list was expanded today to include schools, Sure Start centres for young children and education spending on 16 to 19 year-olds.

Labour dismissed the plans which they say sound similar to £15bn of efficiency savings due to be introduced this year anyway. Alistair Darling, the shadow chancellor, said: “The Liberal-Conservative coalition have got to come clean on the detail of what these cuts mean. Today they dodged the House of Commons, because they didn’t want to have to explain the real impact on firms and families.

“Today, George Osborne wouldn’t say how many jobs this package would cost. But it is already clear that these cuts will seriously affect support for business, mean less jobs for young people, and hit student places for this September.”