British Treasury chief says new government will significantly reduce record deficit

UK Treasury chief to begin major spending cuts

LONDON — Britain’s new coalition government will outline spending cuts of some 6 billion pounds ($8.9 billion) this year in an emergency budget next month, Treasury chief George Obsorne said Monday.

Osborne said the June 22 budget will help the country get to grips with a record deficit, as he also unveiled a new independent watchdog to keep an eye on the government’s spending plans.

“Deficit reduction and continuing to ensure economic recovery is the most urgent issue facing Britain,” Osborne said, holding his first news conference since assuming his post. “This is unprecedented speed for a spending round, but we need to get moving, and every day comes at the cost of more wasteful spending.”

Britain is grappling with a record 163 billion-pound ($235 billion) budget deficit following a deep 18-month recession during which about 1.3 million people were laid off and tens of thousands of people lost their homes.

The Trades Union Congress condemned the cuts, saying the economy was still too fragile to “wield the ax,” echoing former leader Gordon Brown’s Labour Party, which had argued in campaigning for the recent general election against cuts to spending this year.

Osborne’s Conservative Party, led by Prime Minister David Cameron, maintains that greater austerity is needed quickly to restore international business confidence in Britain and that well-placed cuts could support economic growth.

The junior partners in the new coalition, the Liberal Democrats, had pledged to hold off cuts by a year to give the economy some breathing room, but were forced to accept the Conservatives’ plan as part of their deal to form a government last week.

Osborne’s deputy, Liberal Democrat lawmaker David Laws, said he discovered a handwritten note of advice from his predecessor, Labour legislator Liam Byrne, in his new office, which read: “Dear Chief Secretary, I’m afraid to tell you there’s no money left.”

Laws said that was “honest but slightly less helpful advice than I had been expecting.” Byrne said the note had been meant as a joke.

Still, at close to 12 percent of gross domestic product, Britain’s budget deficit is the highest in the European Union, worse than even crisis-hit Greece. In addition, Britain’s total accumulated debt is expected to rise to 90 percent by the end of next year.

While total borrowing in Greece is still far higher than in Britain when compared with the size of the economy, Osborne said that country’s plight should act as a warning.

“Greece is a reminder of what happens when governments lack the willingness to act decisively and quickly, and when problems are swept under the carpet,” he told reporters.

But Monument Securities analyst Stephen Lewis cautioned against drawing comparisons with Greece, warning of self-fulfilling political rhetoric.

“The Chancellor may be unaware how dangerous is the ground he is now crossing,” Lewis said, warning that negative talk could send the pound lower.

Osborne added that he will reexamine all spending approvals made by the former government since Jan. 1 “to ensure that they are consistent with the government’s priorities and good value for money.”

Osborne, who at 38 became the youngest Treasury chief in 120 years last week, said that most of the 2010 savings would be used to reduce borrowing and some would be reallocated to support the job market.

The new government will use fiscal and economic forecasts from the newly created Office for Budget Responsibility as the basis for next month’s budget. Alan Budd, a former member of the Bank of England’s monetary policy committee, has been appointed to head the new body, which will also judge whether the government’s policies in each budget report will meet their stated aims.

Associated Press Writer David Stringer contributed to this report.

(This version CORRECTS figure in graf 4 to 163 billion.)