BUDGET: OSBORNE IS WARNED AGAINST 'SENSELESS' CUTS

First Published by: BBC

THE BUDGET IS LIKELY TO PROVE A CRUCIAL MOMENT FOR THE GOVERNMENT

The coalition government has been warned against making "senseless" cuts in spending ahead of Tuesday's Budget. Unions said harsh action was not needed, while Labour accused the Tories of cutting for ideological reasons and using the Lib Dem partners as "cover".  

But Deputy Prime Minister Nick Clegg said cuts were needed as the economic situation in Europe had got a lot worse in recent months. These would be "difficult" but done "with care", he insisted. In an e-mail to party members, the Lib Dem leader acknowledged that the Budget - expected to be dominated by announcements of spending cuts and tax rises - was likely to be "controversial".

But he said the "mountain of debt" that the coalition had inherited from Labour needed to be dealt with. "Without action on the deficit, we will carry on racking up unaffordable debts our children will have to pay off," he said. "And we will undermine the economic growth needed to create jobs and opportunities for all of us. There is nothing fair, liberal or progressive about any of that." 

The problem facing George Osborne is that he knows where we're spending all our money - public sector pay, pensions and benefits - but getting much of it back any time soon is going to be incredibly difficult. Take welfare. Yes, there are potentially huge savings but welfare reform is a long, slow slog. 

All the evidence from the United States, where they've already gone down this road, is that in the short term welfare reform actually costs money. Why? Because you have to provide more support, advice, training, childcare and so on to move people off benefits and back into work. Similarly with pension reform - Yes, you can reform the system for the future, but there's not much you can do about those already receiving what Nick Clegg called "gold-plated pension pots."

So while the coalition is keen to press ahead with pension and welfare reform, it isn't going to solve our immediate budget crisis. The bad news is that can only mean - in the short term - steeper cuts and tax rises elsewhere. Chancellor Mr Osborne has said the Budget will lay out "tough" but necessary plans to bring down borrowing - set to total £155bn this year - over the next four years. 

The opposition, unions and employer groups have all expressed their concerns ahead of the chancellor's statement at 1230 BST (1130 GMT), as speculation continues that it could contain a rise in VAT and a public sector pay freeze beyond the one year already proposed. Other measures expected to be included in the Budget are a levy on banks and an increase in non-business capital gains tax.

Mr Osborne has refused to say whether there will be a multi-year freeze on public sector pay, or confirm newspaper reports that welfare payments may be frozen although he has ordered a review of public sector pensions.

Prime Minister David Cameron has already suggested public sector pay and pensions will be hit, saying the deficit could not be dealt with by "just hitting either the rich or the welfare scrounger". Updating MPs on Monday on the outcome of last week's EU summit, Mr Cameron said there was "unanimity" among European leaders about the need for prompt action on cutting national deficits, saying any delay would entail "major risks" to economic recovery.

All EU countries were having to take "painful action" to cut borrowing but it was the "right thing to do" for future confidence and prosperity. And Mr Clegg insisted that while "cuts must come", they were born out of economic necessity not driven by political dogma. He said the economic situation in Europe had deteriorated significantly in recent months and accused Labour of both making unfunded spending promises and "covering" up details of post-election cuts they were planning.

"We have taken the difficult decisions with care and with fairness at their heart," he said. "But nonetheless, it will be controversial. This is one of the hardest things we will every have to do." One Liberal Democrat MP, Bob Russell, has already said he will vote against any package of measures which risks leaving children worse off.

The BBC's political editor, Nick Robinson, said Mr Clegg's attempts at reassurance reflected the fact that this Budget would be a "bigger test" for his party than the Conservatives. It is very, very important indeed that voices are raised against... unfair cuts that endanger not just our society but our economy as well” Shadow chancellor Alistair Darling said the Conservatives were "using the current circumstances" as an excuse to make "ideologically driven" cuts they had planned anyway and said they were "using" the Lib Dems "as cover". And Mr Miliband, one of the contenders to be Labour leader, said the coalition cuts risked turning Britain into a "slow-growth economy". 

"It is very, very important indeed that voices are raised against senseless cuts, unfair cuts that endanger not just our society but our economy as well." General secretary of the TUC, Brendan Barber, said the chancellor's approach was "based on a series of myths". "Deep urgent cuts are not needed, and run the risk of the double dip [recession] - especially now much of Europe has signed up to the same deficit fetishism," he said. The TUC also warned against a VAT rise, saying such a move would be "deeply regressive" and those on low incomes would "barely be able to absorb" the cost. 

Council Tax freeze:

Local authorities said they would face "very, very difficult decisions" in the future as central funding was reduced. "It makes things very difficult in terms of how we prioritise our services," Sir Steve Bullock, chairman of Local Government Employers, said. In a move intended to partly soften the anticipated blow of cuts and tax rises, it is understood the government will press ahead with plans to encourage a Council Tax freeze in England next year.

The Conservative manifesto proposed a two-year Council Tax freeze paid for "by reducing spending on government consultants and advertising". That plan involved providing extra funding to councils who proposed only small Council Taxincreases, so they could then freeze them. It is not entirely clear yet how the coalition government's plans would work, or how much it will cost. 

But as well as the Council Tax freeze - and the decision to axe Labour's plan to raise more money from a National Insurance increase - the Budget will also provide a partial National Insurance exemption for new firms based outside the south-east of England.

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