£12bn to be cut from UK public spending

Published on Sunday 6 December 2009 21:53

GORDON Brown will today unveil tough plans to slash public spending in a move that will send shockwaves through the public sector.

Beginning with measures to streamline Whitehall and shelve low-priority programmes, the Prime Minister will announce savings of 12 billion over four years – 25 per cent more than had been identified just a few months ago. It will allow him to meet his pledge to halve the UK budget deficit over the same period.

The proposals come ahead of Wednesday's Pre-Budget Report, in which Chancellor Alistair Darling is expected to confirm annual borrowing will top 175bn.

The savings will directly affect some services in Scotland and lead to a cut of least 1.2bn in the Scottish Government's grant. This will raise fears of job losses in the public sector, which is already making annual efficiency savings of 2 per cent.

The news came as Mr Darling left the door open to a windfall tax on bankers' bonuses, amid reports that could be central to this week's Pre-Budget Report.

The Chancellor warned the better-off they would have to pay more towards the cost of the economic recovery but sidestepped questions about the prospect of a temporary levy targeted at UK-based banks.

In a speech today, Mr Brown is expected to say the government will be "relentless" in finding new ways to save money and take the "tough decisions" needed to realise the savings.

"The proposals we are setting out in this plan – which is just one element of our efforts to reduce the deficit – will go further than we have ever gone before in streamlining central government," he will say.

Projects deemed to be a "low priority" will be mothballed and jobs are likely to go as part of the unprecedented cuts.

The Scottish Government's hopes of having some of its capital spending accelerated now look unlikely to be met.

But finance secretary John Swinney called for the Scottish Government to be allowed to bring forward some of its budget to build more affordable housing. "Pulling the plug on this vital flow of cash into our economy early next year, just as I expect our economy to be taking tentative steps on the road to recovery, would be potentially disastrous for Scotland," Mr Swinney said yesterday.

"Crucially, accelerated public spending is filling the gap left by reduced private-sector investment as a result of the recession and has helped to support the housing market in Scotland."

A spokesman for the Scottish Government said another cut for Scotland would be devastating.

"When Westminster talks about 'efficiency savings', it means cuts," he said. "The Scottish Government is already having to deal with a 500 million cut in the Scottish Budget and further 'savings' simply strengthen the case for full fiscal autonomy for the Scottish Parliament."

But the complaints are unlikely to be heeded as the UK government desperately tries to find savings ahead of Wednesday's Pre-Budget Report.

Reports last night suggested the Treasury was considering a "super-tax" on bankers whose bonuses are above a certain level.

Other options are thought to include increasing national insurance charges for banks that pay big bonuses or taxing investment banks directly.

Mr Darling earlier appeared to play down the prospect of new taxes on the financial sector, but stopped well short of ruling them out of this Wednesday.

"With all matters of tax – whether it's individuals, whether it's companies – you've got to be fair, you've got to be reasonable," he said.

"You've also got to have an eye on what the long-term result of all this might be."

But the Chancellor also insisted the government would not accept "wholly unreasonable" bonuses at banks that had been bailed out by the taxpayer.

Royal Bank of Scotland's board has threatened to resign if the government attempts to legislate against big bonuses, but Mr Darling said: "We are not going to be held to ransom by people who believe you can pay extraordinarily high bonuses without regard to what's going on."

However, the banking industry has warned of a possible exodus from the UK if the measures are too severe.

A spokeswoman for the British Bankers Association said: "This is all speculation at this point and we have to see what is said on Wednesday. But our concern remains that such measures might encourage banks to move away from the UK as a financial centre, and they could deter talent and businesses from locating here."

Shadow chancellor George Osborne also refused to rule out a tax hike. "My message is clear – when the banks start making profits again, they should start paying taxes again," he said.