Spending review 2013: As it happened

George Osborne will make a further 11.5bn in cuts. Picture: Neil Hanna

1.45pm: Spending review green book reveals that Scotland has been most shielded from the cuts with a real terms reduction of just 1.5 per cent. Only health in England plus 0.1 per cent and international aid plus 1.1 per cent, do better.

1.24pm: The announcement that those claiming unemployment benefits will need to speak or learn English is popular on the Tory backbenches as is an overall cut in welfare budget of £4 billion in 2015/16.

1.23pm: Winter fuel payments are to get a “temperature test” so people who have retired to hot countries will not be allowed to have it. “It is after all supposed to be about buying winter fuel,” says Osborne. Labour want to apply an earnings test to the benefit as well. This is the first time since Cameron promised to protect pensioner benefits in 2010 that the government has started to look at reducing any of them. Could be a turning point.

1.19pm: Osborne dubs Labour “the Welfare Party”. He points out the government has chopped benefits by £18 billion already which was opposed by Labour. The attack is going to be one of the main messages going into the 2015 election.

Chancellor also announces a new welfare cap to limit the total it spends on benefits. If the government looks like breaking the cap it will have a public warning from the Office of Budget Responsibility. The welfare cap will not include the state pension. He says he will not cut pensions to pay for working age benefits.

1.15pm: Another defiant note to Tory backbench critics from Osborne by insisting that he will continue to protect not cut the international aid budget. There is silence on the government backbenches to that announcement.

1.13pm: Osborne insists that “fairness” is central to this spending rebview. Says that the top fifth of the population will lose the most as a result of the spending review and the top 10 per cent will pay the most.

Still needs to convince critics he is being fair after cutting the top rate of income tax by 5p for those earning £150,000 a year or more.

1.10pm: Osborne announces a shake up of school funding which will mean that there will be a fairer distribution across different parts of England. Unclear if it could be a precursor for changes to the Barnett Formula with Scotland getting more per child than most parts of the UK.

1.02pm: Osborne strikes a defiant note on pushing High Speed Rail 2 through. Most of the opposition comes from his own party.

12.56pm: Osborne insists that there will be no cut of Britain’s military capabilities. Will also invest in cyber defence and new equipment.

MoD budget has been a difficult issue for Osborne and Cameron with defence secretary Philip Hammond opposing cuts and backbenchers angry that department budget has not been protected like international development.

12.53pm: Scottish government budget in 2015/16 will be £25.7 billion and capital budget will be up £300 million. Overall spending up 13 per cent. “Devolution delivering for Scotland in the UK,” says Osborne.

12.49pm: Osborne announces new local enterprise budget of £2 billion a year for entrepreneurs to bid for. First of the growth measures.

12.48pm: Osborne continues to follow where SNP finance secretary John Swinney led by extending council tax freeze in England for another two years.

12.44pm: Osborne takes on public sector workers and unions by ending automatic progression pay for civil service, teachers, nurses and many others but not military. This means going up a pay grade will now be based on performance. Up to the Scottish Government to decide whether the same will apply north of the Border.

12.42pm: Osborne highlights the level of austerity. Total government managed expenditure will be £745 billion for 2015/16, £120 billion lower than what it would have been under Labour.

12.40pm: Osborne: “This country has to continue to make savings”.

12.38pm: Chancellor highlights the drop in the deficit by a third cut by £49 billion but avoids saying that he is well off target in terms of how much he wanted to cut it.

12.36pm: Osborne tells HoC ‘this year we are set to borrow £108 billion’.

12.35pm: Chancellor announcing the next step in the plan to turn the economy around. The return of the buzz phrase “we’re all in it together” which was dropped after the Coalition cut the top rate of income tax from 50p to 45p.

12.34pm: Osborne: “Britain is moving out of intensive care from rescue to recovery.” But “it’s never going to be straightforward.”

12.33pm: Chancellor George Osborne starts his Spending Review speech, telling the House of Commons ‘Today we act to help recovery’.

12.29pm: Topical humour from Cameron in reference to comments made by Shadow Chancellor Ed Balls, quipping : ‘It’s not just people at Wimbledon saying ‘more balls please’.

12.23pm: Cameron says of the Spending Review that the coalition is cleaning up the ‘mess’ caused by Labour.

12.20pm: William Bain (Lab) asks about coalition’s promise to “balance the books”. Cameron claims Labour policy is to increase borrowing.

12.17pm: Gregory Campbell (DUP) says G8 summit showed Northern Ireland is a good place to do business and urges more investment in the area. Cameron agrees.

12.15pm: John Mann (Lab) claims “zero delivery” of infrastructure projects in his constituency under the coalition. Cameron insists capital spending plans are higher than those put forward by Labour.

12.14pm: George Osborne waiting for his turn by David Cameron during PMQs. He looks pale and worried. Not a picture of optimism. His tie though is blue which is supposed to symbolise calm.

12.12pm: A number of MPs chant “81 today, 81 today” at Labour MP David Winnick, who celebrates his 80th birthday today - not his 81st.

12.04pm: Miliband pay off: “All you need to know about this Chancellor’s spending review is that the British people are paying for his failure.”

12.00pm: PMQs before the Chancellor gets to his feet to deliver spending review. Labour leader Ed Miliband focuses on the government’s failure to start infrastructure projects. The message is that any promise Osborne makes shortly cannot be trusted.

11.44am: The buzz phrase from ministers today will be “from rescue to recovery” as they try to give at least a hint of optimism. Michael Moore gets it in on his last answer in Scottish questions.

11.37am: Exchanges on future spending start early in Scottish questions. Labour Shadow Scottish Secretary Margaret Curran asks about average wages dropping more than £1,500 since the 2010 spending review. Lib Dem Scottish Secretary Michael Moore says “there are still challenges for everybody.”

Spending review expected to slice £11.5 billion off day-to-day budgets of Whitehall departments

The Spending Review for 2015/16 - the first year of the next parliament - is expected to slice £11.5 billion off the day-to-day budgets of Whitehall departments, extending the age of austerity the beyond the general election.

But Mr Osborne is also expected to confirm that billions of pounds of additional investment are to be directed into major infrastructure projects to boost growth over the years to the end of the decade, with details to be set out by Treasury Chief Secretary Danny Alexander tomorrow.

In what is likely to be a highly political statement, the Chancellor will tell MPs that he remains committed to his cuts strategy to pay down Britain’s massive debts as the country moves from “rescue to recovery”.

“While the British economy is leaving intensive care; now we need to secure that recovery,” he is expected to say.

Hard times

“We’re saving money on welfare and waste to invest in the roads and railways, schooling and science our economy needs to succeed in the future.

“I know that times are still not easy for families. But we have a clear economic plan. We’ve stuck to it. It is working. And I’m determined to go on delivering it.”

It is reported that the intelligence agencies - MI5, MI6 and GCHQ - have emerged among the winners in the carve-up of expenditure with a real terms increase of more than 3% - reflecting continuing concerns over the threat of terrorism in the wake of the murder of Drummer Lee Rigby outside Woolwich Barracks, London.

Mr Osborne is also expected to reveal how he intends to implement a proposed cap on previously uncontrolled parts of the public finances, such as welfare, debt interest and payments to the EU.

Failure

The cap on so-called “annually managed expenditure” was floated in the Chancellor’s Budget in March, when Mr Osborne said he would impose a limit on a “significant proportion” of AME, which is made up of elements of public spending which can go up and down due to factors beyond the Government’s control.

The Treasury has signalled that the state pension will not be affected by any cap, and Mr Osborne has said it will not impact on the “automatic stabilisers” which come into effect in a downturn, suggesting that unemployment benefits could also be excluded.

A think tank with close links to senior Conservatives has warned that failure to include pensions in the cap will force future governments to shave as much as £40 billion off spending for priorities like health and education as the population ages over the next 50 years.

In a pamphlet for Policy Exchange, former Treasury official Matthew Oakley pointed out that the state pension bill is set to rise from 5.6% of GDP in 2016-17 to 8.3% in 2061-62, and warned that any cap will be “meaningless” unless it includes the full range of benefits which are driving AME spending up.

Job cuts

Mr Osborne reached agreement at the weekend with Vince Cable over the level of cuts at his Business Department - the last Whitehall ministry to finalise its settlement.

All areas of departmental current spending will be asked to tighten their belts except the NHS, schools and overseas aid, which are protected by a “ringfence”. Attention will, however, be focused on whether departments like defence or the Foreign Office have succeeded in reassigning elements of their activities to the health or international development budgets.

Mr Osborne said at the weekend that there would be a cut in numbers of civilian workers at the Ministry of Defence, as well as renegotiation of major contracts with suppliers to save money. But he insisted there would be no cuts in numbers of sailors, soldiers or airmen and no reduction in the UK’s military capability.

Labour said that the review statement will lay bare “three years of failure” since Mr Osborne’s last spending review in 2010, which have seen the slowest UK economic recovery for over 100 years with growth of just 1.1%, compared to the 6% predicted at the time.

Far from balancing the books as the Chancellor promised in 2010, the Government is set to go into the 2015 with state debt at £96 billion, said Labour, which blamed “lack of growth” for pushing borrowing up to £245 billion more than planned at the time of the last spending review.

Labour leader Ed Miliband has said that he cannot promise to reverse any cuts in day-to-day spending announced today if he wins the 2015 election.