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Osborne and Laws take the first steps on the path of debt reduction

George Osborne and David Laws have just finished their press conference, announcing more than £6bn of spending cuts for this year.

Yellow&Blue£6.25bn of savings will be made this year: George Osborne, the Chancellor, and David Laws, the Chief Secretary to the Treasury, have just announced £6.25bn of spending cuts that will be used to avoid most of the increase in National Insurance Contributions that Labour had planned. This is £243 million more than promised last Monday.

Key departments will not have to make savings this year: As expected, savings made in the departments of health, international development and defence will be kept within their budgets. Not expected was George Osborne's announcement that budgets for schools, further education for 16-19 year-old education and Sure Start will also keep their savings in the next year. The Chancellor also repeated his view that "we're all in this together" and that prioritising the protection of the most vulnerable and frontline services had been achieved. David Laws announced that ministers would now be expected to walk to most meetings. They would only have cars from a pool and on an exceptional basis.

We must cut now to avoid much higher taxes and interest rates: Mr Osborne quoted the Bank of England Governor Mervyn King and his judgment that "it is essential" for fiscal action to take place now to convince the world that Britain is serious about controlling its borrowing. Ultimately cutting now will mean lower interest rates and lower taxes in the future. We are current spending more on debt interest than our national defence. Action now will stop our debt repayments from spiralling out of control.

WHERE Where the cuts will be made: As the table on the right shows, the Department of Business and Skills will make the most cuts.

Ringfencing lifted from much of local government: With the exception of schools and Sure Start local government will have much greater freedom to spend their more limited budgets in the way they choose. Good for localism.

Editorial comment: "A good start from the blue and yellow team now running the public finances. This is only a downpayment, of course, ahead of much bigger cuts to be announced in the autumn. It was good to hear George Osborne say the public would be involved over the summer in preparing the ground for the cuts to come. In order to deliver significant savings there will need to be radical reform; not least of the benefits system, defence procurement, industrial policy, public sector employment patterns and tax structure. It's also important that the Coalition nail the economically illiterate line about "taking £6 billion" out of the economy. It was Brown's favourite line in the election campaign and is now being used by unions. A spending increase does not put more money into the economy - it merely  transfers money from wealth-creating individuals and employers to the less efficient state. Similarly, cancelling a tax increase does not remove money from the economy but keeps money in the most productive part of the economy; the job-creating private sector."

Tim Montgomerie


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