Osborne warns of £25bn in further cuts

The UK faces years more of austerity, along with billions in cuts to the welfare budget, chancellor of the exchequer George Osborne has said.

Mr Osborne chose a Birmingham factory that makes parts for the country's booming car industry to deliver a new year warning against "a dangerous new complacency around at the moment".

Warning that the UK is still borrowing too much, he told workers: “You hear some talking as if the hard part of the job is done – and we can go back to the bad old habits.”

Government departments, which will have lost a fifth of their real spending power by the end of the Conservative/Lib Dem coalition’s life, will need to shed an extra £25 billion afterwards.

However, it was the chancellor’s declaration that £12 billion more will have to be cut from the welfare budget that provoked immediate clashes with his coalition partners.

In a clear bid to put Labour on the spot, Mr Osborne said welfare cuts are needed if there are not to be "even faster cuts to government departments, or big tax rises".

“So when you see people on the telly who say that welfare can’t be cut anymore – or, even worse, promising they will reverse the changes we’ve already made and increase housing benefit – ask yourself this: ‘What public services would they cut instead? What taxes they would put up in their place? Or would they borrow and spend more, and risk our country’s economic stability again?’ ” he said.

The political calculation involved in Mr Osborne’s moves is clear. Although the Tories trail Labour in the polls, they still enjoy greater trust on managing the economy.

Meanwhile, Mr Osborne is limited in what he can do to make savings on sums spent on the elderly because the UK Independence Party is ready to lure such unhappy voters.

Equally, the chancellor wants to keep open the prospect of tax cuts for voters even if he does not want to be forced into making such cuts before the May 2015 election.

Lib Dem criticism
However, Mr Osborne's desire for tax cuts – one shared, if more virulently, by most Conservative MPs – is questioned by the Institute of Fiscal Studies, which says tax increases, not

cuts are on the cards.

Liberal Democrat deputy prime minister Nick Clegg said the Tories wish to place the burden of budget cuts upon those with the "narrowest shoulders".

The Tories are “now out on an ideological limb, almost unique in developed economies” by saying that only the poor will pay, he said.

In truth, Mr Osborne and Mr Clegg will not be unhappy with the day’s progress, since it allows both to appeal to core constituencies, while forcing Labour to evade questions about its spending plans should it win the next election.

Mr Osborne is playing to the traditional Tory desire for smaller government, even if that has rarely been the result of Conservative governments in the past.