Britain today said it would cut half a million public sector jobs, raise the retirement age and slash the welfare state as part of the biggest spending cuts in a generation.
After months of bitter negotiations, Conservative finance minister George Osborne confirmed he would press ahead with almost all the spending cuts he had outlined in a June budget.
However, he said capital spending would be £2 billion (€2.27 billion) higher per year than originally planned because of the difficulty of getting out of contractual obligations.
"Tackling this budget deficit is unavoidable. The decisions about how we do it are not. There are choices. And today we make them. Investment in the future rather than the bills of past failure. That is our choice," Mr Osborne told parliament.
Mr Osborne insisted his plan, involving a £83 billion reduction in public spending, would drag the country “back from the brink”. The chancellor told MPs: “Tackling this budget deficit is unavoidable. Today’s the day when Britain steps back from the brink, when we confront the bills from a decade of debt.”
He added: “To back down now and abandon our plans would be the road to economic ruin. We will stick to the course. We will secure our country’s stability. We will not take Britain back to the brink of bankruptcy.”
On the job losses that will result, Mr Osborne confirmed the UK's Office for Budget Responsibility had estimated that 490,000 could go over the four years.
But he sought to reassure the public, saying: “Much of it will be achieved through natural turnover, by leaving posts unfilled as they become vacant. Estimates suggest a turnover rate of over 8 per cent in the public sector.
“But yes, there will be some redundancies . . . that is unavoidable when the country has run out of money. We feel responsible for every individual who works for the Government, and we will always do everything we can to help them find alternative work.
“In fact, in the last three months alone the economy created 178,000 jobs.” Mr Osborne indicated that even Queen Elizabeth was doing her bit.
He said she had agreed to a one year cash freeze in the Civil List for next year. He added: “Going forward, she has also agreed that total royal household spending will fall by 14 per cent in 2012/13 while grants to the household will be frozen in cash terms.”
The chancellor announced that people would have to work longer before they get their state pension. Mr Osborne said the state pension age for men and women will reach 66 by the year 2020 - four years sooner than previously expected. He said this would involve a gradual increase in the state pension age from 65 to 66, starting in 2018.
"Raising the state pension age is what many countries are now doing, and will by the end of the next parliament save over £5 billion in a year."
Mr Osborne said he would also cut a further £7 billion off the welfare budget on top of the £11 billion of reductions he identified in June.
Economists are split between those who say the drastic action is needed and those who argue it will tip Britain back into recession. Almost all agree, however, that growth will slow and the Bank of England will have to keep monetary policy super-loose for the foreseeable future.
Sterling trims gains against the dollar and slipped versus the euro today, and some analysts linked the move to Mr Osborne reiterating plans to impose a levy on banks.
Unions have already decried the likely job losses. But public opposition to the cuts in Britain has so far been muted compared with France, where unions are trying to force a retreat on pension reform with protests including blockades of fuel depots.
The British government is braced for an uproar, but Mr Osborne said he had no choice given the need to cut a record budget deficit of 11 per cent of gross domestic product - the highest in the G7 - to around 2 per cent in five years, a fiscal tightening of some £113 billion, a quarter of which will come from tax rises.
No previous British government has tried anything as ambitious and the National Institute of Economic and Social Research think tank said today it thought the government could only push through half the planned cuts..
The Liberal Democrats, the junior coalition partners, have seen their support plummet in most polls as they have become party to policies they did not support before May's election.
Much will depend on how the economy copes with the fiscal tightening. For now, the consensus is that Britain will achieve slow growth for a couple of years as the private sector picks up the baton from a deflated public sector.
The latest Reuters poll of economists' forecasts is for GDP growth of 1.6 per cent this year and 1.8 per cent next year..
But some economists say growth could stall because of the cuts. Many business and consumer confidence measures are already waning even before the measures begin.
Reuters