Tories would cut £23 billion by 2015

MANCHESTER, England Tue Oct 6, 2009 4:53pm BST

1 of 10. Conservative Party shadow Chancellor George Osborne gestures during his keynote address during the Conservative Party conference in Manchester, October 6, 2009.

Credit: Reuters/Andrew Winning

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MANCHESTER, England (Reuters) - The Conservatives pledged Tuesday to cut spending by 23 billion pounds by 2015 by freezing public sector pay, trimming benefits and finding efficiencies if elected next year.

The Conservatives' plans raise the stakes in a pre-election battle with the Labour government over which party has the most credible plans to cut public sector borrowing that is forecast to rise to a record 175 billion pounds this year.

Both parties have said they would cut spending, but the Conservatives -- favourites to win an election expected next May -- say they would act faster than Labour which has promised to halve the deficit in four years.

"The world is watching Britain at the moment. It is casting doubt on our country's creditworthiness. It is questioning our resolve to deal with our debts," Conservative shadow Chancellor George Osborne told a packed audience at the party's conference.

"We need to show political leadership and take the difficult decisions," he said.

Osborne, likely to be made finance minister if the Conservatives win the election, called for a freeze on public sector pay for a year in 2011 for more than four million workers, exempting the lowest-paid one million.

The Conservatives said this would save 3.2 billion pounds a year or 12 billion pounds over the duration of the next parliament, assuming that pay would otherwise have risen by 2.4 percent in 2011.

TOUGH PAY DEAL

The government pre-empted Osborne by announcing Monday that it would push for its toughest public sector pay deal for at least 30 years by seeking a pay freeze or minimal rise for the 750,000 best paid staff on the state payroll.

Osborne also threatened to use the tax system to claw back money if bankers paid themselves excessive bonuses.

"We reserve the right to take further action and that includes using the tax system," he said.

Philip Shaw, chief economist at Investec, said Osborne was aiming to tackle problems of public sector debt head-on.

"There is no shirking or hiding before the election. The opposition is being reasonably candid about what needs to be done if elected next year," he told Reuters.

But Mark Serwotka, leader of the Public and Commercial Services union, called Osborne's proposals outrageous and said the main parties were vying to look tougher on public sector workers without thinking of the demoralising consequences.

The Conservatives said the retirement age could rise to 66 from 65 for men from 2016 -- 10 years earlier than under the Labour's plans -- potentially saving billions of pounds. For women, the state pension age would not start to rise to 66 before 2020.

An aide to Osborne acknowledged the announced measures would not be enough to deal with the deficit problem, but were specific examples that would start to close the gap.

Cutting government administrative costs by a least a third would reduce spending by more than 7 billion pounds over the next parliament, Osborne said.

Further savings would be found by cutting some child benefits and tax credits for the better-paid and reducing the number of people claiming sickness benefits.

Osborne said the Conservatives would keep a 50 pence tax rate for higher earners due to come into effect next April, but hinted it could be phased out after 2011.

(Additional reporting by Keith Weir, Luke Baker, Sumeet Desai; Editing by Andy Bruce)

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