LONDON (Reuters) - Chancellor George Osborne unveiled spending cuts on Wednesday to try to tame the country's big public deficit, but promised to reinvest some of the money saved to counter criticism of excessive austerity.
In a speech to parliament, interrupted by jibes from opposition Labour party MPs, Osborne spelled out 11.5 billion pounds in cuts for the 2015/16 fiscal year, including steps to trim the welfare budget.
Tens of thousands of British pensioners living abroad in warm climates and unemployed foreign jobseekers in Britain unable to speak English are among those who stand to lose out.
Osborne said the budgets of the justice ministry and local government department had been cut by a nominal 10 percent, but said the government planned to spend 3 billion pounds on affordable housing projects.
The debate over the cuts, which will take effect just weeks before the general election in 2015, draws the battle lines for that vote as Labour and the ruling Conservatives try to prove their economic credentials to the public.
"While recovery from such a deep recession can never be straightforward, Britain is moving out of intensive care - and from rescue to recovery," Osborne told parliament.
The Conservatives say they inherited the biggest peacetime deficit from Labour when they came to power in 2010 and have cut it by a third. Their favourite line of attack is that Labour can never be trusted to manage the economy again.
But Labour accuses Prime Minister David Cameron's government of pushing through too many cuts too quickly, a tactic it says is stifling growth and delaying a recovery.
It believes in more stimulus, but has been reluctant to promise to borrow more for fear of being branded irresponsible. Labour reminded Osborne of his 2010 pledge to eliminate the budget deficit by 2015.
"The Chancellor (Osborne) spoke for over 50 minutes today, but not once did he mention the real reason for this spending review - his comprehensive failure on living standards, growth and on the deficit," said Ed Balls, Labour's finance spokesman.
"Surely the Chancellor should be taking bold action now to boost growth this year and next."
Economists said further pain lay ahead as the government sought to eliminate the deficit by 2017/18. "While today's cuts will be very painful they're only a precursor to steeper cuts after the 2015 election," said Matthew Whittaker at the Resolution Foundation, a thinktank which focuses on issues facing lower-income Britons.
Labour is 10 percent ahead in the polls, but voters rate its ability to manage the economy lower than the Conservatives. Labour leader Ed Miliband's party has tried to win back voter confidence by pledging to stick with the cuts if it wins the election.
Despite cutting spending aggressively, weak economic growth and a costly welfare system have frustrated the government's plan to wipe out a budget deficit of 11.2 percent of GDP.
The loss of Britain's triple-A credit rating and calls from the International Monetary Fund to defer near-term cuts and increase infrastructure investment have reflected shifting international attitudes towards austerity.
"Just as the rest of the world decides up front austerity is a bad idea, it seems the UK political establishment has agreed there is no alternative," said Trevor Greetham, asset allocation director at Fidelity Worldwide Investment.
In an effort to stem mounting criticism that sustained spending cuts were crimping economic growth, Osborne promised a total of 300 billion pounds of capital spending between now and 2020 - in line with existing budget projections.
A third of the capital spending plans will be detailed in an announcement on Thursday.
"Investing in new energy capacity, new roads and faster rail links is critical to our competitiveness," said Terry Scuoler, of the EEF manufacturers group. "However, to date, the record so far on delivering major infrastructure projects is woeful."
Labour said the infrastructure plans weren't enough and called for an extra 10 billion pounds of stimulus spending.
"If he took that action now, that might mean in two years' time we might not need these appalling cuts that he's pencilling in," said Chris Leslie, a Labour economics spokesman.
Osborne announced a 9.5 percent cut in the welfare budget on Wednesday and pledged to introduce a cap on the large proportion of spending which varies on a year-to-year basis and falls outside the scope of the spending review.
He said benefit payments would be withheld from jobseekers refusing to take state-funded English lessons to improve their language skills to that of a 9-year old - a change affecting around 100,000 people.
The government also hopes to save 30 million pounds by abolishing winter fuel payments for pensioners living abroad in warmer countries such as Spain, Cyprus and Portugal, he said.
Additional reporting By Guy Faulconbridge; Editing by Andrew Osborn/Jeremy Gaunt