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UK government to cut welfare budget again as election approaches
January 6, 2014 / 7:11 AM / 4 years ago

UK government to cut welfare budget again as election approaches

LONDON (Reuters) - Chancellor George Osborne announced major cuts to Britain’s welfare spending on Monday as he warned voters that the economic recovery could not be taken for granted.

Britain's Chancellor of the Exchequer George Osborne (C) gestures as he delivers a budget update at Parliament in London December 5, 2013, in this still frame taken from video. REUTERS/UK Parliament via REUTERS TV

With an election due in 16 months and the government facing calls to put more money in people’s pockets after years of austerity, Osborne stuck to his message that the only way to return the economy to health is to fix its finances.

“As we start the New Year, I want to warn you about a dangerous new complacency around at the moment,” he said in a speech at a car-parts plant in Birmingham, central England.

“You hear some talking as if the hard part of the job is done, and we can go back to the bad old habits.”

The Conservatives continue to lag behind the Labour party in opinion polls. But they score more highly for economic policy and they regularly blame Labour for running up a budget deficit equivalent to 11 percent of gross domestic product before it lost power in the 2010 election.

A surprisingly strong recovery in the economy last year turned Britain from a laggard to a leader in growth terms among the world’s big rich nations, though overall output is still below pre-crisis levels.

A survey on Monday showed growth in Britain’s dominant services sector slowed unexpectedly in December, but confidence rose and the economy still looks likely to have recorded its strongest expansion since 2007 last year.

In his speech, Osborne warned that the euro zone’s troubles and a continuing repair of Britain’s banking system still posed risks to the recovery and he underscored the need for more belt-tightening.

Britain’s welfare system could not be protected from further big cuts which would amount to 12 billion pounds in each of the first two years of the next parliament, after the election in May 2015, Osborne said.

“The truth is there are no easy options here, and if we are to fix our country’s problems, and not leave our debts to our children to pay off, then cutting the welfare bill further is the kind of decision we need to make,” he said.

As well as facing criticism from Labour for the decline in living standards since the financial crisis, Osborne is under pressure from some members of his Conservative party to cut income taxes more aggressively.

He highlighted how the government has raised the tax-free allowance for many earners but suggested he would not be rushing to make further tax cuts.

“If government wants to find a direct way to put money into people’s pockets, you do that by permanently cutting people’s taxes by permanently cutting the spending those taxes pay for.”

Prime Minister David Cameron sought to steal a march on his rivals in next year’s election on Sunday, pledging that he would continue to ensure pensions rose faster than wages.

Editing by Jeremy Gaunt

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