Less than a fortnight after the Conservative-Liberal Democrat coalition took power in Britain, Chancellor of the Exchequer (Finance Minister) George Osborne has outlined plans to cut 6.2 billion pounds (7.22 billion euros, $8.92 billion) from government spending to help reduce the budget deficit.

"In the space of just one week, we have found and agreed to cut six and a quarter billion pounds of wasteful spending across the public sector," Osborne said.

The government intends to eliminate the bulk of the UK's budget deficit, currently estimated at 156 billion pounds, over the next five years.

Where the axe falls

There will be a civil service recruitment freeze, cuts to IT programmes, property and travel budgets. Government departments will have to trim hundreds of millions of pounds from their current outgoings. The biggest cuts are due to be made at the departments for business, local government, transport and the devolved administrations which run Scotland, Wales and Northern Ireland.

The British finance minister hinted that, in his opinion, the UK could find itself looking at a debt crisis along the lines of Greece, if it did not act fast.

"Around Europe, people are waking up to the challenge of those very large deficits. If we didn't take action now, I think we would be putting the stability of the British economy in grave danger," Osborne said.

The coalition government has pledged to safeguard certain frontline services such as the National Health Service and schools. Defense and international aid spending were also spared the cuts.

More cuts to come

The coalition said this was the first round of difficult cuts on spending, and "will not be the last". Chief Secretary to the Treasury, Liberal Democrat David Laws, admitted these cuts were "the easiest efficiency savings and the most obvious areas of waste."

"As we go further into this process, the more difficult decisions will have to be made, and we're all conscious of that," Laws said.

The coalition did not say how many public sector jobs might go, but they did say the bulk would come from not filling unoccupied posts rather than redundancies. However, there is still a very real possibility of strike action by unions.

Market confidence

David Jones, chief market strategist at IG markets, said the financial sector has been looking for reassurance and the cuts were "a step in the right direction". However he said there were still fears of contagion from the eurozone.

"We shouldn't think the UK is immune, because we are carrying a significant chunk of debt. The cuts are only six billion pounds, and still leaves us with a lot more to pay off over the next few years," Jones told Deutsche Welle.

The economy and the issue of cutting the budget deficit was a key issue in the election campaign, lost by former Prime Minister Gordon Brown's Labour Party. Now in opposition, Labour continue to warn that cutting public spending this soon represents a serious risk to the UK's economic recovery.

"I think it could hit the chances of a strong recovery and put us in the slow lane for growth out of the recession," said former Chief Secretary to the Treasury, Liam Byrne.

The coalition is aware it also needs to take its own share in the cuts being handed out. Public servants will now be banned from travelling first class, and government ministers will no longer have a dedicated car and driver, in order to encourage use of public transport.

Author: Olly Barratt (cb)

Editor: Susan Houlton