UK's Osborne to slash welfare after next election

Finance Minister George Osborne announced the proposed cuts on Monday (October 8) at a the party's annual conference in Birmingham where the government of Prime Minister David Cameron is trying to project an image of economic prudence to win back support ahead of a 2015 election that is likely to be decided on the health of the economy.The government hope voters will welcome a further 10 billion pounds of cuts in welfare spending - an area often portrayed in the media as rife with scroungers and waste.

"We have to find greater savings in the welfare bill. Ten billion pounds of welfare savings in the first full year of the next parliament," Osborne said, announcing the cuts.

The Conservatives, who had bet growth would reduce the deficit and help them win the next election, are struggling with a recession and a series of blunders which have put them about 10 points behind the Labour Party in opinion polls.

The underlying budget deficit has risen by a fifth so far this year compared to the same period last year and public sector debt rose to over 1 trillion pounds ($1.62 trillion) at the end of August - 66 per cent of gross domestic product.

Osborne has refused to say how far behind schedule his deficit reduction plan is but he rebuffed critics who say he should pump up demand with government spending, saying a softening the government's austerity plan would endanger Britain's recovery by putting its low borrowing costs at risk.

"The higher interest rates would pick the very pockets of the working people we are trying to help and the fear of extra taxes would undermine their confidence. In other words, our critics would gamble everything: our credibility, our financial stability, our low interest rates, the cost of our debt they would risk everything on the dubious idea that a few billion more of spending would dramatically improve the fortunes of the trillion-and-a-half pound British economy," Osborne said.

The Labour Party, which wants to see more taxes on banks and the rich, says Osborne has cut spending too quickly and choked demand.

With economies in Asia, Latin America and even Africa on the rise, Osborne said "changes" are needed in order to compete.

"Western democracies like ours are being outworked, outcompeted, outsmarted by these new economies, and the question for countries like Britain is this: are we going to sink or swim? And the truth is that some Western economies won't keep up. They won't make the changes to welfare and education and tax. They will fall further and further behind, they will become poorer and poorer. I am determined that will not be the Britain to my children or that you leave to yours," Osborne said.

Osborne has staked his reputation on preserving Britain's AAA sovereign credit rating and a 375 billion pound central bank-funded bond-buying project has reduced the cost of government borrowing to record lows.

However investors say Osborne will be forced to either cut spending more deeply or extend austerity well after the next election to honour his pledge to tame the deficit.