Osborne hints at school funding cuts

Shadow Chancellor issues warning on public spending

George Osborne has come under fierce attack after saying he would not protect schools and the armed forces from budget cuts should the Conservatives win the next election.

The shadow Chancellor said controversial spending plans would be made as a result of Britain's growing debt, warning there would be a "radical shake-up" of the way schools are run. He also said defence spending, traditionally a priority for the party, would not be ring-fenced beyond next year.

David Cameron has been reluctant to reveal details of his party's public spending cuts, but the toughened stance from Mr Osborne was seized upon by Labour as a sign that the shadow Chancellor was planning to slash spending on public services.

"George Osborne is showing his true instincts," said Treasury minister Angela Eagle. "Now it's clear that the Tories want to cut schools and cut apprenticeships in the middle of a recession – alongside a tax giveaway for millionaires' estates."

A spokesman for Mr Osborne said it had always been the party's position that only current health and aid spending commitments would be guaranteed beyond 2010. But Mr Osborne's warning over defence spending has also riled backbenchers and Tory party members.

Former shadow defence secretary Bernard Jenkin said that without increasing defence spending by an additional 1 per cent of GDP, Britain would become a "third rank power".

"Living within current budgets would mean cuts to aircraft carriers, the independent deterrent and attack submarines," he said. "If defence isn't ring-fenced, then nothing is ring-fenced. It means we're going to be a soft power, not a hard power."

Tim Montgomerie, editor of the Tory grassroots website ConservativeHome, said the low priority for defence would "not be well received" among party members.

Mr Osborne has said he favours spending cuts rather than increasing taxes, which could kill off an economic recovery. His warning comes as Alistair Darling, the Chancellor, looks set to announce a rise in public debt in next week's Budget. Annual borrowing could reach £175bn as a result.

The shadow Chancellor also tried to heap more economic misery on the Government yesterday, suggesting official statistics showed Britain had already been in recession for a year. Revised figures from the Office for National Statistics (ONS) indicated that the economy started to retract from April last year, although the ONS said it had officially recorded growth as flat.

"Next week's Budget will be a day of reckoning as it is laid bare what the impact of this year-long recession has been on unemployment and the public finances," Mr Osborne said.

Ms Eagle accused him of "distorting the facts and talking down the UK economy".