Welfare, the Home Office and local councils took the brunt of the pain as Mr Osborne detailed how he planned to take around £80 billion out of the public sector budget over the next four years. However in a surprise announcement the schools budget will not be cut and will rise in real terms over the next four years.
Around one in 12 civil service jobs are expected disappear while even the Queen does not escape the new austerity measures – total Royal Household spending will be reduced by 14 per cent while civil list payments will be frozen. MPs are also expected to lose their right to a final salary pension.
Overall government departments which have not been specifically protected will lose, on average, will have budgets reduced by 19 per cent over the next four years.
This is less than the 25 per cent that had been predicted in the run up to the Comprehensive Spending Review (CSR).
Among the biggest cutbacks announced were:
* Councils will suffer budget cuts of 7.1 per cent every year for the next four years - a 28 per cent cut overall. But they will have new freedom to decide where their money is spent and £2 billion extra will be provided to pay for nursing homes and other social care services.
* Spending on police will fall by 4 per cent a year (18 per cent over four years) and the Home Office budget will be reduced by six per cent a year. The Justice Department, which funds prisons and the courts, will lose almost a quarter of its funding over the four year period of the CSR. Terrorism will be prioritised and not suffer the same levels of cuts.
* Welfare savings are to be found of £7 billion a year with a big clamp down on housing benefit. No family on benefits to receive more than the amount of income of a family on a working wage. Child benefit payments to continue for 16-19 year-olds. Free eye tests, winter fuel payment, TV licences and free bus passes for pensioners to remain. All working age benefits will replaced by a single welfare payment. Mr Osborne claimed the Government would save £5 billion by cutting welfare fraud.
* Business department spending to be cut by 25 per cent over four years but the £4.6 billion a year science budget will be protected.
* The Department of Climate Change is to have its budget reduced by 20 per cent over the CSR period while the Department for the Environment, Food and Rural Affairs will have its budget cut by nearly half. The Culture budget will also be cut by up to 40 per cent but free access to museums will remain.
* Big rises in bus and rail fares announced but £30 billion will spend on capital transport projects. These include the widening of the M25 and the go-ahead for Cross Rail. There was no announcement on the future of the electrification of the west coast mainline.
* The state pension age will rise from 65 to 66 by 2020 saving £5 billion which Mr Osborne claimed would go into increasing the basic state pension.
In better news Mr Osborne announced that the schools budget would rise from £35 billion to £39 billion over four years. He also announced a £2.5 billion premium to encourage schools to take on pupil from poorer backgrounds. However capital spending on schools will be severely reduced.
“The money that goes to schools will go up in real terms every year. It is a real investment in the future of our children and the economy as a whole,” he said.
The health budget will also be protected but NHS has been told to find £20 billion in “efficiency savings”. This will help pay for increased drugs costs and an ageing population. Overall there will be a marginal increase in funding.
Mr Osborne also announced a permanent levy on banks which would be introduced next year. £900 billion would be spent on combating tax evasion which Mr Osborne claimed would raise an extra £7 billion a year.
Mr Osborne said: “Today is the day that Britain steps back from the brink and confront the bills from a decade of debt.”
He said he was not prepared to: "saddle our children with the interest on the interest on the interest" on the debts the government was not willing to pay.
Mr Osborne said that the Government was spending £120 million a day in debt interest which he insisted had to be cut. At £109 billion, he said, Britain had the largest structural deficit in Europe.
Mr Osborne said he had used three principles in deciding which areas to cut: Fairness, growth and reform.
He said the public sector needed to reform and ministers had managed to find £6 billion worth of savings from administration costs. He said there would be some redundancies in the public sector although they hoped many job losses would come through natural wastage.
“(Redundancies are) unavoidable when the Government has run out of money,” he said.
But Shadow chancellor Alan Johnson accused the Government of taking a “reckless gamble with people's livelihoods” which could wreck the economic recovery.
Amid noisy scenes in the Commons he declared: “We've seen people cheering the deepest cuts to public spending in living memory.
“For some members opposite this is their ideological objective ... this is what they came into politics for.”
Deputy Prime Minister Nick Clegg, who already faces a battle to keep some of his own Liberal Democrat MPs on-side, appealed to activists to supported the CSR.
In a letter to Lib Dem activists, he insisted that the coalition's plans reflected their party's priorities.
He said the CSR was a "thoroughly coalition product", adding: "Liberal Democrat ministers have been involved every step of the way. Our values and priorities are written through the review, like the message in a stick of rock."
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