Spending Review: George Osborne announces sweeping cuts to benefits and public sector pay while promising investment to boost economic growth

Chancellor also announced £300bn of new capital spending projects by the end of the decade - including the largest programme of road building in 50 years

George Osborne set the battle lines for the next General Election today as he announced sweeping cuts to benefits and public sector pay whilst promising more money to boost economic growth.

In a highly political spending review Mr Osborne said in future millions of doctors, teachers and civil servants would lose their right to automatic pay rises.

Directly challenging Labour Mr Osborne also announced changes to the benefits system including an annual “welfare cap” on the cost of benefits and a seven day delay before jobseekers allowance can be claimed. Together he said this would save the Government around £4 billion a year.

Claimants who do not speak English to be required to attend language courses or face benefit cuts and all job seekers to be required to attend the job centre every week, rather than once a fortnight.

Together he said the new benefit restrictions would save the Government around £4 billion a year.

Councils will also see the budgets cut by 10 per cent but will be given additional funding from the Treasury to freeze council tax bills for the next two years.

But the Chancellor also announced £300 billion worth of new capital spending projects by the end of the decade including the largest programme of road building in 50 years.

Among the main proposals outlined today:

• The security services will see their budget rise by 3.6 per cent but the Home Office budget will be cut by 6 per cent will the police – apart from counter terrorism – facing cuts.

• Defence spending will be largely protected with no cuts to army, airforce and navy numbers. The Government will support the military covenant paid for through Libor fines.

• Spending on capital projects will rise by £300 billion by the end of the decade including the largest programme of road building in 50 years.

• There will be £9 billion of funding for new capital projects in London and, as revealed in The Independent, Crossrail 2 will be given the initial go-ahead.

• Winter fuel payments will be scrapped for people living abroad in warm countries.

Mr Osborne insisted his measures, which only spared schools, the NHS, overseas aid and the intelligence services, were necessary and fair.

“We act on behalf of every tax payer and every future tax payer who wants high quality public services at a price we can afford,” Mr Osborne said.

“We have to deal with the world as it is, rather than as we would wish it to be.”

He added that he had to make “difficult decisions” that would affect people across the country.

He gave further details of his planned welfare cap, which will come into force in April 2015 - a month before the next general election. Housing benefit, tax credits, disability benefits and pensioner benefits will all be included although the state pension will not. Any Government wanting to exceed a pre-set limit will have to explain their decision to Parliament.

The Chancellor said public sector pay rises will be limited to an average of up to one per cent for 2015-16 and automatic progression pay and re-grading were being scrapped.

He said: “Progression pay can at best be described as antiquated; at worst, it's deeply unfair to other parts of the public sector who don't get it and to the private sector who have to pay for it.

“So we will end automatic progression pay in the Civil Service by 2015-16.

“And we are working to remove automatic pay rises simply for time served in our schools, NHS, prisons and police.”

The move prompted union outrage.

Brian Strutton, national officer of the GMB, said: “This is just another unpleasant dig at public sector workers who have already been made scapegoats for problems they had nothing to do with.”

Mr Osborne announced that the council tax freeze, due to come to an end next April, would be extended for the next two years. He said that would mean nearly £100 off the average council tax bill for families.

But he warned that local councils would have to make “the kind of sacrifices central government is making“.

He said the local government resource budget would be reduced by 10 per cent in 2015-16, but claimed that when changes affecting local government are taken into account including local income and other central government funding, local government spending would be reduced by around two per cent.

Sir Merrick Cockell, chairman of the Local Government Association, said the cut would “stretch essential services to breaking point in many areas”.

Scotland, Wales and Northern Ireland do not escape the squeeze with all three required to find savings of 2 per cent.

Mr Osborne also said that the Ministry of Defence would face further cuts to its civilian workforce as its budget was maintained in cash terms at £24 billion - representing a real terms cut.

But the equipment budget will rise by 1 per cent per annum - as previously promised - and there will be no further reductions in military personnel.

But there will be cuts of 8 per cent at the Foreign Office and 7 per cent at the Department for Culture, Media and Sport - although funding for elite sports will be protected.

Mr Osborne also announced that jobseekers will be required to come to the jobcentre every week rather than once a fortnight and the introduction of a new seven day wait before people can claim benefits.

He went on: “From now on, if claimants don't speak English, they will have to attend language courses until they do. This is a reasonable requirement in this country.”

The Chancellor also promised investment in education and accelerated school reform, with the overall budget of the Education Department increasing and schools spending protected in real terms.

He also announced schools spending will be allocated in a “fairer way” so the lowest funded local authorities will receive an increase in their per pupil funding through a new national funding formula.

He said the pupil premium, will be protected in real terms “so every poor child will have more cash spent on their future than ever before”.

Shadow Chancellor Ed Balls said the new round of cuts represented a “comprehensive failure” of the Chancellor's economic strategy.

“This out of touch Chancellor has failed on living standards, growth and the deficit and families and businesses are paying the price for his failure,” he said.

The full points as they emerged:

* Borrowing for this year is set to be £108 billion, compared to £157 billion under the last government. Total Government spending for 2015/16 will be £745 billion - £120 billion lower than if it had risen at the average rate of the last three decades.

* This spending round delivers total savings of £11.5 billion - some £5 billion
of which will come from efficiency savings.

* Government's "biggest single saving'' is the £6 billion a year less it is paying to service debt.

* Automatic annual rises in public sector pay grades will end. "Automatic progression pay" is "antiquated" and will go by 2015-16. The armed forces will be excluded from this reform.

* Public sector pay rises limited to an average of up to 1 per cent for 2015/16.

* Councils to be funded to freeze council tax for the next two years, saving an average £100.

* Government to give councils more flexibility over assets and to drive greater integration of local emergency services.

* Local government resource budget to be reduced by 10 per cent in 2015/16, but local government spending by around 2 per cent.

* Scotland, Wales and Northern Ireland required to find resource savings of 2 per cent, with a budget for Scotland of £25.7 billion, Wales £13.6 billion and Northern Ireland £9.6 billion.

* Savings of 10 per cent to Scotland, Wales and Northern Ireland offices and 7 per cent to Department for Culture, Media and Sport.

* Site of Battle of Waterloo to be restored in time for 200th anniversary.

* Defence resource budget maintained in cash terms at £24 billion, while defence equipment budget will be £14 billion and will grow by 1 per cent in real terms in following years. No reduction in numbers of soldiers, sailors or airmen, but cuts in civilian workforce.

* Home Office resource budget cut by 6 per cent to £9.9 billion, but the police budget will decrease by less than that and there is increase of 3.4 per cent in intelligence services budget.

* Foreign Office budget reduced by 8 per cent. Department for International Development budget set at £11.1 billion for 2015/16, allowing Government to keep its commitment to spend 0.7 per cent of national income on aid.

* Departmental budget of Ministry of Justice to be cut by 10 per cent.

* Commitment of £50 billion of capital investment in 2015, amounting to more than £300 billion for infrastructure including roads, railways, bridges, broadband, science and schools by 2020.

* Treasury Chief Secretary Danny Alexander to set out tomorrow "the next stage of our economic infrastructure plan", with specific plans for more than £100 billion of infrastructure projects.

* Department for Transport to make 9 per cent saving in day-to-day spending, but receive the largest boost of any department to its capital budget, which rises to £9.5 billion - to be repeated every year to 2020.

* Infrastruicture investments "the largest programme of investment in roads for 50 years and in railways since the Victorian age".

* Government to "look at the case for" Crossrail 2 link in London and give mayor Boris Johnson almost £9 billion of capital spending and additional financing power by 2020.

* "Major commitment'' to new flood defences for the rest of this decade. But Department for Energy and Climate Change resource budget cut by 8 per cent and Department for Environment by 10 per cent.

* Department for Business resource budget cut by 6 per cent, including no increase in university student grants. But Department for Business capital investment to increase by 9 per cent, including "huge investment in science".

* Education Department overall budget to increase to £53 billion and school spending protected in real terms. Schools capital budget to be set at £4.6 billion in 2015/16, with more than £21 billion of investment over the next parliament, funding 20 new studio schools and 20 new university technical Colleges. Funding for accelerated free school programme, with 180 new free schools in 2015/16.

* Treasury analysis shows that the top one-fifth of the population lose most as a result of this spending round, said Mr Osborne.

* HM Revenue and Customs resource budget cut by 5 per cent, but extra resources provided to tackle tax evasion raising a predicted £1 billion-plus.

* NHS budget for 2015/16 will be £110 billion, while capital spending will rise to £4.7 billion. New investment in mental health, and funding for new treatments for prostate and breast cancer.

* Parts of health and social care budgets to be brought together, so that by 2015/16 more than £3 billion will be spent on services for older people jointly commissioned by NHS and local councils.

* A new welfare cap to be set each year at the Budget for four years, applying from April 2015, which will trigger a public warning from the OBR if the Government looks set to breach it because of a failure to control welfare. Housing benefit, tax credits, disability benefits and pensioner benefits will be included in the cap, but the state pension will not.

* New Upfront Work Search system will require claimants to provide a CV, register for online job search and start looking for work before getting benefits. Lone parents of three and four-year-olds to be required to attend job centres regularly and prepare for work. New seven-day wait before claiming unemployment benefits, and all job seekers to be required to attend the job centre every week, rather than once a fortnight. Claimants who do not speak English to be required to attend language courses or face benefit cuts.

* Department for Work and Pensions committed to 9.5 per cent savings in running costs. Payment of winter fuel payments for people living abroad to be linked to a temperature test from autumn 2015 to ensure pensioners in hot countries do not get it.

* Shadow chancellor Ed Balls said the economy was still flat lining and the UK was suffering from "the slowest recovery for 100 years''. He said the Chancellor had failed to deliver on his promise to get Britain's economy back on its feet which is why he was being forced to make more cuts today.

PA