UK austerity 'still needed to avoid economic relapse' - Osborne

By Peter Griffiths

LONDON (Reuters) - Britain's economy could fall back into crisis if the government abandons its austerity programme, Chancellor George Osborne said on Sunday as he raced against the clock to finalise the latest round of departmental cuts.

Three days before he announces ministries' spending limits for 2015-16, Osborne said the budget deficit was still too high and he was committed to finding savings worth 11.5 billion pounds.

"We are out of intensive care and our job now is to secure the recovery," Osborne told BBC television. "There certainly is a chance of a relapse if we abandon our economic plan."

The Conservative-led coalition government is sticking with its central economic policy of reducing a deficit that peaked at more than 11 percent of gross domestic product before it came to power in May 2010.

Despite tax rises and cuts, public borrowing has remained stubbornly high over the past year, and data on Friday showed public net debt climbed to record levels in May.

Asked how many of the 17 government departments had agreed to his spending plans, Osborne said only that the job was not finished and more work was needed before he unveils his spending review on Wednesday.

DEFENCE DEAL

A deal was reached with the defence department on Saturday, Osborne said, ending what analysts saw as one of the most difficult sets of negotiations.

General Peter Wall, the head of the army, said last week that more cuts would seriously damage the country's chances of success in future wars.

Osborne said the defence deal would see cuts to civilian staff numbers, while protecting Britain's military capability. However, he said there was no agreement with the business department, run by Vince Cable, a senior Liberal Democrat, the junior coalition partner.

Labour, which leads the Conservatives by around 10 points in the polls with the next election due to be held in 2015, accuses the coalition of choking the recovery with its austerity drive.

Labour finance spokesman Ed Balls said he would adopt Osborne's day-to-day spending limits for 2015-16 if his party were to win the election. However, he wanted the coalition to spend 10 billion pounds more on capital projects such as new roads.

Balls said he would be prepared to borrow more to finance extra capital expenditure, an admission Economic Secretary to the Treasury Sajid Javid held up as evidence that Labour couldn't be trusted to balance the books.

"Of course there's a case for doing that," Balls told BBC television. "If George Osborne had done that last year or the year before, we wouldn't have had such a flatlining economy."

(Editing by Greg Mahlich)

Source: http://news.yahoo.com/uk-austerity-still-needed-avoid-economic-relapse-osborne-123048318.html

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