UPDATE 1-UK's Osborne puts welfare budget in austerity crosshairs

Thu Dec 12, 2013 8:25am EST

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By William James

LONDON Dec 12 (Reuters) - Billions of pounds of further cuts to Britain's welfare system will have to be taken by the country's next government to avoid deeper cuts in public services, finance minister George Osborne said on Thursday.

Osborne signalled Britain's welfare budget would bear the brunt of efforts to fix public finances after the 2015 election.

"I think the next government will want to undertake further reductions in the welfare budget and further welfare savings," Osborne said, appearing before fellow lawmakers in parliament. "If you want to maintain the pace of government spending reduction that you have seen over the current parliament then that is what this country needs to do."

Osborne's Conservative party has pushed through welfare cuts since coming to power in 2010, but has frequently run up against opposition from its junior coalition partner, the Liberal Democrats.

Polls show tougher rules on benefits have proved popular with the British electorate.

Osborne last week announced the biggest upgrade to official economic growth projections in more than a decade but vowed to stay the course on eliminating the budget deficit.

He used his annual party conference speech in September to call for an end to the "something for nothing" culture. He also accused the opposition Labour party, currently ahead of the Conservatives in opinion polls, of irresponsibly inflating the welfare budget during their 13 years in power.

The government's independent forecaster last week said Britain's day-to-day spending on public services could fall over the next five years to its lowest in relative terms since the end of World War Two but Osborne said those forecasts did not take in account deeper cuts in welfare.

The Institute for Fiscal Studies (IFS), a leading economic think-tank, also said last week that unless cuts to departmental spending were accelerated, 12 billion pounds a year would need to be cut from the welfare budget, equivalent to about 50 percent of welfare savings already enacted by Osborne.

Osborne is aiming to turn the country's largest peacetime budget deficit, which he inherited in 2010, into a small surplus by 2018/19.

Osborne would not be drawn on whether he agreed with that figure, but said he broadly supported the analysis behind it.

"Many billions of pounds of welfare savings are going to be required if we want to avoid cutting government budgets even further," Osborne told a panel of lawmakers which scrutinise the work of the finance ministry.

"If it comes to a choice, we should be making investments in schools and in science if that is securing the long-term economic health of this country. We shouldn't be cutting those things because we are not prepared to deal with the welfare budget."

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