UK seeks tight spending checks in March budget

LONDON (Reuters) - The Conservative-Liberal Democrat government will present its 2011 budget to parliament on March 23, Chancellor George Osborne said on Thursday, proposing changes to the way government spending is dished out.

Prime Minister David Cameron (R) is seen speaking to George Osborne, in his office in London in this May 11, 2010 file photograph. REUTERS/Andrew Parsons/Files/Handout

Osborne foreshadowed tighter checks on a huge part of the budget used for top-up funding by government departments which face swings in unpredictable areas such as social security.

Osborne said he hoped next year’s fiscal policy statement would contain details of a new framework for department funding to improve budget discipline across government, as the coalition seeks to cut 81 billion pounds ($130 billion) from spending over four years.

Currently, department budgets are split into two broad areas -- a fixed department spending limit (DEL) and a flexible annual spending top-up facility (AME).

“One of the big challenges facing the Treasury is AME, because there is no incentive on government departments to control those budgets and we are looking at whether this whole frameowrk of DEL and AME needs to be revisited,” Osborne told parliament’s cross-party Treasury committee.

“This is a very large budget -- half of government spending -- that is not really managed, so we are looking at a new framework and I hope to say more about that in the budget on March 23.”

The coalition government has announced plans to all but eliminate a budget deficit running close to 10 percent of national output through severe spending cuts and broad tax hikes by the time of the next election, scheduled for May 2015.

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Some economists have questioned whether the government will be able to achieve its ambitious spending cuts -- averaging about 20 percent across departments -- especially as some of the reduction relies on the grey area of efficiency savings.

The independent Office for Budget Responsibility will on November 29 update economic growth and government borrowing forecasts that feed into fiscal policy.

Financial markets have so far reacted warmly to the government’s austerity drive, which has helped push gilt yields down to record lows, but investors are on alert for signs of slippage as the coalition seeks to implement the cuts.

The OBR’s forecasts are expected to show slower growth next year than the 2.3 percent expansion predicted in June which could have a knock-on effect on the credibility of the government’s deficit reduction targets.

Britain’s economic recovery, after an 18-month recession, has been surprisingly strong so far this year but analysts say the government’s austerity drive, a flagging housing market and a dearth of credit will weigh on activity next year.