GEORGE Osborne yesterday told ministers to prepare for the toughest spending cuts in a generation as rating agency Fitch warned the UK faced a “formidable challenge” in reducing its yawning £156bn deficit.
His comments came as Fitch warned Britain’s triple-A credit rating was at risk because its public debt had risen more quickly than any other AAA-rated country.
Fitch also said the UK had the largest cyclically-adjusted budget deficit in Europe and would have to slash borrowing by a further £92bn over the next five years to avoid a crippling spike in interest payments.
Osborne told MPs they would need to rethink the role of the state as he fleshed out plans for a comprehensive spending review to be published in the Autumn. Treasury officials said social security payments, tax credits and public sector pensions would bear the brunt of cuts, which could end up being as high as 20 per cent.
A new “star chamber” will quiz ministers on spending decisions to ensure they provide good value for money. It will be staffed by Osborne, his number two Danny Alexander, foreign secretary William Hague and cabinet secretary Francis Maude
And experts including corporate big beasts like former BP boss Lord Browne will challenge cabinet ministers, helping them follow the example of businesses that have successfully slashed costs in the recession.