The Conservative-LibDem Government has agreed a plan to “significantly accelerate” the reduction of the deficit over the next five years, starting with £6bn worth of cuts to non-front-line services in 2010/11.
The parties’ coalition agreement says the new Government will cut spending rather than increase taxes to cope with the main burden of the deficit.
The parties agree that a plan for deficit reduction should be set out in an emergency budget within 50 days of the signing of any agreement and new forecasts of growth and borrowing should be made by an independent Office for Budget Responsibility for this emergency Budget.
The coalition says it will reverse Labour’s proposed National Insurance rise for the “protection of jobs” and will reduce the child trust fund and tax credits for higher-earners.
The agreement says: “The parties agree that modest cuts of £6bn to non-front-line services can be made within the financial year 2010-11, subject to advice from the Treasury and the Bank of England on their feasibility and advisability.
“Some proportion of these savings can be used to support jobs, for example through the cancelling of some backdated demands for business rates.”
The parties agree that reform to the banking system is essential to promote a competitive economy, to sustain the recovery and to protect and sustain jobs and they rule out joining the European single currency for the duration of the agreement.
Bank of England governor Mervyn King has backed the coalition Government’s plans for swift fiscal cuts. Speaking after the coalition agreement was reached last week, King said: “I have been told what is in the agreement between the Conservatives and Liberal Democrats this morning and I am very pleased that there is a very clear, binding commitment to accelerate the reduction in the deficit.”