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UK government details spending cuts

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Britain's Chancellor of the Exchequer George Osborne left, and the Chief Secretary to the Treasury David Law, hold a press conference in the garden of the HM Treasury, in London, Monday, May 24, 2010.

Britain’s Chancellor of the Exchequer George Osborne left, and the Chief Secretary to the Treasury David Law, hold a press conference in the garden of the HM Treasury, in London, Monday, May 24, 2010.

Dan Kitwood, Associated Press

LONDON — Britain's new coalition government outlined more than 6 billion pounds ($8.7 billion) in spending cuts on Monday, including scaling back computer purchases, official cars for ministers and first-class air travel, but warned that these are only first steps toward slashing the nation's record budget deficit.

Treasury chief George Osborne offered no news on possible tax increases, which many see as an essential part of government policy.

"This is the first time this government has announced difficult decisions on spending," Osborne told a news conference. "It will not be the last."

Defense, health and international aid were spared cuts this time.

Union leaders said they feared that spending reductions would undermine recovery.

"The planned efficiency savings detailed by the new government today are just the tip of the iceberg. Much bigger cuts, alongside hefty tax increases, will be needed to bring the budget deficit down," said Jonathan Loynes, chief European economist at Capital Economics.

The cuts announced at a news conference include 2 billion pounds from IT programs, suppliers and property, 700 million pounds from holding back on recruitment and 500 million pounds from cutting "low value" spending.

Osborne gave no figures on how many public sector jobs would be lost, but he said most of the cuts would be through not filling vacancies. The reductions total 6.24 billion pounds, amounting to less than 1 percent of annual public expenditure.

Governments all over Europe have run up large deficits and heavier debt loads due to the global economic turmoil of the past three years, as tax receipts have fallen and stimulus and bailout costs have hit budgets. They are now facing hard decisions about how to get debt under control without undermining a shaky economic recovery.

Osborne's Conservative Party leads a governing coalition with the Liberal Democrats which took power two weeks ago, and the government has moved quickly to cut spending and to set up an independent Office of Budget Responsibility to assess public finances and forecasts, which previously had been the chancellor's responsibility.

"The new government deserves credit for identifying these cuts on a department-by-department basis in the space of less than two weeks, but we must remember that 6 billion pounds is still a drop in the ocean compared with the scale of tightening that will be required," said Hetal Mehta, senior economics adviser to the Ernst & Young ITEM Club.

Brendan Barber, general secretary of the Trades Union Congress, said the economies of Britain and its European trade partners are still fragile.

"This is not the right time to be cutting back," Barber said. "If the UK starts drifting back into recession as a result of cuts, the deficit will only widen and the money markets will become even more panicked."

"The government is paying its expected homage to the City (financial district) and the so-called markets, instead of putting the full emphasis on maintaining jobs and economic recovery," added Gail Cartmail, assistant general secretary of the Unite union.

"Investment to stimulate the economy has to come from somewhere. If the private sector is not investing sufficiently in communities, the only other avenue is the government."

Total public sector borrowing in the fiscal year ending in April was 145 billion pounds. Public sector debt rose to 893 billion pounds, equivalent to 62 percent of gross national product.

The government is making austerity visible partly by cutting back on official cars for ministers and discouraging first-class air travel, with the aim of saving 1 billion pounds.

The use of a car and driver is one of the valued perks of government office, but the new government has decided that no minister will have a dedicated car and driver.

"Ministers will be expected to walk or take public transport where possible, or use a pooled car," said David Laws, a Liberal Democrat who is Osborne's deputy.

Laws also said spending on first-class air travel, which cost 45 million pounds in 2008-09, "should be avoided by all public servants wherever possible."