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Britain's Osborne reaches deal on spending cuts

Britain's Chancellor of the Exchequer George Osborne appears on the BBC's Andrew Marr Show, presented by Sophie Raworth, in this photograph
Britain's Chancellor of the Exchequer George Osborne appears on the BBC's Andrew Marr Show, presented by Sophie Raworth, in this photograph

By Peter Griffiths

LONDON (Reuters) - British finance minister George Osborne completed talks on Sunday with government departments aimed at securing spending cuts worth 11.5 billion pounds ($17.70 billion)in 2015-16 to help reduce the country's budget deficit, the Treasury said.

The finance ministry said it had reached agreement with all departments, three days before Osborne is due to publish details of their spending limits on June 26.

The talks to find spending cuts starting in 2015 - when voters go to the polls - posed a political headache for Osborne, particularly over the sensitive defense budget and a business department under pressure to do more to revive the economy.

Osborne, who announced the end of the talks on Twitter, will now seek to persuade voters that he has a credible plan to build on recent signs that the economy is gaining strength after two years of stagnation.

He is expected to give more details on Wednesday of billions of pounds of infrastructure spending designed to bolster the recovery.

"We have completed the spending round savings early and without all the arguments you normally get," a Treasury spokesman said. "This shows our determination to take the tough decisions needed to deliver our economic plan and to turn Britain around."

Osborne said earlier that the budget deficit was still too high and he was committed to trying to reduce borrowing and cutting the deficit.

"We are out of intensive care and our job now is to secure the recovery," Osborne told BBC television. "There certainly is a chance of a relapse if we abandon our economic plan."

Britain's Conservative-led coalition government is sticking with its central economic policy of reducing a deficit that peaked at more than 11 percent of gross domestic product before it came to power in May 2010.

Despite tax rises and spending cuts, public borrowing has remained stubbornly high over the past year, and data on Friday showed public net debt climbed to record levels in May.

DEFENCE DEAL

A deal was reached with the defense department on Saturday, Osborne said, ending what analysts saw as one of the most difficult sets of negotiations.

General Peter Wall, the head of the army, said last week that more cuts would seriously damage the country's chances of success in future wars.

Osborne said the defense deal would see cuts to civilian staff numbers, while protecting Britain's military capability.

Agreement was only reached on Sunday with the business department, run by Vince Cable, a senior member of the Liberal Democrats, the government's junior coalition partner.

Labour, which leads the Conservatives by around 10 points in the polls with the next election due to be held in 2015, accuses the coalition of choking the recovery with its austerity drive.

Labour finance spokesman Ed Balls said he would adopt Osborne's day-to-day spending limits for 2015-16 if his party wins the election. However, he wanted the coalition to spend 10 billion pounds more on capital projects.

Balls said he would be prepared to borrow more to finance extra capital expenditure, an admission junior Conservative finance minister Sajid Javid held up as evidence that Labour couldn't be trusted to balance the books.

"If George Osborne had done that last year or the year before, we wouldn't have had such a flatlining economy," Balls said.

($1=0.6498 British pounds)

(Additional reporting by William Schomberg; Editing by Greg Mahlich and Eric Walsh)

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