The west’s leading economic thinktank warned the Bank of England on Wednesday that it would have to start raising interest rates this year to prevent inflation taking hold in the UK.

In a downbeat assessment of the prospects for the economy, the Paris-based OECD said Threadneedle Street would have to steadily increase borrowing costs over the next 18 months despite the weakness of growth.

The OECD reiterated its support for the government’s deficit-cutting strategy, but said George Osborne should remove exemptions on VAT in order to boost public spending on Britain’s infrastructure.

And it said a full-break up of Britain’s banks should remain an option even though the Independent Commission on Banking set up by the coalition has so far backed only more limited reform of the financial system.

Releasing its half-yearly Economic Outlook in Paris, the OECD predicted that the UK would continue to lag behind most other leading industrial nations as it recovered from the deep downturn of 2008-09. Growth is projected to be 1.4% in 2011, rising to 1.8% in 2012 – weaker than ministers are expecting.

The sluggishness of the economy will feed through into higher unemployment, which the OECD expects to rise from 7.9% of the workforce in 2010 to 8.1% this year and 8.3% in 2012

“Growth is projected to remain slow during 2011″, the OECD said. “Public consumption and investment are set to fall significantly while household consumption is expected to remain subdued, reflecting falling real incomes and stagnant asset prices.”

The report added, however, that the Bank of England’s monetary policy committee would have to act before too long to curb inflation. With the government’s preferred measure of annual cost of living increases currently standing at 4.5%, the OECD said the public’s belief that inflation would remain high illustrated “concerns about the Bank of England’s willingness to tolerate significant and persistent deviations” from the government’s 2% target.

“A modest increase in interest rates should be taken during 2011 to stave off increases in inflationary expectations, which are already elevated. As the recovery gathers momentum in 2012, the pace of normalisation of interest rates should be stepped up.”

The OECD said the government’s mix of tax increases and spending cuts were needed to rein in the budget deficit, slow the build of the UK’s national debt and maintain the confidence of financial markets.

“Nevertheless, consolidation measures should be implemented in a way that minimises the impact on short-term growth. Ending exemptions and increasing lower rates in the VAT system would increase efficiency and raise revenues that could be used to lessen cuts in infrastructure investment.”

The think tank also questioned whether the ICB’s proposal to ring fence the retail operations of banks within wider financial groups went far enough. “A full break-up of banks and further increases in capital requirements should also remain options”.

For the 34-nation OECD as a whole, today’s economic outlook predicted growth of 2.3% in 2011 rising to 2.8% in 2012. While noting that the recovery was becoming “self-sustained and more broad based”, the OECD pointed to significant downside risks including rising commodity prices, a sharp slowdown in China and the soveriegn debt crisis in the Euro Area.

“All this suggests that the global crisis may not yet be over”, said the OECD’s chief economist Pier Carlo Padoan. He added that policy makers needed to address four big challenges – high unemployment, sustaining growth, repairing public finances and managing global imbalances.

“The global economy is exiting recession but is not returning to business as usual”, Padoan said. “The post-crisis economy will have to deal with old and new challenges, while purusing new, green and inclusive sources of growth.” Interest rates Economics Bank of England Economic growth (GDP) Financial crisis Banking Larry Elliott guardian.co.uk © Guardian News & Media Limited 2011 | Use of this content is subject to our Terms & Conditions | More Feeds

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Reykjavik, Iceland (AHN) – Iceland will start repaying a $3.45 billion (EUR 2.6 billion) from Britain in 2016. Reykjavik owed the amount to London after the online Icesave Bank failed two years ago.

The agreement to repay ends two years of dispute over interest rates between the two countries after Iceland’s financial system collapsed in October 2008. Following the failure of Icesave’s parent company Landsbanki, the U.K. treasury had to bail out 300,000 British depositors, including 108 English, Scottish and Welsh councils that have high-interest accounts in Icesave.

The International Monetary Fund also extended a $2 billion loan, while Sweden, Finland, Norway and Denmark provided another $2.5 billion loan to Iceland.

According to the European Economic Area regulations, Iceland was supposed to pay each account holder $29,158 (EUR 22,000), but because of the financial straits in Iceland, Britain and the Netherlands offered the country a loan. Landsbanki also had a number of Dutch depositors.

Icelandic and British officials initially agreed a year ago to set the interest rate at 5 percent. However, 93 percent of Iceland residents rejected the agreement because they considered the interest rate too high.

The new agreement sets interest rate between 3 percent for the Netherlands and 3.3 percent for Britain on repayments from 2009 to 2016. The debt should be fully paid back by 2046.

The deal, however, needs the seal of approval from Iceland’s Parliament, president and government. If the agreement is approved, ratings agency Moody’s said Reykjavik’s credit rating could be raised and it may pave the way for Iceland joining the European Union.

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As a bad credit mortgage refinance borrower, you may have faced numerous rejections because potential lenders would consider you a risky credit proposition. And the reason for late or missed payments that mar your credit score may be due to the fact that your employer cut your salary or you lost your job because the company folded. Lenders will nevertheless hesitate before working with you. Refinancing is probably the solution to your problems because it has slightly different criteria as compared to normal mortgage policies, so you might just qualify for approval in spite of a poor credit rating. When you secure refinancing for your home, you put it up as collateral for the loan. This means that if you default on the loan the lender or the bank is entitled to take possession of your home.

Knowing when to go for bad credit mortgage refinancing is as important as knowing how to go about it. You must have seen a number of advertisements on the internet or on television that claim to secure the lowest possible rates of interest and hassle-free refinancing. However, you need to check out other lenders who might offer you a better and more profitable deal on home refinancing. You also need to calculate whether the total amount of projected savings is greater than the cost of mortgage refinancing.

The most common status is that these potential borrowers are refused in their request by all financing institutes as banks. So, the only decision about it for them is to try to find unprofitable loans given by other financing sourses offering various rules and conditions. One should weigh all pros and contras before agree for taken the next credit loan. As usual the rates which are published in a newspaper or in internet are way of beam. Bad credit loans for “sub-primes”, as the lenders name those people who have bad credit history, provide high interest rates, so far as the loan holder base them on the borrowers? credit scores. The application requets may, without any doubt, be denied by the lenders. The lenders well and truly check the credit history when somebody applies for the loan. Lenders can accept or reject being based on the results of thischeck. In case when the credit history is enogh good, a lender agree to give a loan and provides rather good and convinient rates conditions and terms.
Those who have bad credit history may ask for the bad credit loans but not all finance establishment will offer these loans. So, the conclusion is that it is necessary to look for more or less good conditions.

What it is necessary to know about bad credit loans.

- The possibilities of the lender could understand the borrower?s financial situation, because applying bad credit loans are usually distinct in case, if he was recently divorced, laid-off or removed to another place.

- People with bad credit history applying bad credit loans usually can consider some types of them including appropriate bad credit loan.

- Why do some credit loans are «bad»? Less profitable loand usually have payments for additional security methods, higher interest rates and so on.

- The interest rates are usually determined by the amount of cash the borrower needs, and the condition if he has current and stable income.

Quezon City, Metro Manila, Philippines (AHN) – The Philippine Congress has taken an interest in the Philippine Airlines labor row after Labor Secretary Rosalinda Baldoz allowed the flag carrier to lay off 2,600 workers.

The House Labor and Employment Committee will set a hearing in the coming days to probe the alleged anti-labor practices of PAL. The hearing would consolidate seven bills and resolutions with the committee, according to Rep. Emil Ong, who chairs the committee.

However, Ong admitted that Congress has no power to reverse Baldoz’s decision. The labor secretary ruled it is lawful for the air carrier to lay off the 2,600 workers and outsource the tasks the employees perform to cut on costs.

On Tuesday, President Benigno Aquino III – who just returned from a five-day state visit in Vietnam – said he would review the PAL decision of Baldoz, but would respect any decision made by the Court of Appeals. The PAL Employees Association said they would elevate Baldoz’s ruling with the Court of Appeals.

On the same day, workers to be affected by the layoff held a rally at the Mendiola Bridge, which is near the president’s office, to protest the DOLE decision.

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New Delhi, India (AHN) – For the sixth time in 2010, the Reserve Bank of India (RBI) increased the interest rates by another 25 basis points (bps) just to check the inflation rate, which has shown no signs of reduction for the past more than one year.

The repo rate at which the RBI lends to commercial banks was raised to 6.25 percent while the reverse repo rate, at which it pays to banks for deposits, was increased to 5.25 percent. The Cash Reserve Ratio (CRR), which is the amount of money commercial banks need to keep with the Central bank, however, remained unchanged at 6 percent.

The hike in the interest rates is not at all surprising, especially in wake of the fact that India has been the foremost nation in the whole Asian region, to fight back the soaring inflation rates with frequent hikes in the interest rates. Experts believe that it is this approach that has made India one of the few countries to recover so well after the 2008 global economic crisis.

Speaking with regard to the second quarter monetary policy review, RBI Governor Duvvuri Subbarao said, “Based purely on current growth and inflation trends, the Reserve Bank believes that the likelihood of further rate actions in the immediate future is relatively low.”

According to the latest key data in the RBI’s November 2, 2010 review, the annual wholesale price index for September was up by 8.62 percent as compared to 8.5 percent in August. The inflation rate in food, also remained high, despite easing down to 13.75 percent in the middle of the October month.

The apex bank’s policy review also noted that the “growth-inflation outlook” was likely to dominate the policy response.

Allaying public fears with regard to loan facilities to purchase home and car, the RBI said that the cost of such loans would not increase immediately.

Explaining this further, Chairman of the nationalized State Bank of India, O. P. Bhatt said, “The transmission mechanism between RBI and rest of the financial system does not work very fast. It always works with a time lag.”

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Bad credit unsecured loans are in favor of the applicants as the threat of seizure to their property does not happen. Thus, you can obtain the money in a worry free manner easily. Bad credit is like a disease and can be cured by rational policies and monetary support. To work out such objectives, you can have the loan amount in the range of £1,000 to £25,000 with fixed reimbursement period of 1 to 10 years. Being collateral free these loans carry slightly high rate of interest. As the applicants are already hit by bad credit, so they should be confident while spotting down the interest rates. They should keep in mind that as interest rates are directly relative to monthly installments a little hike might increase the monthly dues so, borrowers are advised to pay back the loan on time.

The method of availing the loan is flexible and simple and also free from all the drawbacks of traditional approaches as they are accessible online. In the present occupation applicants may have a hectic schedule and noticing these facts the online application is provided to them. So, bad credit unsecured loan is a mile stone in the world of loan because one can obtain them easily. The loan amount can be utilized to fulfill demands apart from the main objective in a coordinated manner. Specifically planned for bad credit profile holders, advancing of bad credit loans engages risk from lenders.

2.38pm: Earlier I said the key savings were coming from the welfare budget. Osborne rattled through the changes quickly in his speech, but they were technical and it was hard to grasp what they mean. Having had a look at the CSR documentation, I can now provide more detail.

Here are where the new savings are coming from. All these figures are annual savings by 2014-15.

– £2bn by time-limiting the contributory element of employment support allowance to one year. ESA is the benefit brought in to replace incapacity benefit. So these are cuts that will hit the disabled.

– £270m by imposing a £26,000 a year cap on the benefits an out-of-work family can receive. (When Osborne announced this policy at the Tory conference, he did not put a figure on the savings.)

– £2.5bn by cutting child benefit for high earners (as also announced at the Tory conference).

– £625m by freezing the working tax credit.

– £390m by making it harder to claim working tax credit. Couples claiming will have to work 24 hours between them, not just have one person working for 16 hours.

– £385m by cutting the childcare element of working tax credit. It will only cover 70% of costs, not 80% of costs.

– £215m by extending “shared room”, a housing benefit rule. This says people can only claim for the cost of a single room in a shared house. Originally it applied to claimants under the age of 25. Now it will apply to claimants under the age of 35. In other words, single people aged 25 to 35 won’t be able to claim housing benefit for a flat.

– £135m by cutting the mobility component in disability living allowance for people in residential care.

– £490m by cutting spending on housing benefit by 10%. This cut is on top of the housing benefit cut in the budget.

– £330m by freezing the maximum savings credit award in pensions credit.

– £330m by using real-time information to pay tax credits.

2.18pm: My colleague Julian Borger has sent me this about the Foreign Office cuts:

The 24% cut in Foreign Office budget, mostly at the cost of diplomats at its headquarters in King Charles Street, will be a massive blow to morale. The focus on drumming up business for British companies will also hurt self-esteem and the FCO’s self-image of “punching above our weight” over the great issues on the world stage.

And my colleague Jill Treanor has sent me this about Osborne’s initiative on the banks:

Did Osborne actually sound a bit tame on banks? He might be threatening them with a bank levy that he reckons will bring in more than Labour’s bonus tax (which was £3.5bn in just four months) but appeared to blame regulation rather than their behaviour. He hasn’t said anything today that he hasn’t said in the past apart from to cause confusion about how much he thinks his bank levy will bring in. He said today that the bank levy would bring in more than the bonus tax, which is difficult to square with previous Treasury projections that the bank levy will have a target for annual revenue of £2.5bn.

2.14pm: The CSR documents are now available on the Treasury website . The key document is the full 104-page report . At budgets the Treasury produces something called a red book. I’ve got a hard copy on my desk now. It’s green.

Treasury sources are highlighting the distributional charts at the back (see pages 89 to 100). These are the charts that show whether the richest or the poorest lose out most. The Treasury produced figures like this after the budget, but these figures are meant to take into account the impact of cuts in the amount spent on public services, as well as tax and welfare changes. The charts show people in the richest decile losing most. These are the charts that Nick Clegg uses to persuade Lib Dem MPs that the CSR is progressive. Over the next few days expect to read a lot more about whether or not they are credible.

2.12pm: Damian Carrington writes:

Ouch! There’s a big carbon tax for businesses in the detail of the Department for Energy and Climate Change settlement. The Carbon Reduction Commitment scheme requires medium and big companies to buy permits to cover the emissions from their energy use. The proceeds were going to be handed back, rewarding those companies that cut the most carbon, penalising those that don’t. But now the Treasury has nabbed the lot, to “support the public finances”, earning them £1bn a year by 2014-15.

Perhaps related is that revelation that the “up to” £1bn George Osborne has promised for the carbon capture and storage demonstration plants will not in fact come from a levy on consumer power bills, as expected and enabled in law in the Energy Act 2010. Instead it will be public money. The question now is what does “up to” mean? A full £1bn would get one CCS demo built, but the plan was for four – there’s little hope for the other three.

1.56pm: Osborne is replying now. He says Johnson is a “nice guy, but in the wrong job”. Either Ed Balls or Yvette Cooper would have done a better job, says the chancellor.

Osborne says Johnson spent all his time defending Gordon Brown, and points out that Brown is not in the chamber.

Osborne has also been told about the Johnson email. He says the line about setting out “a clear alternative” contradicts what John Denham said this morning about Labour not producing a shadow spending review. And he mocks the final line of the email: “Share you thoughts with us.”

1.52pm: Back in the Commons, Johnson is saying promoting jobs must be at the centre of any deficit reduction plan. That’s the key difference between Labour and the government, he says.

He is now moving on to questions. How many public sector jobs will be lost? Will the poorest still bear the greatest proportion? And will women be hit more than men?

Johnson says Osborne’s point about cutting Whitehall spending by less than Labour planned was “nonsense”. The 20% figure – which Osborne said was the average departmental spending cut envisaged by Labour – was actually produced by the Tories.

Johnson says Osborne cannot say that his cuts are no worse than Labour while at the same time accusing Labour of not having a credible deficit reduction plan.

(Good point. Maybe Osborne’s final flourish – see 1.34pm – was an example of a politician trying to be too clever.)

1.47pm: Johnson says Labour supports moves to ringfence the health budget. But Labour is opposed to the NHS reorganisation.

Funnily enough, while he has been speaking, I (and, I assume, everyone else on the Labour party mailing list) have just received an email from Johnson. Here’s an extract:

This is about saying, “No. There is an alternative”.

I’m going to be honest with you, being in opposition does not mean that we can oppose every cut, or pretend to be in government. But it does mean setting out a clear alternative to what we regard as a reckless gamble with growth and jobs – a balanced approach that gets the deficit down without endangering the recovery.

1.46pm: Watch Osborne announce the spending review here .

1.45pm: Johnson is mocking the Lib Dems for changing their stance on whether cuts would be justified this year. He says Nick Clegg changed his mind between the ballot box closing and the door of the ministerial car opening.

He also points out that Scotland, Wales and Northern Ireland do not support Osborne’s stance on the deficit. “Perhaps that’s why he calls himself a one-nation Tory,” he says.

(Johnson is relying quite heavily on jokes. But he has not had time to look at the detail of the CSR and the jokes are effective. Labour MPs seem to be enjoying his performance.)

1.41pm: Alan Johnson (left) is responding now. He has accused the government of being “deficit deceivers”. And the Speaker has allowed it. (I was wrong – see 11.49am.)

He says the last CSR took place in 2007. Was George Osborne arguing for reduced public spending then, he asks. No. Osborne was arguing for more public spending then, Johnson says.

And far from calling for regulation of the banks, the Tories were calling for deregulation of the banks. John Redwood had written a report for the party recommending this, he says.

Johnson says Osborne claimed the budget was fair. But the Institute for Fiscal Studies proved that wrong.

(This is a bit of a risk for Johnson. If the IFS were to accept that this package is progressive, Labour would be left stranded.)

1.39pm: Damian Carrington’s verdict on Osborne’s environmental measures:

George Osborne has disappointed on the great green hope: the green investment bank the coalition promised gets £1bn in funding, half of what was expected and a sixth of the amount many observers say is needed to deliver the green energy necessary. We need to see the details about whether the bank really is a bank.

Elsewhere, he promises £200m for wind power and port development; £60m of that is for the east coast ports so they can handle big turbines. He also promised up to £1bn for the carbon capture and storage demonstration plants – but that’s raised by upping consumer power bills and is £9bn less than last government wanted over 15 years.

The renewable heat incentive – to back green home-heating schemes – goes ahead with money but the Warm Front programme, which helps the poorest makes their homes warmer, is going.

He says the climate change department’s budget is being cut 5% a year (about 20% over four years?) but that capital expenditure is going up – by pushing up power bills, I think.

1.36pm: Snap verdict: Tory MPs liked it, and Osborne was making great claims for the “progressivity” (Cameron’s word) of it all. But those welfare cuts are going to need careful study. It sounded very technical, but £7bn is a huge sum.

1.34pm: Osborne is concluding. He says the decisions he has taken “bring sanity” to the public finances.

Public services will be reshaped. But this is the right choice.

Osborne says he has received many submissions. One from Labour said the average cut for Whitehall departments should be 20%, not 25%.

Osborne says he has managed to ensure that departmental savings are lower than Labour implied in the March budget.

Instead of cuts of 20%, there will be cuts of 19%, he says. He says he looks forward to Labour supporting the CSR.

That’s it. He’s finished.

1.31pm: Osborne is now talking about education.

– Real increase in school spending for each of the next four years. The schools budget to rise from £35bn to £39bn. – £2.5bn available for the pupil premium.

– Educational maintenance allowances to be replaced with “more targeted support”.

– Sure Start protected in cash terms. To be focused on its original purposes (ie poorer communities).

– Disadvantaged two-year-olds to have access to 15 hours of care per week.

1.29pm: Osborne says the £1bn regional growth fund will have an extra £500m in the third year of its existence.

1.28pm: Osborne says transport will get the biggest capital investment after defence.

– Rail fares will be allowed to rise three percentage points above inflation until 2012.

– Over next four years £30bn to be invested in transport projects. Osborne lists a series of projects, but more details will be available next week, he says. – London’s Crossrail transport project to go ahead.

1.25pm: Osborne is on culture now.

– Culture budget to come down to £1.1bn.

– Free entry to museums to continue.

– Treasury to save £340m from new funding settlement for BBC. Licence fee to be frozen for six years. BBC will take over responsibility for funding World Service.

1.22pm: Osborne says he can announce the largest ever investment in adult apprenticeships.

– An extra 75,000 adult apprenticeships a year to be available.

Osborne says a pure graduate tax would be unworkable. But better-off graduates will have to pay more.

– Business department to have annual budget cuts of 7.1%.

– Science budget to be frozen at £4.6bn a year.

– Up to £1bn will be available for a carbon capture and storage project.

– Green investment bank to be set up. Up to £1bn of funding available, but Osborne says he hopes more will be available, from the private sector and from government asset sales.

– Energy department spending to be cut on average by 5% a year. But its capital budget will go up.

1.18pm: Osborne is now talking about Equitable Life.

– Equitable Life victims to benefit from a £1.5bn compensation fund. But investors with a particular policy (with a “with profits” policy, I think he said, but I didn’t catch the detail) will qualify for full compensation.

1.17pm: Osborne says health spending will be protected.

Scotland, Wales and Northern Ireland will get cash rises in their budgets, although those increases will be below the rate of inflation.

– Northern Ireland executive will get £25m in cash and a much larger loan to help those who lost out in the collapse of the Presbyterian Building Society.

1.16pm: My colleague Nick Fletcher has been monitoring market reaction to the speech:

There’s a fairly calm reaction on the markets so far. The FTSE 100 was at 5716 when Osborne stood up, and is now at 5713.57, up around 10 points on the day. The state-controlled banks, Royal Bank of Scotland and Lloyds Banking Group, are both down following the chancellor’s plans to clamp down further on the sector. The pound has edged up against the dollar, to $1.5726, but has slipped a little against a strong euro. Gilts are holding steady, a good sign for the way investors are reacting to the government’s finances.

1.14pm: Tom Clark writes:

Osborne started his sermon on welfare with highfalutin talk about the values of a civilised country. The move to increase the state pension age may be justified by demographics, but watch out for the bigger hit on women who are already seeing their pension age increase, a process that will now be accelerated. Moving on to public service pensions, he talked a good talk about a “gold standard” but then announced an increase in public servants’ contributions that amounts to a straightforward cut in pay. And then he went on to reduce the quality of the pension on top.

Moving on to welfare benefits, his tone hardened. There was a vicious list of measures that will, among other things, lead to 34-year-olds being treated as students so far as housing benefit is concerned, a big cut in childcare support for working mums, and less recognition for pensioners who have a small amount of savings that puts them just above the safety net. They will all be hit, but no one will be hit harder than disabled people with a husband or wife that works. After just one year, they will now find themselves stripped of any independent income.

1.13pm: On child benefit, Osborne defends his decision to cut child benefit for higher-rate taxpayers. This will raise £2.5bn, he says.

– Child benefit to stay for children until they leave school. (There was speculation that the government would stop paying it after the age of 16.)

– Cold weather payments to stay at the level set by Labour.

Osborne says these payments “should be for life, not just for general elections”.

1.10pm: On welfare, Osborne says in some cases the benefit bill of an out-of-work family is equivalent to the tax paid by 16 working families.

Welfare bills have rise by 45%, he says. – Universal credit to be introduced over next two parliaments. More than £2bn set aside over next four years to allow this to happen.

Osborne describes this as the most important reform of the welfare state for a generation. The new credit will ensure that it always pays to work, he says.

Osborne is now announcing a series of quite technical welfare changes relating to eligibility rules. And he reaffirms his commitment to putting a cap on benefit payments, so that no family can get more than about £26,000. – Welfare cuts to save £7bn, he says.

– Child tax credits to go up.

1.06pm: Osborne is moving on to welfare.

Life expectancy is rising, he says.

– State pension age for men and women will reach 66 by 2020. It will start to rise from 65 to 66 from 2018.

– Over £5bn to be saved by the end of the next parliament from the new pension age. The money will be used to fund more generous pensions. Osborne thanks Lord Hutton, the former Labour minister, for his report on public-sector pensions.

Osborne says he wants public service pensions to be a “gold standard”. But they must be affordable. Employee contributions will have to go up, but that process must be “staggered and progressive”. Reforms will be postponed until next spring. But a consultation will be carried out now.

– Government to save £1.8bn a year by 2014-15 from reform of public sector pensions. – MPs’ pension arrangements to be made less generous.

1.04pm: My colleague Patrick Butler writes:

Local government is going to find the next four years a massive challenge: more power to spend what they have – but a lot less to spend, at a time when demand, for housing, social care and other services, is going to soar. The “big society” is expected to step in: but £100m transition fund for hard-bit voluntary sector is a drop in the ocean.

1.01pm: Osborne says he will publish detailed plans for the bank levy tomorrow.

Only four out of 14 banks have signed up to a code of conduct on taxation, he says.

– HM Revenue expects to raise an extra £7bn from a clampdown on tax evasion.

12.58pm: Osborne says the distributional analysis published today shows that the rich will pay more. He says these figures take into account consumption of services, as well as income.

– The CSR will be progressive, Osborne claims. The wealthy will contribute most.

12.57pm: Osborne says he wants to avoid any reduction in the visibility of police on the streets.

– Police spending to be cut by 16%.

He is prioritising counterterrorism spending.

– Home Office and Ministry of Justice to have their budgets cut by an average of 6% per year.

– Plans for a new 1,500-place prison have been deferred.

Underused courts will be closed. And the legal aid budget will be cut.

12.53pm: Osborne is talking about the MoD now. He says he will give the MoD what it needs for Afghanistan.

– Foreign Office budget to be cut by 24%. There will be a reduction in the number of Whitehall-based diplomats.

Britain will meet its aid obligations, he says, becoming first in world to honour the UN’s figure of 0.7% of GDP given to international development aid each year – that’s £11.5bn per year by 2015. “Britons can hold their heads up high and say we will honour the promises we made to some of the poorest people in the world,” he says.

Aid administrative spending will be cut.

– Aid to China and Russia will be scrapped.

12.51pm: Tom Clark writes:

Linking council rents to the market rent (even on a subsidised basis) will:

– Further the removing of the poor from inner London.

– Break the old guarantee that if you had a council house, the state would pay your rent if you were out of work.

12.51pm: Osborne is on social housing now.

– Funding will be available for an extra 150,000 affordable homes over the next four years.

12.49pm: Osborne says he will decentralise services. GPs, schools and communities will get new powers.

– Personal budgets will be expanded for children with special educational needs and adults with long-term care needs.

– Council spending to be cut by 7.1% every year for four years.

– Councils will have much more freedom over how they spend their money. Ringfenced grants will be dramatically cut back.

– An additional £2bn will be available for social care.

12.48pm: From Damian Carrington:

Early mentions are clearly linking environmental measures to economic growth, specifically “green energy infrastructure”. That’s going to be the green investment bank, carbon capture and storage demonstrations and backing for wind power, probably via upgrading ports. Easier to sell greenery on basis of creating jobs, than saving Bangladesh from global warming.

12.47pm: My colleague Tom Clark writes:

Osborne made much of adding a couple of billion pounds back into the budget for capital investment. This follows a dubious claim he made in the June budget not to have cut investment at all, where in fact he had cut it in May. Roughly speaking, I guess that the increase today at best offset the cuts made in late May. Overall capital expenditure is still being reduced very sharply. We await the small print, but I would guess it will almost certainly be cut by more than half when compared to last year.

12.46pm: Osborne is on the civil list now.

– Civil list to be frozen for one year.

– Royal spending to fall by 14% by 2012-13.

– An extra £1m will be available for the Diamond Jubilee. Osborne says he will put the royal finances on a more long-term footing.

12.46pm: Osborne is explaining how reform guides the CSR. It is underpinned by “a far-reaching programme of public sector reform”.

He says he wanted to find £3bn of savings from Whitehall administrative savings. But he has achieved more, he says.

Every main government department will cut its budget by a third.

– Whitehall administrative costs to be cut by £6bn.

There will be some redundancies, he says. There are “unavoidable”. He repeats the 490,000 public-sector job losses figure disclosed by Danny Alexander yesterday.

The Cabinet Office and the Treasury will oversee the process of Whitehall savings.

There will be a £100m transition fund for departments facing read hardship.

12.42pm: Osborne outlines the three principles behind the CSR: reform, fairness and growth.

Fairness means creating a welfare system that supports people into work. “Those with the broadest shoulders will bear the greatest burden,” he says.

12.40pm: Osborne is still on debt.

– Debt interest payments will be £5bn lower over the course of the spending review.

Osborne says capital spending will be £51bn this year. It will be £2bn more than planned at the time of the budget.

12.38pm: Osborne says some tax increases were included in the budget. These increases included the VAT rise, where “fortunately we were able to benefit from the preparatory work [in the Treasury] conducted by the previous government”.

(As Lord Mandelson’s biography revealed, Alistair Darling favoured a VAT rise.)

Osborne says current spending will rise to £693bn by 2014-15.

Debt interest payments will reach £63bn by 2014-15, he says.

12.37pm: My colleague Larry Elliott writes:

Osborne’s strategy clear already – tell people it’s Labour’s fault, that government is stripping out waste and that there’s a better future ahead.

12.37pm: Osborne says the action taken since May has taken Britain “out of the financial danger zone”.

The creation of the Office for Budget Responsibility has brought “honesty” back into government forecasting. The OBR has audited the forecasts in the CSR.

To back down now would be “the road to economic ruin”, he says.

12.35pm: He will ensure that “we do not saddle our children with the interest on the interest on the interest” on the debts the government was not willing to pay, he says.

The priorities will be health, education, security and infrastructure.

The £109bn structural deficit is the largest in Europe, he says. The government is paying debt interest at the rate of £120m a day.

12.32pm: George Osborne is starting. He says:

Today is the day when Britain steps back from the brink, when we confront the bills from a decade of debt … It is a hard road, but it leads to a better future.

12.31pm: My colleague Damian Carrington has sent me this.

David Cameron says in PMQs that the promised Green Investment Bank will get “proper money” – but will the GIB be a real bank or just a fund ? He also says carbon capture and storage will get funded – but how much of the £9.6bn suggested by the last government ? And that wind power will be backed. How?

12.29pm: Duncan Hames, a Lib Dem MP, asks Cameron if he agrees that, if graduates have to contribute to the cost of their university education, those with the most money should pay the most.

Cameron says he does agree. He thinks most MPs in the Commons want the same thing. He hopes there will be all-party agreement on the need for “progressivity”.

12.26pm: Nick Boles (Conservative) asks Cameron to confirm that he will protect spending on the NHS. Cameron says NHS spending won’t be cut in real terms. Labour has not given that commitment, he says.

12.24pm: A Labour MP asks if Cameron still thinks that unemployment is a price worth paying for economic recovery. (Norman Lamont used the phrase in the early 1990s; Cameron was his special adviser.) Cameron says that that is not his view at all.

12.22pm: Cameron has given us a detail from the CSR:

– Science funding to be frozen.

12.21pm: Nigel Mills, a Tory MP, says he has been to China where he found that Chairman Mao promoted the virtues of “thrift” in his Red Book. Mills is even waving a copy in his hands. Does Cameron think Labour has something to learn from Communist China?

Cameron enjoys the joke. Cuba is cutting public spending, he says. Labour is somewhere between Cuba and China.

12.15pm: Snap verdict: Miliband asked a sensible question (about being prepared to change tack), didn’t get a reply, but didn’t really manage to unsettle Cameron as effectively as he did last week. Cameron’s response to the catchphrase taunt was good, but he sounded a tad patronising, which doesn’t really square with his “new politics” stance.

12.11pm: Miliband again asks if the government will revise its tax and spending plans.

Cameron says we live in a “dangerous world economy”. The government needs to take Britain out of the danger zone. What Miliband is doing is “thoroughly irresponsible”. And Miliband probably knows it, Cameron suggests.

Miliband says Cameron said he was a new type of politician. But he is adopting the “if it isn’t hurting, it isn’t working” approach adopted by old Tories, he suggests.

Cameron says MPs remember other catchphrases, like “no return to boom and bust”. He offers Miliband some advice from his time as opposition leader. “If you haven’t got a plan, you can’t attack a plan,” he says.

12.08pm: Miliband asks about Chris Huhne, the energy secretary. Huhne said the government should not be “lashed to the mast” in relation to the CSR. Does Cameron agree that it would be right to change strategy if economic conditions change?

Cameron says the Office for Budget Responsibility is forecasting that unemployment will fall next year. (He’s answering the previous question. While Miliband was speaking, he was talking to George Osborne, presumably to check the point about the OBR.)

12.07pm: Miliband says Cameron knows there are risks to the UK. Half a million jobs are at risk. Will the spending review be a failure if it leads to unemployment going up next year?

Cameron says that’s a better question. The CSR is designed to take the economy out of the danger zone, he says.

12.04pm: Miliband says it is clear Clarke was referring to the UK economy. Was Clarke wrong?

Cameron asks Miliband to ask the question again, including the complete quote.

12.03pm: Cameron says Clarke’s full quote made it clear that he was talking about the European economy, not the UK economy. Cameron asks Miliband to read out the full quote.

12.03pm: Ed Miliband says he wants to ask about something Kenneth Clarke said recently. Clarke said he would not rule out a double dip recession. Cameron said the economy was “out of the danger zone”. Who was right?

12.02pm: PMQs has started now.

11.57am: George Osborne will start making the comprehensive spending review (CSR) announcement at 12.30pm. After months of waiting, we’re going to find out how the coalition intends to cut public spending by £83bn over the next four years.

Before he stands up, David Cameron has got to get through prime minister’s questions. The CSR is bound to come up in some way, although Cameron is bound by parliamentary convention which says that he should not announce anything due to be announced by the chancellor. I expect we’ll hear him telling MPs that they need to wait for Osborne to find out what’s going to be cut. Cameron and Ed Miliband will only be able to discuss the CSR in general terms.

Osborne will get to his feet at 12.30pm and then he will speak for about an hour. After he has finished, Alan Johnson, the shadow chancellor, will reply for Labour. MPs will then have a chance to question Osborne for about an hour, but at that point the Treasury will release the full CSR documentation and journalists like me will be focusing on the small print.

11.52am: Environment spending could actually be going up. How? My colleague Damian Carrington explains.

The “Environment Narrative” revealed yesterday by Danny Alexander ( with a little help from photographer Oli Scarff ) has a very striking line at the end: “Over the spending review period environment spending will increase [30%] in real terms. As my colleague Juliette Jowit noted yesterday , the square brackets indicate the figure was still not finalised. But, people will ask, how on earth can spending go UP as the axe comes crashing down across government?

The answer is, very likely, by bumping up energy bills. Electricity and gas bill levies are already set to raise £3bn by 2015, paying for renewable energy and energy efficiency projects. We also think a new £1bn levy will get the go-ahead to pay for carbon capture and storage demonstration plants . Hey presto, a 30% or so rise.

There’s no doubt much more detail to come on this but due to Alexander’s regrettable inability to flatten the page properly on his lap, the footnote defining what counts as environment spending is hard to read.

11.50am: Here’s a short pre-CSR reading list:

– Fraser Nelson at Coffee House criticises newspapers for reporting the 500,000 job cuts figure unveiled by Danny Alexander, but not reporting the figures from the same source suggesting 1.5m jobs will be created in the public sector while the cuts are being implemented.

– Will Straw at Left Foot Forward says there is an alternative to what is being proposed today.

– John Redwood on his blog says the figure for 500,000 public sector job cuts needs to be seen in perspective:

Much is being made today of the 500,000 job loss figure seen on Mr Alexander’s briefing document photographed through his car window. Let us put this into perspective. There are around 6 million public sector jobs in the UK, an increase of more than 1 million over the last decade. At least 250,000 public sector employees resign or retire every year, so over a four year period you could cut the workforce by 500,000 without a single redundancy, whilst replacing people in all important posts like doctors, nurses and teachers.

– Sunder Katwala at Next Left says the coalition government has no electoral mandate for what it is doing today.

11.49am: One of the problems for Labour is that the phrase “deficit deniers” has caught on. You hear it quite often in the media, and my impression is that “real people” (ie people who aren’t political obsessives) are using it too, or at least understand it.

Earlier this summer Ed Balls tried to retaliate by accusing the government of being “growth deniers”. But that phrase sunk without trace. Today Alan Johnson had another go; I’ve just heard him accusing George Osborne and co of being “deficit deceivers”, in the sense that they are wrongly accusing Labour of being to blame for the deficit. (See 9am.) Will this catch on? Who knows, but there is one problem with the phrase. If Johnson tries to use it in the Commons, it will probably be ruled out of order, because MPs are not allowed to accuse each other in the chamber of deception.

11.36am: What will the CSR have to say about the arts? My colleague Charlotte Higgins has got some answers.

George Osborne’s statement this lunchtime will contain only the headline figure for the Department for Culture Media and Sport’s budget, but the details of cuts to the arts and museums are expected to emerge over the afternoon. We expect to hear that national museums will be (relatively speaking) protected – facing a 15% per cent cut, about as much as they can take without charging entry (charging is seen as a political no-go area).

However, the arts will be hit much harder, with about a 30% cut. Expect outrage – the entire annual arts budget is only about £450m, so a 30% cut contributes little to stemming the tide of the decifit, while causing (it will be argued) untold harm to England’s cultural landscape and to the economically important cultural industries. However, the government will be eager to emphasise that the arts and heritage will benefit by an extra £50m each per year because of the return of the lottery to its orignal good causes in 2012.

11.20am: Mortgage lending hit its lowest level for a decade in September, my colleague Jill Treanor reports . One mortgage broker described the figures as “a shocker”. The figures suggest buyers are being particularly cautious because of the uncertainty created by the CSR.

11.17am: Here’s some breaking environment news, from my colleague Damian Carrington.

An intriguing development on the question of whether the government will today go forward with plans to make energy consumers pay for carbon capture and storage demonstrations plants via a levy on bills . E.on, one of only two companies in the government’s competition to win funding, has pulled out just hours before Osborne speaks. The company says it isn’t economic, but perhaps it knows there won’t be enough government support. It’s a big ticket item – almost £10bn over 15 years for four plants. More soon on environmentguardian.co.uk

11.17am: Kenneth Clarke, the justice secretary, has just been interviewed on Sky. He said that he was still determined to “improve” services delivered by his department, despite having to cut spending.

11.02am: You’ll find all today’s Guardian politics stories here . And all the stories filed yesterday, including some in today’s paper, are here .

As for the rest of the papers, they all have their own extensive CSR coverage. Here are four articles that stood out.

– Sue Cameron in the Financial Times (subscription) says ministers don’t seem to care whether or not the cuts will trigger a double-dip recession.

As one senior Treasury figure put it: “Nobody knows what the outcome is going to be – and that includes the politicians.”

Another went further. “Not only does the coalition have no real sense of how the cuts will turn out but in a funny way they don’t care.”

He cited a meeting at Number 10 a few weeks ago attended by the PM, the chancellor and top civil servants. “They were discussing the possibility of a double-dip recession yet there was almost a feeling that if it happened then too bad – they must still go ahead with the cuts. So they’ll carry on cutting with the risk that if it is not all right they’ll have to come running back to change it.

– Hamish McRae in the Independent says today could be seen as the start of an era when governments will have to learn to do more with less.

You can look at this in two ways. You can see it as a course correction, a violent one to be sure, but one essentially made necessary by past errors. This is the idea that we have to get back on track, that doing so will be painful, but that when we do all will be hunky dory. Or you can see it as something quite new, the early stumbling stages along a path towards redefining the role of government itself – what the state in a Western society does for its citizens, and what it does not or indeed cannot do.

Both views are valid enough but I suspect that in 10 or 20 years’ time we will see the events of today more in terms of the latter and more dynamic perspective.

– George Parker and Jim Pickard in the Financial Times (subscription) say the government is adopting a Millwall strategy in relation to the cuts.

“As long as everyone hates us, it’s OK,” says one architect of Wednesday’s £83bn package of spending cuts.

– Simon Heffer in the Daily Telegraph says the spending cuts will not go far enough.

The decisions not to cut the NHS or the fatuous budget for overseas aid are simply derelict. The NHS was used in the last two or three years of the Labour government to pile people on to the public payroll in order to massage the unemployment figures. These were not doctors or nurses, or anyone else who might actually be useful, but clerical staff, more management and unskilled labour.

10.56am: And Northern Ireland is expected to lose £2bn over the next four years as a result of today’s CSR, my colleague Henry McDonald tells me. The figure has come from local politicians and welfare organisations.

Each year £500m will be taken out of the block grant the Treasury gives annually to the Province, according to the Northern Ireland Council for Voluntary Action. That does not include further cuts in welfare that will affect Northern Ireland. Seamus McAleavey, NICVA’s director, said the cuts would force a new class of people onto welfare. “A whole new set of people will be coming through the doors of advice centres,” he claimed.

Today Richard Ramsey, the chief economist of the Ulster Bank, said the province was more economically and socially vulnerable in terms of the cuts than other parts of the UK. In part that was due to its connections with the Republic of Ireland’s economy, which is also about to endure massive spending cuts in the country’s December budget, Ramsey said.

10.46am: Scotland is expecting a £4bn cut in the Treasury block grant over the next four years, with up to £1.2bn in Scotland’s £29bn grant being cut next year, my colleague Severin Carrell tells me. The latest GDP figures for Scotland showed its economy has started growing, at a slightly faster rate than the UK as a whole. But John Swinney, the Scottish finance secretary, is urging the Westminster government not to cut too deeply.

The UK government will be judged on the decisions it will announce today – decisions that will cut spending too deeply, too quickly and in the wrong place. The chancellor’s cuts will destroy jobs, and risk economic recovery.

10.39am: Nick Clegg has written an open letter to Lib Dem members about the spending cuts. He describes the cuts as “unavoidable” and he blames Labour for overspending in the last parliament. And he says the CSR is “a thoroughly coalition product”.

Liberal Democrat ministers have been involved every step of the way. Our values and priorities are written through the review, like the message in a stick of rock. We have had to make some very difficult choices. But the review is one that promotes fairness, underpins growth, reduces carbon emissions and localises power.

The coalition government is investing £7bn in a “fairness premium” to help disadvantaged children; putting more than £1bn into a regional growth fund; launching a green investment bank with at least £2bn for low-carbon technology and new jobs; and giving local government real financial freedoms. This government will be spending more than £700bn on public services – the same as in 2006.

Clegg also says he is not supporting the cuts because he wants to see the size of the state reduced.

We are not taking the decisions today because they are easy or because we want to see a smaller state, we are taking them because they are right. We have a hard road to recovery ahead, but we are determined to ensure it is a road that leads to fairness too.

This paragraph is significant because David Cameron and the Conservative party do want to see a smaller state. As Hazel Blears pointed out earlier (see 9.55am), this is an issue on which there is a split within the coalition.

10.20am: If Guardian readers are right, today’s cuts will trigger a double-dip recession. My colleagues at Guardian Business are running an online poll and almost 80% of respondents are predicting a second recession.

10.06am: The September borrowing figures are the highest since 1993, my colleague Julia Kollewe reports . She says this means that the annual borrowing figures might be higher than the chancellor expected.

9.55am: Hazel Blears was being interviewed by the BBC alongside Tim Farron and, when he said that he wanted up to 90% of the cuts being announced today to be reversed at some point in the future (see 9.36am), she identified this as a split within the coalition. According to PoliticsHome , this is what she said:

That’s a very revealing statement because David Cameron is on the record for saying he would not restore some of the cuts … he said this is a big change, a big shift … I think we’ve got a very big split here.

9.43am: What are the markets doing in advance of the CSR? My colleague Nick Fletcher has sent a quick summary.

The FTSE 100 is down 16.09 points at 5687.80, with a number of companies likely to be affected by government cutbacks among the losers. BAE Systems is 11.7p lower at 352.2p after yesterday’s news of a 8% reduction in defence spending over the next four years. Outsourcing group Serco is down 15.5p at 611p as investors weigh up whether the sector will be a winner or loser from the cuts, with many believing there could be a short-term dip but longer term benefits for the businesses.

But Ian Williams at Altium Securities pointed out that the spending review will have little impact on the bulk of the companies on the UK equity market. “Although there will undoubtedly be some stock-specific implications, the overall effect on an equity market dominated by companies that generate the majority of their revenues outside the UK will be modest. Sterling and gilt investors are understandably edgy with the Bank of England’s monetary policy committee minutes emerging ahead of the CSR,” he said.

9.41am: Monthly public sector net borrowing was higher than expected at £16.2bn in September, the Office for National Statistics has just announced.

9.36am: George Osborne has not even announced the CSR yet, but a Lib Dem MP has already started lobbying for most of the cuts to be reversed at some point in the future. This is what Tim Farron told BBC News:

There will be some waste to be cut today. But 80, 90% of the things that are cut today are important and good things that we should restore as soon as the country’s finances are back in shape … This is a temporary necessity.

9.12am: Here’s the full version of what Ed Miliband (left) told the BBC as he left his home this morning:

What the government should be doing is putting in place a plan to reduce the deficit, but also protect growth and jobs in our country. What I fear we’re going to hear today is an irresponsible gamble with our economy and indeed many of the frontline services that people rely on in our communities … There is an alternative, there is a different way, but I fear what the government is going to do is take an irresponsible gamble with our nation’s economy. People will be very fearful about what is being announced today, fearful for their jobs, fearful for many of the services they rely upon up and down the country.

9.07am: What will the CSR mean for the environment? My colleague Damian Carrington has produced a checklist for the Environment blog .

9.00am: One of the most striking figures in the YouGov CSR polling published yesterday was the response to the question: “Who do you think is most to blame for the current spending cuts?” Some 48% said it was the last Labour government. Only 18% said the coalition government was most to blame.

Ed Miliband is going to find it hard to make much headway in the polls until that figure changes. But Labour figures are trying hard to refute the argument that Gordon Brown spent too much, and John Denham has been having another go this morning. According to PoliticsHome , Denham, the shadow business secretary, told Sky that Labour had not “gorged” on excessive spending.

Health spending in this country under the previous government was at the same level as the European standard… that’s not gorging.

Denham also said Labour was right to maintain spending when the banking crisis hit.

What happened when the banking crisis hit was that we had a very clear choice: you could have cut back on spending straight away, or you could have done what we did, which was borrow money to maintain jobs.

8.49am: Ed Miliband gave a comment to the BBC about the CSR as he was leaving his home this morning:

I fear what the government is going to do today is take an irresponsible gamble with our economy.

8.43am: It’s still early, but already we’ve got a contender for the prize for the most bizarre CSR analogy. It’s like a wedding. Or at least it is in one respect.

Michael Gove (left) used the comparison when he was asked about the government having a “plan B” in case its deficit reduction strategy didn’t work.

If I was just going to get married and you came up to me and said: “What’s plan B?” I would say I’ve made this decision because I think it is right … Plan A: dealing with this mess is the only thing that a responsible government can do.

8.35am: The comprehensive spending review (CSR) will have Lib Dem “footprints” all over it, Simon Hughes said this morning. This is what the Lib Dem deputy leader told BBC Breakfast:

What you will see today is all the things that we had as our priorities in the election reflected in the statement; you will see the fairness for the next generation, which is why there is much more investment for the under-fives and the poorer families at school … People will see the NHS safe, they will see the poor and more vulnerable, the elderly, protected. They will see the Liberal Democrat footprints, if you like, over the announcement. This is not something where the Tories have imposed their will on us.

Michael Gove, the education secretary, said the CSR would not necessarily lead to the loss of 500,000 public sector jobs. Commenting on the figure inadvertently released by Danny Alexander yesterday , Gove told BBC Breakfast:

That is how many jobs could go unless we take action in order to try to ensure that the load is spread as fairly as possible. What we want to do is to make sure that as few people in the public sector lose their jobs. That is why we are negotiating now with the public sector unions and with those who work in so many of the services on which we depend, in order to ensure, for example, that pay can be frozen in such a way that we can minimise job losses.

8.23am: This will be a day of news overload. At 12.30pm George Osborne, the chancellor, will stand up in the Commons to announce what is being billed as the biggest programme of public spending cuts for 90 years. It will be like having four budgets rolled into one – only bigger. After he sits down, we’re expecting a cascade of announcements from other government departments, as they explain in more detail what the decisions announced by Osborne actually mean. In public policy terms, this will probably be the most important day of this parliament, possibly of this decade. Keeping it up with it all is going to be tricky, but I’ll be doing my best, blogging the news as it breaks and showing you where to find the best comment and analysis on the web.

If you’re looking for a good place to start, try Patrick Wintour in the Guardian today. “Haggling over the deepest public spending cuts since the second world war has culminated in the BBC being forced to accept a 16% budget cut that will see its licence fee frozen for six years and the corporation taking over funding of the World Service from the Foreign Office,” he reports.

Larry Elliott has looked at the economics of today’s announcement, and he says Osborne’s cuts could ” accelerate the economy’s slide back towards recession “. At the Guardian’s Datablog, Gemma Tetlow of the Institute for Fiscal Studies says the £83bn cuts supposedly being announced today really only amount to £49bn . And this interactive shows what has happened to public spending in Britain since 1948.

I haven’t looked at the other papers yet, but I’m about to plunge in. I’ll post the highlights this morning, as well as covering the build-up to the announcement. Oh, and we’ve got prime minister’s questions too. As I said, it’s news overload. Spending review 2010 Economic policy Public finance Public sector cuts Andrew Sparrow guardian.co.uk © Guardian News & Media Limited 2010 | Use of this content is subject to our Terms & Conditions | More Feeds

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