Spending Review: Cameron and Clegg deny cuts 'unfair'

Prime Minister David Cameron and his deputy Nick Clegg have rejected claims the Spending Review cuts were "unfair".

The respected Institute for Fiscal Studies says poorer families with children would be the "biggest losers".

But Mr Cameron said higher earners would pay more, while Mr Clegg said those who called the measures unfair "were not being straight with people".

"Frankly they are frightening people and that is not right," said Mr Clegg during a joint visit to Nottingham.

And Chancellor George Osborne said that, including June's Budget measures, the top 10% of earners would be hit hardest, although everyone would have to make a contribution to cutting the deficit.

Labour called the £81bn cuts - the biggest since the 1970s - a "reckless gamble" with the economy.

'In a hole'

It has been estimated that the measures will lead to the loss of 490,000 public sector jobs - with the Local Government Association saying 100,000 of them will be at local authorities, which are facing a budget squeeze.

Answering questions from the public, Nick Clegg said suggestions the plans represented a "full frontal assault" on the public sector were completely wrong and called for a more "balanced" assessment of what the coalition was doing.

"People who are trying to take only one bit of the equation and say, 'ah that shows it is all very unfair' - they are not being straight with people," he said.

"Frankly they are frightening people and that is not right, frightening people and claiming we are doing unfair things when we are not."

While he understood people's anxieties about their jobs, he insisted the wealthiest would pay the most and "this is the fairest possible way of doing this difficult thing".

Mr Cameron said he had not come into politics to cut spending in this way but the economy was "in a hole" and far-reaching steps were needed to secure long-term prosperity.

He said the better-off would pay more, both in overall cash terms and as a share of their income.

"Fairness is actually about asking how much people give as well as how much people get and I think that we have done it in a way so we can genuinely say it is difficult, it is tough but it is fair and we are going to take the country with us," he said.

'Double whammy'

Labour challenged these claims, saying the "poor would be hit hardest", while families on middle incomes would also be badly squeezed.

"It is now clear children have been hit hardest by this government," shadow chancellor Alan Johnson said.

"It is a double whammy. At home, they lose the most from George Osborne's tax and spend changes. And at school, children will see the money available for their education cut."

The IFS think tank has also cast doubt on the chancellor's analysis of who would feel most of the pain from the cuts.

Excluding the wealthiest 2% of the population, who it assesses will be the hardest hit, it said the plans would be regressive in their impact, since those in the bottom half of the income scale would be affected more than those in the top half as a result of cuts to benefits and public services.

The Treasury has rejected this but BBC economics editor Stephanie Flanders said its analysis had excluded a third of the benefit changes being proposed and did not factor in the impact of all the changes right up to 2014-15.

The IFS calculations suggested the bottom 10% will, on average, lose about 5.5% of their net income compared to roughly 4.5% for the top 10%, she added.

'Plan A'

The IFS has also suggested Mr Osborne may need to revisit his plans if they hinder growth and consequent efforts to pay down the deficit.

"There is a 40% chance that he will have to come back for bigger tax rises or deeper cuts to public spending," Carl Emmerson, IFS acting director, said.

"What happens if these deep cuts to public services lead to worse public services than he is prepared to tolerate then clearly he will want to top those plans up. A review of these spending plans, possibly in two years time, will be a sensible way to proceed."

However, the OECD think-tank said the government's measures were "tough, necessary and courageous".

"Acting decisively now is the best way to secure better public finances and bolster future growth," its director general, Angel Gurria, said.

Mr Osborne said his approach involved "hard but fair" choices and that by baring down on welfare costs - £18bn of savings are planned - it would help free up funds for health and education.

Among the welfare changes proposed include putting a time limit on some incapacity benefits and changes to tax credits and housing benefit.

Government sources say they expect up to 200,000 people to lose their Employment Support Allowance, the replacement for incapacity benefit, as a result of the decision to time limit the benefit to 12 months.

This is the number of claimants who are expected to fail the new means test, which would be enforced after a year.

Under the changes, people with assets of more than £16,000, or a weekly household income of more than £90 will no longer be eligible to receive it.

Welfare groups have warned that the income of partners will also be taken into account when calculating weekly household income and they say this will particularly disadvantage low income couples.

Government sources say that although such claimants will lose their right to the benefit, they may still be able to receive other payments such as council tax benefit, housing benefit and disability living allowance.

DWP sources have said those affected will not include the seriously disabled and ill. They say the measure is designed to deter those who have minor ailments from seeking to remain on the benefit long term.

Asked about the changes, Mr Cameron said the system needed to be simplified, but the most vulnerable in society would still be protected.

"This is a coalition government which will help those who can't help themselves," he argued.

Ministers have also given more details of the permanent bank levy announced by Mr Osborne, saying it will coming into force in January and they expect it to raise £2.5bn a year.