Osborne to set out $9 bn UK cuts by end-June

David Cameron’s chancellor of the exchequer, George Osborne, will prepare an emergency budget within 50 days containing £6 billion ($9 billion) of spending cuts to narrow Britain’s record deficit.

The measure is part of the Conservative Party’s deal with its coalition partners, the Liberal Democrats, announced last night. The agreement also contains a levy on banks, a commission to investigate splitting retail from investment banking, plans to limit bonuses, and measures to increase lending to businesses, party officials said.

Osborne told reporters in London today there would be “a significant acceleration” in the pace at which the structural deficit is reduced. Bank of England Governor Mervyn King welcomed the “clear and binding commitments” to do so.

“The agreement I have been informed about that was reached between Conservatives and Liberal Democrats is a very strong and powerful agreement,” King told a news conference after the central bank released its quarterly inflation report.

Osborne and Foreign Secretary William Hague briefed their fellow Conservative lawmakers on the deal late last night. Cameron was greeted by cheers when he addressed them as the first Conservative prime minister in 13 years.

A Liberal Democrat proposal to raise the earnings threshold at which people start paying income tax to £10,000 a year from £6,475 will be included in the coalition program as a long-term aim. The threshold will rise “substantially” next year and by more than inflation in the following years.

This replaces Conservative proposals to reverse an increase in employee payroll taxes planned by the Labour government, and will have a similar effect on incomes, the Conservatives said.

The increase will be paid for by raising capital-gains tax to 40 per cent from 18 per cent on non-business assets. A Conservative proposal to increase the threshold for inheritance tax has been dropped.

The two sides retained Conservative pre-election pledges not to join the euro and to set up an Office of Budget Responsibility to report on whether the government is meeting its deficit-cutting targets.

No date has been set for a referendum on changing the electoral system to the alternative vote, intended to benefit smaller parties such as the Liberal Democrats.

The new government will introduce fixed parliamentary terms of five years, with the next election due May 7, 2015. An election could only come sooner with an “enhanced majority” vote in Parliament.