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Osborne's £2bn lifeline to NHS

Chancellor George Osborne has thrown a £2 billion lifeline to the cash-strapped NHS as he signalled a renewed crackdown on benefits if the Tories regain power in next year's general election.

Unveiling the year-on-year increase in spending for frontline NHS services, Mr Osborne said that it had been made possible by the strength of the economic recovery.

But with ministers braced for a further deterioration in the public finances when he delivers his set-piece Autumn Statement on Wednesday, the Chancellor acknowledged that more "difficult decisions" on spending would be needed in the next parliament.

"We have got to make tough decisions in our public expenditure, in our welfare budget, and that is how we can afford these things," he told BBC1's The Andrew Marr Show.

With the Tories committed to £7 billion in tax cuts - by raising personal allowances for basic and higher rate taxpayers - the Institute for Fiscal Studies warned some government departments could see their budgets slashed by a third in a painful new round of "austerity".

Shadow chancellor Ed Balls accused Mr Osborne of making "unfunded" spending commitments - while at the same time promising a Labour government would allocate another £2.5 billion a year to the NHS "over and above" the Tory plans, paid for in part by a new "mansion tax" on properties worth over £2 million.

Mr Balls later caveated his commitment, saying that there would have to be a re-think if it meant unacceptable cuts to benefits.

"If he is doing it through a 10% cut in child benefit, then I will have to think again," he told BBC Radio 5 Live's Pienaar's Politics.

Mr Osborne described the additional funding as a "down payment" on the five year plan set out by NHS England chief executive Simon Stevens which warned of an £8 billion shortfall by the end of the next parliament unless action was taken.

Treasury sources said around £750 million of the £2 billion annual increase for the NHS services would come from savings made in Department of Health "back office" costs, with the rest coming from other departments.

In addition, Mr Osborne announced that he would use the fines imposed on the banks for the Forex rate-rigging scandal to set up a new fund to improve GP services, worth £1.1 billion over four years.

"Because we have a strong economy and we have got the public finances under control, we can afford to put £2 billion into the frontline of the NHS across the United Kingdom," he said.

"This is a down payment on the NHS's own long-term plan. It shows you can have a strong NHS if you have a strong economy."

Mr Balls said the Government had created the crisis in the NHS through its re-organisation of the service and was now racking up billions in spending commitments without any explanation of how it could pay for them.

"I think our NHS is in real crisis. We need a long-term plan. We have a winter crisis because the Tories have mismanaged and privatised and caused chaos in the NHS," he said.

"The Conservatives are coming along now with unfunded commitments. The deficit is huge. They are making unfunded commitments. The Tories are really putting the NHS in danger. "

Paul Johnson, the head of the Institute for Fiscal Studies, said the Chancellor would have to admit on Wednesday that the public finances are in worse shape than the Office for Budget Responsibility was forecasting at the time of the last Budget in March.

"Things haven't gone as well as hoped since March, not in the sense that the economy has done less well than hoped, but, because earnings growth has been relatively poor, other tax receipts have been relatively poor. We'll probably end up with the deficit a bit higher than the OBR was expecting back in March," he told the BBC1 Sunday Politics programme.

He said that even with the Chancellor's promised squeeze on welfare benefits, there would have to be big cuts to other public services in the next parliament.

"The consequence will be that by 2018 we are looking at spending cuts of one-third in a whole slew of public services - local government, police, justice, police environment - all of these things," he said.

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