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Osborne reaches deal on budget cuts

Chancellor George Osborne has reached agreement with Cabinet colleagues over the extent of cuts to their budgets.

Over the weekend Defence Secretary Philip Hammond and Business Secretary Vince Cable settled on the extent of their departments' contributions to the £11.5 billion of cuts for 2015/16 which will be announced on Wednesday.

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

Mr Osborne indicated there would be job losses at the Ministry of Defence (MoD) but no further reduction in military manpower under the settlement agreed with Mr Hammond.

The Chancellor also indicated that universal pensioner benefits such as the winter fuel allowance could face cuts after Prime Minister David Cameron's promise to protect them for the duration of this Parliament expires.

Mr Osborne reached agreement with the Defence Secretary, in a deal which will see fines paid by rogue bankers used to support the welfare of troops and veterans. But the Chancellor said there would be further cuts in the number of civilians employed in the MoD.

He told BBC One's Andrew Marr Show: "It's going to involve some tough choices. The civilian headcount is going to have to reduce in our defence department, we are going to have to renegotiate, with some of our big suppliers, the contracts.

"But I can tell you there will not be a reduction in our military capability, we are not going to reduce the number of our sailors, soldiers and airmen. In fact we are going to be able to spend some more money on things like cyber, which is the new frontier in defence."

Mr Osborne promised £10 million a year to help uphold the military covenant: "We can do this in part because we are using the money we have taken off bankers involved in the Libor scandal. So the people who demonstrated the very worst of British values in the Libor scandal, in the City, are now supporting those who have demonstrated the very best of British values - our soldiers who gave so much to defend the country."

Mr Cable and his fellow Liberal Democrat Cabinet minister, Treasury Chief Secretary Danny Alexander, reached an agreement on Sunday morning. The Business Secretary was understood to be holding out until he was sure that he had reached a settlement which would safeguard measures to boost growth.

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