Updated: 02:41 EDT, 7 June 2010>
The deepest public spending cuts for decades will affect our whole way of life, David Cameron warns today.
Cameron: 'Inevitably painful' cuts programme could be felt for decades
Chancellor George Osborne will tomorrow launch a spending review heralding a 'once in a generation' reassessment of the role of the state.
The Treasury is looking to Canada - which successfully slashed its 9.1% budget deficit to zero over three years in the 1990s - for inspiration.
Sources say Mr Osborne will follow Canada's example by creating a 'star chamber' of senior ministers and officials, to which each member of the Cabinet will have to justify spending plans.
Economists fear many government departments face budget cuts of 25%, the steepest since the Second World War.
Benefit freezes, further cuts in child tax credits, privatisations and below-inflation pay rises for public sector workers are all expected.
In a major speech on the economy, the Prime Minister will warn the impact of the Government's plans for reducing the deficit will be 'enormous' and even more 'critical' than he initially feared.
The 'inevitably painful' cuts programme could be felt for decades, such is the scale of the debt crisis facing Britain, he will say.
Mr Cameron has singled out 'massive' welfare bills and public sector pay as top targets for belt-tightening measures. His tone is in marked contrast to that of Nick Clegg, who suggested yesterday there would be no return to the 'harshness' of spending restraint under Margaret Thatcher, although she never actually cut overall levels of public spending.
The Lib Dem Deputy Prime Minister promised instead that the coalition would deliver what he called 'progressive' cuts, with protection for the poorest areas of the country.
'Fiscal retrenchment does not mean a repeat of the 1980s,' Mr Clegg said. 'We are going to do this differently.'
Ironically, Baroness Thatcher is expected in Downing Street to meet Mr Cameron on Wednesday.
An emergency Budget on June 22 will make the first inroads into the £156bn budget deficit left behind by Labour.
Treasury sources say the spending review will go further than previous ones by attempting a 'fundamental re-evaluation of the role of government'.
'This is not just a simple budget-setting exercise,' said one. 'There's a once-in-a-generation chance to examine what services the government should provide and whether there are ways to do it more efficiently involving the private and voluntary sectors.'
Former BP chief Lord Browne, a close friend and controversial ally of Tony Blair, is expected to become a Whitehall 'super director' who will be asked to oversee ruthless cost-cutting measures.
Other industry figures believed to have been invited to help bring business-style efficiency to government departments include Sir Christopher Gent, chairman of GlaxoSmithKline, and Richard Baker, chairman of Virgin Active.
Mr Cameron and Mr Osborne believe the crisis in the public finances will prove even worse than first thought, since Labour's Budget numbers were built around wildly optimistic growth forecasts.
It is anticipated there will be a shortfall in public finances of around £24bn a year by 2013 -equivalent to a 6p increase in the basic rate of income tax.
At an event in Milton Keynes Mr Cameron will say: 'Today, I want to set out for the country the big arguments that form the background to the inevitably painful times that lie ahead of us - why we need to do this, why the overall scale of the problem is even worse than we thought, and why its potential consequences are therefore more critical than we feared.'
'How we deal with these things will affect our economy, our society - indeed our whole way of life. The decisions we make will affect every single person in our country. And the effects of those decisions will stay with us for years, perhaps decades to come.
It is precisely because these decisions are so momentous, because they will have such enormous implications, and because we cannot afford either to duck them or to get them wrong that I want to make sure we go about the urgent task of cutting our deficit in a way that is open, responsible and fair.'
'I want this government to carry out Britain's unavoidable deficit reduction plan in a way that strengthens and unites the country.'
Mr Cameron will say he aims to take the 'whole country with us' as the coalition embarks on cuts, with the public asked to engage in the process of deciding where the axe should fall.
The Prime Minister will insist that unless the Government deals with the country's debts now, confidence in the UK economy could collapse and interest rates will rise.
Last night the International Monetary Fund warned that 30m jobs could be lost worldwide through the drive to bring down debt levels.
IMF boss Dominic Strauss-Kahn told a G20 summit of finance ministers cuts 'will have negative effects on growth in every country'. He went on: 'This is not just a European problem - it's a global problem.'
However Mr Strauss-Kahn praised the 'determined action' taken by Britain, Greece, Spain and Portugal to repair their finances.
• University places are set to be cut further as Business Secretary Vince Cable signalled he would ditch Labour's target of putting 50% of school leavers through university in a bid to shave £6.2bn from the public finances.
He said he wanted to banish the 'bureaucracy and frankly the snobbery around further education' and concentrate more on lifelong learning and vocational training.
Mr Cable has found £200m from his own department's budget to fund further education colleges and 50,000 more apprenticeships.
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