Tories may cut defence spending, says Osborne

Major defence projects may not be safe from public spending cuts if the Tories win the next general election, shadow chancellor George Osborne hinted today.

He suggested "break clauses" in contracts for two new aircraft carriers, Eurofighter aircraft and the A400M transporter were among things a new administration would like to examine.

Mr Osborne spoke out as he accused Gordon Brown of preparing to "hoist the white flag" ahead of a speech to the TUC later in which the Prime Minister is expected to explicitly admit the need for spending "cuts".

The Conservatives had been right to warn of the need to restrain spending, he said, with Labour engaged in a "dangerous fantasy" that the UK could spend its way out of trouble.

Asked whether his party would be able to identify specific savings quickly enough for a snap post-poll budget, Mr Osborne conceded that the Opposition faced some hurdles.

"The resources of an opposition are limited. I have probably 10 people working for me; there are about 1,000 people working for the Chancellor and the Treasury.

"And there are some things we do not know: I do not know the details of some of the major defence projects which have been the subject of speculation in the newspapers.

"I simply do not know what the break clauses are in the Eurofighter programme or the A400M or the aircraft carriers. We do have those limitations."

Only health and international aid have been spared the prospect of Tory cuts, with defence proving one of the most contentious areas.

Both Labour and the Conservatives are committed to a defence review after the election.

Mr Osborne told a conference organised by The Spectator magazine that the Government's public acceptance of the need for spending cuts was a vindication of Tory policy.

"Gordon Brown is on the eve of a complete capitulation. Whether he hoists the white flag today at the TUC or later at his conference or when Parliament returns, we will see," he said.

"But hoist that white flag he will. For he and his style of politics have been comprehensively defeated. And it is the Conservatives who have made the right judgment about the biggest economic question that faces this country."

He went on: "For months we endured the onslaught of Gordon Brown and Labour Cabinet ministers as they spoke in apocalyptic terms about what would happen if you cut spending.

"Time and again this summer in the House of Commons, David Cameron fought back across the despatch box and challenged the Prime Minister to tell the truth.

"When people ask 'are the Conservatives up to it?', I say look how David Cameron and our party told the truth about the national debt, told the truth about public spending and won the biggest economic argument of the day.

"We have shown in the way we have conducted ourselves that we now command the centre of British politics, and we have the character, the judgment and the courage to take this country through the difficult times ahead."

He questioned ministers' claims to have "seen Britain through" the downturn, pointing to faster recovery in other countries and faster-rising unemployment, but said he did expect the UK to come out of recession this year.

"It is increasingly clear that the Labour Party is either unable or unwilling to learn the lessons of the last decade," he said.

"Their strategy for the recovery is to try and pump the bubble back up with more Government spending and debt-fuelled consumption.

"As with our failed system of financial regulation, or our broken politics, they seem to think we can carry on much as before, with a few tweaks here and there.

"That is not just the wrong conclusion, it is a dangerous fantasy."

Mr Osborne also criticised a return to large bank bonuses.

"We are underwriting these profits for a purpose - to help recapitalise the banks and support the broader economy, not so that they can be paid out as huge bonuses or distributed as excess returns to shareholders," he said.

"Indeed, if banks pay out huge bonuses on the back of taxpayer support instead of using profits to rebuild their balance sheets, that is not only bad for the broader economy, it is bad for the City itself.

"It is not in the interests of the financial services sector as a whole to have a small number of Government-subsidised players distorting competition by using taxpayer support to bid up remuneration levels."

Mr Osborne said a new Tory administration would present a Budget within weeks of taking office.

"I would anticipate a Budget fairly shortly after the General Election. Whether it would be in June or July would be to be decided," he said.

The poll is expected to be called for May next year.

"But absolutely we would have an early Budget and we need to make early and big decisions about dealing with the deficit."

But he denied it would amount to an "emergency" Budget - insisting it was normal practice after a change of government in the spring.

"Labour did it in 1997 and I think Margaret Thatcher did in 1979," he said.

"It is perfectly reasonable at a time of economic distress that we get on with announcing economic policies."