Addressing the House of Commons today, Osborne said the UK has the largest budget deficit in Europe, and the previous Labour government had envisaged it would still be rising by 2014.
Osborne is aiming to pay down the structural deficit completely by 2015-2016.
He emphasised the need for dramatic public spending cuts, saying “to abandon the plans would be the road to economic ruin.
“The action taken since May has taken the economy out of the financial danger zone,” he added.
The government borrowed £154.6bn over the course of the last financial year, and total debt is expected to hit £900bn or 70% of GDP over the next few years. At the moment net debt stands at 57.2% of GDP, its highest level to date.
Osborne said the UK is paying £43bn a year in debt interest, but these payments will be £1bn lower by 2012, £1.8bn in 2013 and £3bn in 2014, a total of £5bn over the course of the Spending Review.
Next year, expenditure will be £651bn, rising steadily to £693bn by 2014-2015 because “it takes time to turn around the debt supertanker”.
Critics of the forthcoming spending cuts have warned the Chancellor must tread a fine line to avoid stifling growth and plunging the UK economy back into recession.
The Office for Budget Responsibility is forecasting economic growth of 1.2% this year and 2.3% in 2011.
