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06/24/2013

The Brits hope the 'spending round' deals them out of economic woe

The British have high hopes for a new strategy on how to lift the United Kingdom out of economic despair.

On Sunday night, Chancellor of the Exchequer George Osborne and his government ministers signed off on a ₤11.5 billion ($17.7 billion)  deal on how to slash budgets by 2015-2016. He announced it on Twitter. "With thanks to all my cabinet colleagues and (the) hard work of (the) Treasury team, today we've settled all departments ahead of the spending round," the Tweet read.

The reductions are part of Prime Minister David Cameron's controversial austerity measures.

For the last two years, Cameron has fully believed cutting government departments while raising certain taxes is the only way out of Britain's economic slump. Problem is, everyone from the International Monetary Fund to Nobel prize winning economist Paul Krugman have warned against austerity measures. They have been disastrous in Greece, Spain and Portugal.

But now that the cutting is done, Osborne says it is time to spend, spend, spend. On Wednesday he's expected to announce a comprehensive infrastructure spending plan.

"How do we spend the money we all pay in taxes?" Osborne asks in a handy cartoon YouTube video

"What do we prioritize and how do we make sure Britain is on the right path so we aren't spending money we don't have? Those are the questions I'll answer on June 26 in what is known as the 'spending round,' this is where we allocate spending across departments for 2015-2016."

That year, Britain will raise ₤660 billion but it will spend ₤745 billion. The difference of nearly ₤90 billion will have to be borrowed and added to the overall debt.

"My job is to bring down the deficit so this country starts to live within it's means," Osborne said in the video. "Doing that means making some tough choices."

The welfare bill will be cut by ₤3 billion by 2015. However, Osborne said the education and health systems will be spared budgetary pain. But in order to stay on the "path" of deficit reduction, Britain must find another ₤11.5 billion in savings.

These are interesting times in the United Kingdom. Brits will be going to the polls in 2015 and now they've got two big decisions to make. One, did those austerity cuts work? Two, should the Conservatives be given a mandate to hold a referendum on Britain remaining in the European Union?

 Tanya Talaga is the Star's global economics reporter. Follow her on Twitter @tanyatalaga

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