"This is the first time this government has announced difficult decisions on spending. It will not be the last," Osborne said at a news conference.
Osborne's Conservative Party had pledged before the 6 May election to start cutting spending in the current fiscal year. Their Liberal Democrat coalition partners had said such a move would endanger the recovery but have now signed up to the immediate cuts.
"This action is designed to send a shock-wave through government departments, to focus ministers and civil servants on whether spending in these areas is really a priority in the difficult times we are now facing," said Osborne's deputy David Laws.
"The years of public sector plenty are over. But the more decisively we act, the more quickly and strongly we can come through these tough times," Laws added.
In a concession to the Lib Dems, 500 million pounds of the 6.2 billion pounds in reductions will be reinvested in further education and social housing.
But the rest would be used to bring down the deficit. Government advisory bodies - known as "quangos" - would lose 513 million pounds in funding. There would be a hiring freeze across the civil service and almost all departments would have to find savings.
The business ministry, for example, will have its budget cut by more 800 million pounds.
Berlusconi's popularity declining
In Italy, a draft of the austerity measures obtained by Reuters said only 20% of those who leave the public sector between 2011 and 2013 would be replaced, and it cut transfers to municipal and regional authorities by two billion euros in 2011 and 3.8 billion in 2012.
Coming as polls show Prime Minister Silvio Berlusconi's popularity declining, the draft budget includes cuts in the politically sensitive area of health spending, trimmed by 0.4 billion euros next year and 1.1 billion in 2012.
Spending by government ministries, including pay, is reduced by 8-10% per year in 2011 to 2013.
Those who would have earned the right to retire in mid-2011 and at the end of 2011, according to the so-called retirement "windows", must remain at work for a further six months.
"The deficit cuts will be worth 24 billion [over two years]," said government spokesman Paolo Bonaiuti, reiterating that the centre-right government would not raise taxes. "We will not put our hands in the pockets of Italians."
In an effort to crack down on widespread tax evasion, the government will ban the use of cash and cashiers cheques in transactions worth more than 5,000 euros, lowering the ceiling from 12,500 euros, a government source said.
The deficit cuts, worth around 1.6% of Italian GDP, are aimed at ensuring the budget deficit falls to below the EU's 3% ceiling by 2012. It follows concern in financial markets in recent weeks over peripheral eurozone countries' public finances, which has returned Italy to the spotlight.
Italy aims to cut its deficit to 2.7% by 2012 from 5.3% last year - well below the EU average thanks to restraint in stimulus spending during the crisis.
However, the cuts may dent the government's flagging poll ratings. A survey published in the Corriere della Sera newspaper on Monday showed the number of Italians who felt Berlusconi's government had performed "very badly" doubled from a year ago to 26%, while 38% said it had been a "little disappointing".
(EurActiv with Reuters.)
