Britain’s Conservative-Liberal Democrat coalition government will on Monday get to work cutting spending to reduce a record budget deficit as it seeks to ease fears of contagion spreading from Europe’s fiscal crisis.

The new coalition, formed after the May 6 election produced no outright victor, will also announce its first programme of law-making this week, including political reforms and tighter banking regulation.

Conservative finance minister George Osborne and his Lib Dem deputy David Laws will on Monday announce how government departments will share the burden of an initial 6 billion pounds ($8.62 billion) of savings in 2010.

Government advisory bodies — known as quangos — are expected to lose about 500 million pounds in funding and the sprawling business ministry may have to shoulder upwards of 700 million pounds of savings.

The coalition says cutting Britain’s budget deficit, which is running above 11 percent of gross domestic product, is its top priority, especially since Greece’s debt crisis has rattled investor confidence the euro zone.

“I don’t think we anticipated … quite how sharply the economic conditions in the euro zone would have deteriorated and the need to show that we need to get to grips with this suddenly became much greater,” Lib Dem Deputy Prime Minister Nick Clegg told BBC television on Sunday.

An emergency budget on June 22 will outline the scale of spending cuts and tax rises needed to achieve the coalition’s aim of cutting the deficit faster than the previous Labour government, which wanted to halve borrowing over four years.

BANK TAXES

The Independent on Sunday newspaper said Treasury officials were looking into a tax or combination of measures on banks, possibly worth up to 8 billion pounds a year. There has also been speculation of a rise in the rate of VAT sales tax.

The Treasury declined to comment on the report but the Conservatives have said they would be prepared to introduce a bank tax even before international agreement had been reached. Policymakers from leading economies will discuss proposals for such taxes early next month.

Even with such a hefty tax income from the financial sector, the size of Britain’s budget deficit, forecast to hit 163 billion pounds this year, means far harsher spending cuts are needed in years to come than those announced for 2010.

Putting those tough decisions into action and negotiating which public services should be cut could put pressure on relations within the coalition, which has been keen to stress so far that it intends to serve a full five-year term.

Parts of both parties have voiced concerns about the compatibility of the two parties in Britain’s first coalition government since World War Two — and both sides have already made significant concessions so far.

The Lib Dems had been opposed to spending cuts this year for fear they could derail Britain’s frail economic recovery from the worst recession in at least 60 years.

The Conservatives, opposed to any changes to the electoral system, have said they are prepared to give voters the chance to change how they elect party candidates to parliament — a coup for the reform-hungry Lib Dems.

Political reforms, including a switch to fixed-term parliaments and cutting the number of members of parliament, are likely to form part of the coalition’s first legislative programme due to be announced by the Queen at the state opening of parliament on Tuesday.

Two Sunday newspapers said they had obtained drafts of that speech, which outlined an ambitious aim to introduce more than 20 new bills to parliament over 18 months but contained few surprises on top of the already agreed coalition policy plan.

(Editing by Elizabeth Fullerton)