* UK to raise retirement age
* UK to cut welfare by extra 7 billion stg a year
* Health, schools, overseas aid protected
(Refiles to add dropped words in paragraphs 3 and 11)
(Updates during speech)
By Sumeet Desai
LONDON, Oct 20 (Reuters) - Britain said on Wednesday it would cut half a million public sector jobs, raise the retirement age and slash the welfare state as part of the biggest spending cuts in a generation.
After months of bitter negotiations, Conservative finance minister George Osborne confirmed he would press ahead with almost all the spending cuts he had outlined in a June budget.
Capital spending, however, he said would be 2 billion pounds higher per year than originally planned because of the difficulty of getting out of contractual obligations.
"Tackling this budget deficit is unavoidable. The decisions about how we do it are not. There are choices. And today we make them. Investment in the future rather than the bills of past failure. That is our choice," Osborne told parliament.
Economists are split between those who say the drastic action is needed and those who argue it will tip Britain back into recession. Almost all agree, however, that growth will slow and the Bank of England (BoE) will have to keep monetary policy super-loose for the foreseeable future.
Sterling trims gains against the dollar and slipped versus the euro on Wednesday and some analysts linked the move to Osborne reiterating plans to impose a levy on banks. [ID:nOSBORNE]
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For graphics on UK economy, please click on
r.reuters.com/ryt39p
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