Audio Transcript:

Britain's budget deficit has ballooned as the country confronted the recent economic slowdown. This week, the British government plans to unveil an emergency budget that seeks to reduce the deficit with painful cuts. The World's Laura Lynch has a preview.

MARCO WERMAN: Tomorrow the British government unveils an emergency budget. The expected austerity measures in it are set to be the harshest since the second World War. The country is struggling to control its growing deficit and Britain's new Prime Minister is warning that the country has to take drastic steps if it wants to avoid the kind of troubles weighing down debt strapped Greece. The World's Laura Lynch reports from London.

LAURA LYNCH: News of the first budget cuts started to trickle out last week and the city of Sheffield in northern England was hit hard. The government canceled a loan to develop a new engineering industry. It also canceled a nearly 15 million dollar grant meant to revive a downtown neighborhood with a brand new shopping center. Simon Bower, who owns a coffee shop in the area had been counting on the center to bring in much needed business.

SIMON BOWER: We are like an island in a sea of derelict and empty buildings, which is no way to run a retail business. We accept that spending has to be controlled, but look this is just a no-brainer to me. It's only 12 million pounds. Its 12 million pounds that will generate hundreds and hundreds of jobs.

LYNCH: That kind of complaint will likely be heard again and again after the government delivers its emergency budget tomorrow. President Barack Obama has warned other nations like the U.K. against withdrawing stimulus measures too soon. But new Chancellor of the Exchequer George Osborne, Britain's equivalent of Treasury Secretary, says he has little choice.

GEORGE OSBORNE: But let's be clear, as a new government we have inherited a truly awful financial situation. No incoming Chancellor has ever faced a set of public finances like this. And unless we take a determined and concerted action to deal with that, then I'm afraid we will find our country on the road to ruin. We will find higher interest rates, businesses going bust, unemployment rising and our living standards declining and I'm not prepared to put up with that.

LYNCH: Osborne's budget is expected to be a mix of about 80% spending cuts and 20% tax increases. Public servants' pay will be frozen, perhaps for several years. Sales tax may be hiked above the current 17.5%, and there's talk of reshaping welfare payments. Osborne's predecessor, Labour's Alistair Darling, also promised cuts during the election campaign. But he echoes President Obama's caution against cutting too deeply.

ALISTAIR DARLING: What I do have a problem with is a government that I think is ideologically driven, is using the present circumstances as a cover for what they would have done anyway and what worries me is if we jeopardize growth, if we end up in a situation where we derail the recovery, as a country we'll pay a very heavy price.

LYNCH: Some in Sheffield say they're already paying the price. Sue Pedley says her husband's hopes of finding engineering work have been dashed. She supports the idea of controlling government spending, but she doesn't like how it's panning out.

SUE PEDLEY: Let me tell you, Sheffield are fair minded people, but we have very long memories.

LYNCH: Last week George Osborne had lunch with four former Conservative Party Chancellors. They told him if the newspapers are full of bad headlines, they day after the budget, then he'll know he's done a good job. Osborne says he's braced for whatever backlash may come, convinced that deep cuts are the key to rescuing Britain's faltering economic recovery. For The World, I'm Laura Lynch in London.