Under fire, British finance minister Osborne hits back at budget critics

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By William James

LONDON, March 22 (Reuters) - British finance minister George Osborne defended his economic record on Tuesday, hitting back at critics of last week's budget which prompted a crisis in Prime Minister David Cameron's party ahead of a June 23 referendum on European Union membership.

In his first appearance since welfare minister Iain Duncan Smith resigned in protest at the cutting of state benefits for the disabled and long term sick, Osborne admitted he had made mistakes but defended his plans to cut spending.

"Where we have made a mistake, where we have got things wrong, we listen and we learn and that is precisely what we have done," Osborne said. The government announced on Monday that the planned cuts would not go ahead.

But Osborne made a staunch defence of the principles behind spending cuts as he sought to try to repair the damage from a budget that has ended up dealing a major blow to his chances of succeeding Cameron as leader.

"Let's be clear, the key principles behind this budget are that if we're going to deliver a strong and compassionate society for the next generation, we have to live within our means," he said.

Britain's chief budget forecaster said the U-turn on welfare cuts would only have a marginal effect on Osborne's pledge to turn the country's sizeable budget deficit into a surplus by the end of the decade.

But, official data released earlier showed Osborne was on the verge of missing his target to reduce the deficit for the current financial year, and credit rating agency Moody's said Britain's triple-A rating would be pressured by the budget's marked slowdown in fiscal consolidation.

INCOMPETENT MANIPULATIONS

Osborne's 30-minute statement was punctuated with critical interruptions from the opposition Labour party, whose finance spokesman later questioned Osborne's fitness as finance minister and said there were doubts he could ever lead the party.

"What we've seen is not the actions of a chancellor (finance minister), a senior government minister, but the grubby incompetent manipulations of a political chancer," said Labour's John McDonnell.

But an appeal for calm issued on Monday by Cameron, who is desperate not to let the budget row become a proxy for the decades-old and divisive debate within his party over Britain's future in Europe, appeared to have had the desired effect.

Conservative lawmakers repeatedly interrupted Osborne to praise his economic record, and the conclusion of his speech was met with loud cheers. (Additional reporting by Kylie MacLellan; editing by Michael Holden)