BT is axing 10,000 workers, or 6% of its global workforce, with several thousand expected to go in the UK as the company looks to cut costs and reduce its reliance on contractors in the face of the global economic downturn.

The company, which announced an 11% fall in second quarter profits, said it has already cut 4,000 mostly contractors jobs and a further 6,000 will go by next April. The majority of those job losses will be among BT's own staff and the axe is expected to fall particularly heavily in the UK.

BT has 160,000 people working for it worldwide, of whom 110,000 are directly employed.

This latest blow to the British economy came just a day after the number of jobless people in the UK hit its highest level since 1997. By the end of September there were 1.825 million people out of work. The claimaint count also rose to 980,900, its highest level since the end of 1997.

News of the job cuts helped to send the company's shares up 12% in early trading, 13.5p higher at 126p.

The job losses are not, the company stressed, related to the poor performance of its BT Global Services unit, which has failed to hit profitability targets and caused the company to warn last month that profits before financial charges will be down this year. That warning sent shares in the company to their lowest level since it was privatised. Turning around BT Global Services is expected to lead to thousands more job losses.

BT stressed that thousands of its staff leave every year, so most of the reduction will happen by the company not replacing leavers. But unions are increasingly concerned about the number of UK companies cutting staff, with Virgin Media saying earlier this week that it is eliminating 2,200 positions and Taylor Wimpey cutting another 1,000 posts.

BT's chief executive, Ian Livingston, who took over from Ben Verwaayen just four months ago, today admitted: "Three out of our four business units, BT Retail, BT Wholesale and Openreach are delivering on or ahead of target. But profits in BT Global Services are simply not good enough and we are taking decisive action to put matters right. What we have to do now is translate revenue growth into better profitability."

In the three months to the end of September, BT made revenues of £5.3bn, up 4%, but pretax profits slumped 11% to £590m. For the six months to the end of September, revenues were up 3% at just under £10.5bn with profits down 9% at £1.2bn.

Earnings before financial charges for the quarter were down 1% at £1.43bn. Two weeks ago BT admitted revenues would be ahead of original forecasts but profits would be slightly below and today's results were actually slightly better than the City's revised forecasts.

In the three months to the end of September BT said its retail business added just 69,000 new broadband customers, less than half the 164,000 added in the same period by BSkyB - taking it to 4.6 million customers. The company admitted that the market is becoming more "mature".

The company also confirmed that it is looking at ways of easing the pressure on its pension scheme, the largest private sector fund in the UK, by introducing changes such as raising the retirement age.

"We are in a period of comprehensive consultation with our UK employees. The aim of this review is to provide long term sustainability, flexibility and fairness," the company said.

Pension changes

Several proposed changes to the company's defined benefit scheme have been put forward including: an increase in the normal retirement age to 65; changing the final salary link to a career average; an increase in the rate of member contributions; changes in accrual rates; and ceasing to contract out of the state second pension.

"We propose implementing these changes with effect from April 2009 and they will only affect future benefit accruals. Accrued benefits built up before April 2009 are unaffected. We are also introducing an additional flexibility option for members at retirement," the company said.

Final decisions regarding the review will be taken once the consultation period with employees has been completed early in 2009.

BT said the changes will reduce the ongoing cost of its defined pension schemes by about £100m a year.

At the end of September the fund had a surplus of £600m, compared with £2bn at March 31 and the market value of BT pension scheme assets was £34.4bn, down from £37.3bn. The value of the scheme's liabilities was £33.4bn, slightly down on £34.4bn at March 31.

The company has been reducing the scheme's exposure to shares, which stood at 35% of assets as at September 30 compared with 60% three years ago.