Chancellor’s axe factor

Councils will have to make cuts of more than a quarter in the next four years as part of the biggest cuts announced by a Government since the Second World War.

Chancellor George Osborne announced cuts of 26 per cent over the period leading to fears of widespread jobs losses and loss of public services.

Communities Secretary Eric Pickles urged local councils to merge departments — pointing to planning, education and finance — and to get rid of expensive senior officers, by sharing them with other town halls.

Mr Pickles said: "We expect councils to cut deep into their administration.

“We are saying that the days in which you can expect to enjoy your own chief executives, your own top officers and separate departments are over.

“There is too much duplication. If you are seriously telling me that local council can't take out just over seven per cent of their costs a year, in the way in which the private sector has taken out much larger sums, then I can't take that seriously."

He confirmed that 490,000 public sector jobs were expected to be lost over the next four years as most Whitehall departments were forced to cut their budgets by around a fifth in real terms.

The police, prisons, universities and local councils, will all be hit hard as the cuts bite.

But the centrepiece of his plan was a series of benefit cuts totalling more than £7 billion on top of the £11 billion already announced in the emergency Budget in June — representing a hefty increase on the £4 billion previously predicted.

Under the changes, the employment and support allowance — brought in to replace incapacity benefit – will be time–limited to a year for those claimants judged able to work in future.

Young people under 35 will only be able to claim housing benefit for a room in a shared house rather than their own flat, and the mobility allowance will be cut for care home residents.

The rules on the working tax credit will also be tightened so that couples with children will have to work at least 24 hours a week between them in order to claim it.

The changes suggest that Work and Pensions Secretary Iain Duncan Smith has had to pay a high price for his single "universal credit" — replacing all working-age benefits — to be phased over two parliaments with £2 billion of Treasury funding.

Mr Osborne also confirmed that he would go ahead with plans to axe child benefit for higher rate taxpayers.

He said that move was now estimated to save £2.5 billion, rather than the £1 billion previously thought, so that he did not need to cut the benefit for children over 16.

To cheers from Tory MPs, Mr Osborne taunted Labour saying his welfare cuts meant average spending by Whitehall departments would now be reduced by 19 per cent, rather than the 20 per cent implied by the former government's plans — a claim denied by Labour.

Administrative cuts across Whitehall were now expected to save £6 billion a year — double the £3 billion previously forecast — while HM Revenue and Customs was being given £900 million to tackle tax evasion and fraud, which was expected bring in a further £7 billion.

Among the big losers are the Home Office which will lose 24 per cent over four years — with spending on policing falling by 16 per cent — while the Ministry of Justice is to axe 3,000 prison places as its budget is cut by 23 per cent.

The Foreign Office faces a similar 24 per cent cut, with a sharp reduction in London–based diplomatic staff.

Business Secretary Vince Cable succeeded in protecting the science budget, but the teaching budget for universities is to be slashed by 40 per cent, while his overall departmental budget is cut by 28 per cent.

Schools were among the winners with a small real terms increase, with spending rising from £35 billion to £39 billion. Overall, the Department of Education's budget will fall by just over 3 per cent.

Mr Osborne said that he had acted to restore "sanity to our public finances" and deal "decisively" with Britain's record peacetime deficit.

"To back down now and abandon our plans would be the road to economic ruin. We will stick to the course. We will not take Britain back to the brink of bankruptcy," he said.