Alarm as ministers told to prepare to slash their budgets by 40 per cent

Treasury ministers were accused yesterday of being "alarmist in the extreme" by announcing that they are instructing all but a few government departments to plan for 40 per cent cuts in their budgets.

Cuts on that scale would exceed anything ever done by a democracy and result in hundreds of thousand of public employees losing their jobs and a severe drop in the quality of public services. So long as the figure of 40 per cent sticks in people's minds, when they learn that the worst-affected departments are having to cut their budgets by 30 per cent or more, it will sound as if they have been spared the worst.

Today, the Chief Secretary to the Treasury, Danny Alexander, is expected to announce cuts totalling £1.5bn, with £1bn to be slashed from the Department of Education budget. That means scrapping plans to rebuild 700 schools, and cutting back on youth clubs and projects such as Sure Start.

Philip Hammond, the Secretary of State for Transport, who was responsible for planning budget cuts when the Tories were in opposition, said yesterday that telling departments to budget for 40 per cent cuts was a way of making sure that the real target of 25 per cent on average was reached.

"I don't expect any departments will see a 40 per cent cut but some departments may see cuts a bit higher than 25 per cent," he told BBC1's The Andrew Marr Show. "Some departments may then see cuts a bit lower than 25 per cent."

He admitted that taking even 25 per cent out of a departmental budget would be "challenging". The health and overseas aid budgets are being spared, and two departments – education and defence – have been told they need to plan for 10 to 20 per cent cuts.

The news that Mr Alexander is writing to departments telling them to plan for 40 per cent possible cuts was denounced as a "scare story" yesterday by his fellow Liberal Democrat MP Bob Russell, who has already broken ranks with the coalition by voting against the decision to increase VAT.

"We know how this works, and all governments do it," he said. "You say things are going to be worse than they actually are so that when the real news comes through it doesn't seem so bad. This is a softening-up process. It's alarmist in the extreme, and coming from people who won't experience the effect of the cuts at first hand."

Ed Balls, Labour's former Secretary of State for Education, said that the 40 per cent figure would "send a chill down the spines of millions of public sector workers and millions of people who rely on our vital public services". He added: "The Tories are trying to whip up a sense of crisis ... to soften the ground and provide cover for what they've always wanted to do."

Public sector unions warned of fierce resistance from employees, even if the 40 per cent figure proves to be exaggerated. Mark Serwotka, the general secretary of the Public and Commercial Services Union, said: "We are already drawing up plans with other public sector unions to ensure that if the Government attacks our pensions, our jobs and public services, they will face resistance the like of which we haven't seen in this country for decades. We will see not just co-ordinated industrial action by unions but campaigns in every community."

Paul Kenny, the general secretary of the GMB general union, warned: "We said at the time of the Budget that the new coalition Government had taken an almighty gamble when they announced they were slashing public services as savagely as this."

The Home Secretary, Theresa May, whose department allocates more than half its spending on the police, has already announced she will scrap targets set by the Labour government to save the administrative cost of checking whether they have been met.

But the former Home Secretary, Alan Johnson, warned that it is "fantasy" to think that the Home Office can meet even its real target, let alone a target of 40 per cent, without running the risk of an increase in crime.

"The idea that you can cut the budget in the Home Office by 25 per cent, 33 per cent [or] 40 per cent – that you can do that to a budget of £10bn and you won't affect front-line policing, is a fantasy land," he said.

Yvette Cooper, the shadow Welfare Secretary, accused the coalition of drawing up financial plans that are the "worst for women since the creation of the welfare state". She said analysis showed almost three-quarters of the Budget burden would fall on women.

One item of expenditure that has under scrutiny is the £250,000 reputedly spent on expenses for the team of bodyguards who accompany the former prime minister, Tony Blair, everywhere he goes, including on trips abroad, when they stay in first-class hotels. According to the Mail on Sunday, this included a two-week holiday in Borneo, where the bodyguards ran up a bill of more than £20,000.

The Foreign Secretary, William Hague, told Sky News yesterday: "Former prime ministers, whoever they are, whichever party they are from, do need to be protected. But we have to make sure that is as cost-effective as possible, that it doesn't cost any more to the taxpayer than is absolutely necessary."

The former director of public prosecutions Sir Ken Macdonald who is to be made a Liberal Democrat peer, told BBC1: "There is certainly a feeling that something has gone awry when all of these unfortunate protection officers have to stay in five-star hotels and get paid while they're sleeping."

The cuts and how they could affect each department

Local government

Total budget: £30bn

Potential cuts: £12bn

*Social care cuts: visits by social workers would fall, etc: £8bn saved.

*The £19bn housing budget would be trimmed: no new building.

*Cuts to local culture, environment (ie, refuse collection) budgets: £4bn

*Block grant to local authorities may affect pools, libraries, adult learning and parks, etc: £10bn.

*Town hall executives' pay frozen or cut, but other salaries are modest.

Work & pensions

Total budget: £5.7bn

Potential cuts: £2.3bn

*A cutback on the £130bn of benefits distributed annually could affect Jobseeker's Allowance (JSA), Winter Fuel Payment or Carer's Allowance. £11bn-a-year cuts announced already may rise to £52bn.

*Closure of some Jobcentres, making staff redundant: £750m.

*A further drive to squeeze fraudulent benefit claims: £100m a year.

*Allowing JSA and pension to be collected online, cutting costs: £100m.

Home office

Total budget: £10bn

Potential cuts: £4bn

The department will cut every police force. Other activities the Office runs add up to less than £4bn per year.

*Slash support and admin staff.

*Cut police numbers: pay and pensions reduced. Fewer beat police, less crime prevention.

*Force targets and "policing pledge" abolished.

*The Yard says anti-terror intelligence will be cut.

Defence

Total budget: £36.9bn

Potential cuts: £14.8bn

The budget would be guided by the Strategic Defence Review.

*Scrapping the two new aircraft carriers: £11bn. But Liam Fox, the Defence Secretary, wants them.

*Not replacing Trident could save £20bn, but the Government is committed to the nuclear deterrent.

*Cutting the numbers of fast jets for the RAF, and reducing the size of the Army from its current strength of around 100,000 to 80,000 would save several billion pounds.

*Cutting outside consultants: £150m.

Education

Total budget: £67bn.

Potential cuts: Up to £13.4bn

(Other departments have been told to look at 40 per cent cuts, education escapes with "just" 10-20 per cent.)

*Scrap school building scheme: £55bn (over 20 years) £4bn next year.

*Sack education authority staff (as schools become independent): £1bn.

*Sack Labour's 50,000 teaching assistants: £750m.

*Axe quangos: £420million.

*Reduce one-to-one tuition: £175m.

*Cut DfE civil servants: £1bn.

*Axe free meals expansion: £120m.

Justice

Total budget: £9.2bn

Potential cuts: £3.7bn

*Cut plans to increase prison numbers to 96,000 places by 2014, moving towards community sentences for lesser crimes and making up to 7,000 prison officers redundant: £880m.

*Close 260 courts and sack more than 6,000 court workers: £500m.

*Reduce overheads and cut civil servants at MoJ headquarters: £100m.

*Relocate civil service jobs from London and the South-east to reduce expensive London building rents: £40m.

Culture, media & sport

Total budget: £2.1bn

Potential cuts: £840m

*Cut subsidies to museums and galleries, possible introduction of entrance fees and job losses: £200m.

*Slash annual Sport England grant for facilities and coaching: £80m.

*Potential 10 per cent cut to the 2012 Olympics budget, trimming opening ceremony: £60m.

*Cut support to the Arts Council by 40 pet cent, which may force forcing theatres and arts cinemas to close: £176m.

*Trim English Heritage: £12m.

NHS

Total budget: £100bn

Potential cuts: £15-20bn

The health budget is protected from the axe, but savings must still be found.

*Management costs slashed by £500m by 2011-12; and by £850m by 2013-14.

*Prices for bought-in goods and services to be reduced: £1.5bn.

*Improved care of patients, reducing hospital admissions: £2.7bn

*Nice suggests change of practice, such as antibiotics for sore throats: £600m.

*More treatment to be provided by GPs, not hospitals.

*Public sector pay freeze: £2bn.

Business, innovation & skills

Total budget: £20.9bn

Potential cuts: £8.4bn

Universities and further education dominate the department – £13.3bn of the total, two-thirds of its spending.

*Cutting bureaucracy and abandoning target of half of young people in higher education might save £2-3bn.

*Modestly introducing more "realistic" tuition fees, balanced by bursaries for the poor but able: £1-£2bn.

*A programme of university mergers, which would cost departments: £2bn.

*Cuts in regional development grants and "blue skies" science: £1bn.

Transport

Total budget: £15.4bn

Potential cuts: £6bn

*The department's biggest spender is the Highways Agency, which maintains major roads, with a budget of £6.5bn. There will be no cut in road repairs. But work on congestion and providing information will suffer.

*Half the contracts for 1,400 new railway carriages have not been signed yet, and will probably not be.

*Network Rail, which manages the stations and track, faces cuts.

*The over-60s will keep free passes, but may have long waits for services.

Foreign office

Total budget: £2.1bn

Potential cuts: £840m

*Shutting embassies and other missions could save £300m. This would undermine the Foreign Secretary's plans to extend British influence.

*Hundreds of millions of pounds could be earned by selling off Foreign Office properties.

*Tens of millions can be saved by cutting the FO's presence in war zones like Afghanistan.

*Schemes such as the Chevening scholarship, training young people from developing countries may be scrapped.