Budget cuts agreed with Ministries

Mr Osborne indicated he will seek to preserve frontline spending on the military and law and order, including anti-terror operations, vowing that he will not do anything to endanger Britain’s security at home or abroad.

Meanwhile, both the Chancellor and Prime Minister David Cameron have promised to protect the budgets of the NHS, schools and overseas aid.

The Ministries which have reached settlements a month early – Justice, Energy, Communities and Local Government, Northern Ireland, the Foreign Office, Cabinet Office and Treasury – are relatively small spenders and the total cuts agreed amount to just 20 per cent of the £11.5bn which Mr Osborne has demanded from Cabinet colleagues.

The Chancellor said negotiations continue with a number of ministers, including Home Secretary Theresa May and Defence Secretary Philip Hammond, who are believed to be resisting deep cuts to their departments.

Mr Osborne also suggested he was not looking at further cuts to welfare benefits.

He told BBC Radio 4’s Today programme: “My central assumption in this spending review is that this is money I am now looking for which is coming out of Whitehall departments, that we have already found billions of pounds of welfare savings this year and we have got to make sure that Whitehall is not let off the hook, that there are still substantial savings - better value for money we can get for taxpayers’ money out of the machinery of government.”

Business Secretary Vince Cable told Sky News that Liberal Democrats will resist further welfare cuts targeted at the poor, unless fuel allowances and bus passes for wealthy pensioners are also reviewed.

Mr Cable said: “Simply taking more off people at the bottom end of the scale is not the right way to proceed. The Liberal Democrats have said if we are going to look at entitlements, it’s got to be people at the top that we start with.”

In the wake of last week’s murder of soldier Lee Rigby by suspected Islamist extremists in Woolwich, Mr Osborne was asked whether he could protect the budget for counter-terrorism.

He told BBC1’s Breakfast: “We’ve been able to protect it in the past and I’m not going to do anything which is going to endanger the security of this country at home or abroad or the fight against terrorism, but that doesn’t mean that you can’t take a vast institution like the Home Office and look for savings.”

Mr Osborne said “everyone who sits round the Cabinet table” shares the goal of finding savings to get the deficit down and make money available for the NHS and for the investment in infrastructure which he hopes will drive growth and jobs.

“What we want to do is make sure these savings do not affect the frontline services,” he said.

Mr Osborne said he was “in effect” ruling out tax rises as part of the spending review, and said it would be a “mistake” to increase borrowing. He challenged Labour to “tell us whether they would match these plans”.

Labour Treasury spokesman Chris Leslie said: “After the IMF’s damning criticism last week, George Osborne should be asking himself what’s gone wrong and taking action to get the economy growing strongly between now and 2015.

“Sadly, he seems set to spend the next two years sticking to policies that are badly failing on living standards, growth and even deficit reduction.”

Comment: Page 12.