UPDATED: George Osborne says £12bn aid budget will be used to help councils house refugees

Mr Osborne said that the money from the UK’s £12 billion-a-year aid spending will be diverted to local authorities to help them cover the costs of housing people from the refugee camps bordering Syria.

Speaking on BBC1’s The Andrew Marr Show, he said that it was part of a “fundamental re-think” of Britain’s aid policy, which would see more support directed towards the region.

“The foreign aid budget that we have can provide the support for the first year for these refugees, to help the local councils with things like housing costs. We will deploy the foreign aid budget to help with the costs of these refugees,” he said.

“We have got a £12 billion aid budget, we spend £250 million on those countries like Syria, Jordan and Turkey. We have got to have a fundamental re-think of how we are using this budget.

“This budget is tied to our GDP, our GDP is going up, let’s use the additional money very specifically on the challenges that Britain faces, one of which is this crisis on our doorstep.”

The Chancellor said David Cameron will set out details of the Government’s plan to take more refugees - announced on Friday - in the Commons when MPs return to Westminster following their summer break on Monday.

The Government is facing increasing calls from some Conservative MPs - including former defence secretary Liam Fox - to extend RAF air strikes against Islamic State (IS) into Syria.

While Mr Osborne acknowledged that the West was not doing enough to contain IS, he said that ministers were not prepared to risk a repeat of their Commons defeat two years ago when Labour combined with Tory rebels to vote down air strikes in Syria.

“We are not going to go back to the House of Commons unless we would be sure that we would get a different answer if we were asking to intervene,” he said.

“So we need to see support across the House of Commons for this action. It doesn’t mean that everyone has to sign up to it. We have got to spend the coming period making that argument to people.”

He hinted that if left winger Jeremy Corbyn - who is opposed to military intervention - triumphed in the Labour leadership contest, ministers could try to seek support from Labour MPs opposed to him.

“I think you have plenty of Labour MPs - people like (interim leader) Harriet Harman, I suspect that she’s not particularly comfortable with the position the Labour Party took (in 2013),” he added.