'Shockwave' of cuts brings warning for jobs and services

A senior council leader warned of cuts to services and jobs which could hit transport schemes, social care, help in schools, regeneration and crime-prevention funding after town halls were told grants will be slashed by 1.2bn this year, although the Tories insisted less painful savings should be achievable.

Yorkshire Forward – already having to slash regeneration spending because its budget was cut this year – is also facing another major funding raid as the Government pledged to axe nearly 300m of "lower value" spending by regional development agencies.

Rail passengers in the region face the prospect of being stuck with crowded trains and outdated carriages for longer after the Department of Transport identified new rolling stock as a "lower priority" and deferred spending earmarked for upgrades.

And demands for the Department of Business, Innovation and Skills to find more than 830m of savings fuelled fears an 80m loan to Sheffield Forgemasters will be pulled, threatening the company's chances of becoming a world leader in manufacturing a new generation of nuclear power stations.

Child Trust Funds are being axed, funding for 10,000 university places scrapped and a public sector recruitment freeze also put in place as part of the cuts which Mr Osborne's Treasury sidekick David Laws said were designed to "send a shockwave" through Whitehall and quangos as they set about repairing the Budget deficit.

In an announcement which was welcomed by business leaders but condemned by the trade unions, Mr Osborne said the coalition was "getting on with the job" of stopping "wasteful" spending.

Overall, 1.2bn in grants to local authorities will be cut including 309m for transport projects – which could affect funding for buses and congestion-busting schemes – and more than 500m from the Department of Communities and Local Government.

Ministers will not cut the main "formula grant" funding of 29bn to councils but will instead slash 1.165bn of grants designed to fund specific projects. In return, they will remove ringfencing dictating how another 1.7bn of grants can be spent, which they said would give councils "the flexibility they need to protect the frontline".

But Steve Houghton, Labour leader of Barnsley Council, warned there would be a "significant effect" on both jobs and services which he said could include schemes to support schools, adult social care and the Working Neighbourhoods Fund being used to tackle unemployment.

"If we're getting into that clearly there's going to be a significant effect," he said. "It's not an easy target."

Mr Houghton also criticised as a "huge mistake" the decision to axe the Future Jobs Fund, which he designed and has created more than 60,000 fixed-term jobs for young people and long-term unemployed.

Former Bradford Council leader Dame Margaret Eaton, chairman of the Local Government Association, called for certainty on how councils would be affected, adding: "We all know cuts are necessary and councils are ready to talk to the Government about how these cuts are implemented and limit their impact on front-line services."