More than 13,000 civil service jobs could be axed as a result of an extra £5bn of spending cuts to be announced today by George Osborne in his Autumn Statement.
The Chancellor told cabinet ministers yesterday that his squeeze on departmental budgets would be tightened so he can switch money from day-to-day spending to building projects in a two-year plan to help secure economic growth and to counteract the drop in construction activity.
They include up to 100 new free schools and academies, providing an extra 50,000 places at a cost of £1bn; science, skills and transport projects.
The Chancellor will trumpet the £5bn switch in spending as a sign that the Government is doing all it can to secure growth without departing from its deficit-reduction strategy.
Most departments will have to shave 1 per cent off their running costs in 2013-14 and 2 per cent the following year, saving £3.4bn on top of existing cuts. The rest of the "go-for-growth" funds will come from underspent Whitehall budgets. Health, schools, overseas aid, nuclear decommissioning and HM Revenue & Customs will be protected.
Treasury sources said frontline services would be safeguarded and most of the savings would come from administration, but admitted that some jobs would be lost. The Public and Commercial Services Union predicted last night that the new cuts would mean almost 13,500 civil service jobs being lost, in addition to the 50,000 due to be axed over the next two years and the 63,000 already cut since 2010.
Ministers argue that the building projects will create jobs as well as growth. The independent Office for Budget Responsibility will today update its March forecast that the 730,000 public sector job losses between 2011-17 will be outweighed by the creation of 1.7 million jobs in the private sector.
Mr Osborne will also announce more savings on benefits, with payments like jobseekers allowance likely to rise by less than inflation next April. In return for accepting that, the Liberal Democrats are likely to win a squeeze on the rich, through a cut in the maximum £50,000 a year of pension contributions that attract tax relief.
Shadow Chief Treasury Secretary Rachel Reeves said: "The Chancellor seems to have finally admitted that abolishing the Building Schools for the Future programme and his other deep cuts to infrastructure investment were a catastrophic mistake which cost jobs and weakened our economy."