New figures reveal one in five people will need treatment. Which is why experts are calling £20m cuts in services 'cruel and insane'

Health authorities are secretly cutting millions of pounds in funding for psychiatric services, despite alarming new evidence of a crisis affecting an estimated one in five people in Britain. In a move branded "the real madness" by health experts, debt-ridden NHS trusts are slashing budgets and cutting care for the mentally ill.

An Independent on Sunday investigation has established that trusts are planning to cut more than £20m from budgets ear-marked for psychiatric care, using the cash to bail out other parts of the NHS instead.

In some parts of the country, primary care trusts have drawn up secret measures to slash spending on mental health care by up to a third.

With new figures today showing that children as young as seven are now being affected in an epidemic that costs Britain £100bn each year, the disclosures were seized on as evidence that mental health services were at breaking point.

Marjorie Wallace, head of the mental health charity Sane, last night described the plight of the estimated 10 million people suffering from mental illness as a "scandal bordering on cruel". "The real madness is that, while we are bringing in reforms, UK health trusts in debt are turning first to cutting mental health services. It's cruel and insane."

Last week, following this newspaper's four-year campaign, the Government dropped its controversial Mental Health Bill. Ministers announced the abandonment of their draft reforms in response to widespread opposition by psychiatrists, politicians and patients who had labelled them "unworkable and draconian". These measures included the extension of powers to lock up people suspected of mental illness who had not committed a crime and plans to force those living in the community into taking medication.

A short list of reforms will now be added to existing mental health laws instead, a move which has been cautiously welcomed by campaigners.

But the news that key services are being cut back is expected to push the issue of how Britain cares for the mentally ill back to the top of the political agenda. It comes as a raft of new reports confirm the growing problem of mental illness in the UK, made worse by drug abuse, family break-ups and alcoholism.

Reports by the Mental Health Foundation and the World Health Organisation reveal:

* 1 in 15 children self-harming;

* 19,000 suicide attempts by teenagers every year;

* 20 per cent of people suffering from genuine mental distress such as anxiety or depression and in need of urgent help;

* 25,000 people sectioned every year under the Mental Health Act.

A report to be published tomorrow by Childline will reveal that as many as 1 75,000 children are being deprived of their childhoods because they have been forced into caring for lonely and depressed parents who have been abandoned by services.

Charities say that mental health remains the Cinderella of the NHS and warn of a mental health timebomb if money is wasted on badly thought-out measures. They have reacted with fury to private comments by ministers that the cutbacks are "minor".

"People are labelled 'mad' but what is the real madness?" said Sophie Corlett, policy director at Mind. "Cutting overstrained services struggling desperately to serve some of the most vulnerable people in society?"