The Equality and Human Rights Commission may take action against the Treasury for not meeting its obligations under the Equality Act 2010 to consider the impact on specific groups before announcing its plans in the emergency Budget in June.
Commission officials are in negotiations with the Treasury but have not yet been satisfied that it complied with the Act, pioneered by Harriet Harman, the former Equalities Minister.
Privately, ministers fear the Act could turn into a "poison pill" left behind by Labour. They have not promised to repeal it, which would be highly controversial and unacceptable to the Liberal Democrats.
The Commission is investigating whether ministers considered properly the impact of curbs announced by the Chancellor, George Osborne, on Disability Living Allowance.
It is looking into complaints that a Treasury website asking the public to suggest where cuts should be made has attracted racist comments. It is also considering the wider impact on women of the proposed cuts. Under the Act, the Commission has power to take "enforcement action", which could range from encouraging a change of practice to starting a formal inquiry – a move which could delay some of the proposed cuts.
The Commission's intervention is the second blow in two days to the Government's public spending strategy, after the Institute For Fiscal Studies warned that the poorest families with children would be the biggest losers from proposals announced in the Budget.
Mark Hoban, the Financial Secretary to the Treasury, was ambushed when he answered the IFS criticism on BBC Radio 4's Today programme in what was seen by his ministerial "colleagues" as the worst media car crash since the Coalition Government was formed in May.
Justin Webb, the presenter, asked Mr Hoban whether the Treasury had conducted an assessment of how the Budget would affect specific groups, as required under the Act.
The Treasury minister appeared not to know the answer. Mr Hoban stuck rigidly to his brief, insisting: "We went through a very detailed distributional analysis at the time of the Budget, it was the most extensive piece of work anyone has done."
Mr Webb smelt blood and asked the same question six times. Eventually, Mr Hoban tried a different answer, accusing Mr Webb of "looking at detail rather than actually at recognising the fact we had to take some difficult decisions in the Budget".
Later, the Government fielded Nick Clegg to respond to the IFS criticism. He said the IFS report was a "single snapshot" which did not provide the full picture of the Government's agenda.
Ambushed on 'Today': How the minister floundered
Justin Webb: Can I just ask you this quick question: have you conducted an assessment which you are required to do by law by the equalities act of 2010 to find out what affect this budget has on ethnic minorities, disabled, other vulnerable groups?
Mark Hoban (Treasury minister): Look Justin, we went through a very detailed distributional analysis at the time of the Budget, it was the most extensive piece of work anyone has done.
JW: But have you conducted this assessment?
MH: And it looked across a wide range of households in a way that other governments haven't done, and I think the choice that we faced...
JW: So hold on, can I just get straight from you, have you conducted this legal assessment or not?
MH: Justin, we have gone through the most detailed and rigourous assessment of the distributional impact of this Budget than any government...
JW: So you've not, you've not actually done the assessment that you're required to do under the 2010 act?
MH: We've gone through the most rigorous assessment of the impact of this Budget on families...
JW: But not this formal assessment?
MH: We've gone through, Justin, this is the best and most detailed piece of work any government has done on the impact of their Budget on families and households...
JW: Can I just get it clear from you, you've not done the formal assessment some people think you are required to do under the equalities act 2010?
MH: Justin, I think you know you are looking at detail rather than actually at recognising the fact we had to take some difficult decisions in the Budget to tackle the deficit we inherited from Labour, the choice we faced was either to take action now or to do nothing...
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