Government funding for the police will be cut by a fifth in real terms over the next four years, the Treasury said today.
Chancellor George Osborne told MPs police spending will fall by 4% each year of the spending settlement, with the aim of avoiding any reduction in the visibility and availability of police on the streets.
By 2014/15, the Home Office will reduce overall resource spending by 23% in real terms, and capital spending by 49% in real terms.
Home Secretary Theresa May said: "My absolute priority, as Home Secretary, is to ensure that the UK retains its capabilities to protect the public, secure the border and tackle the terrorist threat.
"We also have a responsibility to reduce the budget deficit and the Home Office must play its part in this.
"I believe that by improving efficiency, driving out waste, and increasing productivity we can maintain a strong police service, a secure border and effective counter terrorism capabilities whilst delivering significant savings."
Police budgets will fall by 14% in real terms over the next four years, the Treasury said, if police authorities increase the police precept, part of the council tax, at the level forecast by the Office of Budget Responsibility.
Spending will be focused on "protecting the public and ensuring the security of our border", the Treasury said.
"Counter-terrorism specific policing will be protected with a smaller percentage cut than overall police funding of 10% in real terms and we will ensure the right funding is in place to deliver a safe and secure Olympic Games in 2012," it said.
"The reforms we are introducing will make police forces more efficient and more effective.
"We will drive out wasteful spending and increase efficiency and productivity in the back office.
"We will end central bureaucracy and targets, such as the Policing Pledge, reduce the reporting requirements for stop and search and scrap the 'stop' form in its entirety. We will also modernise pay and conditions."
It went on: "By cutting out costs and scrapping bureaucracy, we are saving hundreds of millions of pounds and hundreds of thousands of man hours - so this settlement should not lead to any reduction in police officers visible and available on the streets."
The Home Office's central administration budget will be reduced by 33% in real terms over the same period and its capital budget, which includes long-term assets, such as buildings and IT, will fall by 49%.
The UK Border Agency's budget will also be cut by up to one fifth.
"The agency will save around £500 million in efficiencies by reducing support costs; improving productivity and value for money from commercial suppliers," the Treasury said.
"It will also invest in new technologies to secure the border and control migration at a lower cost.
"An increasing proportion of the costs of controlling immigration and securing our border will be met by migrants and visitors to the UK."
It added that the National Policing Improvement Agency will be abolished, saving at least £50 million, with some of its functions being absorbed into the National Crime Agency.
The Home Office also plans to "make it possible for employers to share CRB checks, reducing the need for multiple checks" and enable police forces to "make procurement savings by acting together when buying goods and services".
The Police Federation of England and Wales, which represents rank-and-file officers, said "people on the streets with mental illness, drug and alcohol issues and missing person enquiries" could suffer under the cuts.
Chairman Paul McKeever said: "Whilst appreciating the Government's view that we should purely fight crime, the reality is that police officers deal with a multitude of tasks every day that fall outside of this remit, including the care and welfare of vulnerable citizens in society.
"These cuts could mean that areas not covered by other agencies, such as dealing with people on the streets with mental illness, drug and alcohol issues and missing person enquiries, are the ones that suffer."
But Mr McKeever, who previously warned the cuts of 25% could mean a "Christmas for criminals", said he was pleased the Government had listened to the union's concerns.
"Let's not pretend it will not be extremely challenging," he said.
"This is best-case scenario the Government has presented based on a certain level of council tax precept going towards policing and it does not take account of inflation.
"We are still likely to see a reduction in police officer numbers and the varying demands on the service increase all the time."