Britain's £190bn welfare programmes will bear the brunt of some of the most painful cuts in public spending seen in decades, under plans drawn up by senior civil servants for the incoming government to avoid Britain sinking into a Greek-style debt crisis.
Senior Whitehall civil servants have been working on secret options for cuts going far beyond those disclosed by the three main party leaders before the voters went to the polls – despite a backlash from public sector workers.
The main targets include curbing the numbers of people claiming invalidity benefit, and the £19.7bn housing benefit budget. Waiting in the in-tray for the incoming Prime Minister today will be a classified report by Sir Gus O'Donnell, the Cabinet Secretary, the former top civil servant at the Treasury, on the scale of the cuts in public spending needed to tackle Britain's record £163bn budget deficit.
The cuts have been tailored to each of the party leaders, taking into account the public pledges made during the campaign by Gordon Brown, the Tory leader David Cameron and Liberal Democrat leader Nick Clegg. Officials at the Treasury and the Department for Work and Pensions have had to prepare cuts to allow Mr Cameron to fulfil his commitment to reduce spending by £6bn in the current financial year, despite a warning by Mr Brown that it would risk wrecking the recovery.
The civil servants have laid the ground for Mr Cameron's pledge to introduce an emergency budget within 50 days of being in office. It is likely to include a freeze on public sector pay for all but the lowest-paid workers, axing thousands of civil service jobs, raising the state pension age for men from 65 to 66 after 2016, scrapping tax credits for couples earning jointly £50,000, cutting the Child Trust Fund for most families and capping public sector pensions at £50,000 a year.
However, Mr Cameron admitted on the BBC's Andrew Marr Show that the cuts would have to go far deeper than any of the leaders had admitted if Britain is to avoid having its credit rating downgraded like Greece. An estimated £5.5bn could be saved by cutting the public sector pay bill by 5 per cent, but that could prove politically unacceptable. Public sector unions are warning that they will stage protests and strikes to fight cuts.
Rail union general secretary Bob Crow said: "No one should be fooled by the political elite: they are planning an assault on living standards, jobs and services in the UK on a scale that will mirror the EU-driven cuts that have caused chaos on the streets of Greece."
Some of the most painful cuts will be to reduce welfare spending, which has soared from £93bn when Labour came into office in 1997 to £170bn, with an extra £29bn going on means-tested tax credits. Freezing benefits and tax credits for a year could save £4.1bn.
Treasury officials had prepared a plan to tax child benefit to save £5.1bn on the £11.7bn budget for universal child benefit, which goes to 7.5 million families regardless of their incomes, if the Tories won the election. But they had to drop it from Mr Cameron's portfolio of cuts after he came under fire from Mr Brown during the first of the televised debates.
Officials also prepared plans for an incoming Tory government to abolish winter fuel payments and free television licences for pensioners, but again had to drop the idea after Mr Cameron denied during the televised debates that they will be cut, forcing the civil servants to look elsewhere for savings.
"Gold-plated" public sector pension schemes, linked to final salary, enjoyed by millions of town hall workers and civil servants are prime targets for the chop. It is estimated that there is a shortfall of up to £60bn for public sector pensions which all three parties say Britain can no longer afford.
Vince Cable, the Liberal Democrats' Treasury spokesman, said in a BBC interview that he would protect existing pensions, but in future cut the cost of public sector pensions by "looking at contribution rates, [and] accrual rates of retirement when you retire at average rather than final salary."
Whatever happens today, we will now see an end to the conspiracy of silence on cuts that all three parties maintained until polling was over.
Where the cuts will come
What the parties have announced so far:
£9.4bn cuts in a year Public sector pay Public servant pensions University spending Increase NICs 1 per cent.
£7bn cuts in a year Public sector pay Public servant pensions Child Trust Fund Limit Child Tax Credit to families who earn less than £50,000 Civil service jobs.
£10bn cuts in a year Public sector pay Child Trust Fund contributions Winter fuel payments Scrap next tranche of Eurofighter.Reuse content