Social security, health, education and the Home Office - which between them account for approaching half the Government's pounds 250bn spending - will be the first departments to be asked to re-justify their spending in an 'in-depth' review in which Mr Portillo said he had 'not ruled anything out of court'.
The review has led to Conservative right-wing hopes and Labour fears that compulsory private insurance for unemployment, and incentives to opt-out of the basic state pension for private provision could ensue - with more means- testing and taxing of benefits in the pounds 70bn social security budget.
With toll charges on existing motorways under consideration, and a likely 40p increase in prescription charges to pounds 4.15 in the pipeline for April, Labour also fears the review will produce more direct payments for a whole range of services. But the mixed messages Mr Portillo delivered yesterday - variously painting the exercise as a 'nitty-gritty' examination of whether cash was being spent effectively, or a root and branch review, or even an examination of trends 10, 20 or 30 years ahead - left MPs uncertain about the scale of what is in hand.
Conservative right-wing excitement at what they saw as open season being declared on options for rolling back the welfare state was balanced by Tories such as James Couchman and Sir Anthony Grant anxiously seeking assurances that the NHS would remain free for all at the point of use and that pensioners would not be 'let down'.
Labour accused the Government of panicking in the face of a likely pounds 50bn borrowing requirement next year.
Harriet Harman, the shadow Chief Secretary, said it would be 'wholly wrong' if those already suffering in the recession 'ended up paying the price in worse policing, worse schools, worse health care and less benefits'. Her demand to know 'what's up for grabs in this extraordinary review' was rejected by Mr Portillo, who told BBC radio that he did not yet 'know all the questions, let alone all of the answers'.
Treasury sources insisted the exercise was purely about public spending.
Many Conservative MPs, however, believe issues such as taxing child and invalidity benefits, and re-examining mortgage and pension tax reliefs, will inevitably form part of the exercise.
Mr Portillo told the Commons that manifesto commitments for this Parliament - which include real terms NHS growth and retaining child benefit and the state pension with their value protected - would be honoured. The Government was looking 'to the medium and longer term' while hoping the first results would 'inform' December's spending decisions.
The aim, he said, was to distinguish clearly 'the essential costs of high priority spending which we will continue to fund, and avoidable spending which we cannot afford'. He was looking for areas 'where better targeting can be achieved, or from which the public sector can withdraw altogether'.
He told MPs that the review, which would take much of the Parliament to cover all departments, would be 'substantial' but not a 'bitter and vicious cutting exercise'.
Mr Portillo used Labour's own review of the tax and benefits system through its Commission on Social Justice to throw back in the face of Labour MPs charges that universal benefits could go. It was John Smith, the Labour leader, who had told his party it must 'think the unthinkable,' Mr Portillo said.
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