Nipped in the bud: Osborne dismisses more welfare cuts

George Osborne has ruled out any further cuts to the welfare budget in next month's spending review, risking another bout of anger and opposition from the Conservative backbenches.

The chancellor confirmed he was "in effect ruling it out" after the Telegraph newspaper reported work and pensions secretary Iain Duncan Smith had offered to cut welfare spending by an extra £3 billion a year.

Duncan Smith had reportedly been in negotiations with home secretary Theresa May and defence secretary Philip Hammond over the issue, as he sought a conditional deal in which the savings would prevent any further cuts to police and the armed forces.

But Osborne moved quickly to nip the plan in the bud this morning, telling the Today programme the move was unwanted and unnecessary.

"We've already found billions of pounds of welfare savings in this year," he said.

"We've got to make sure Whitehall departments are not let off the hook."

Further reductions in welfare spending, which have already borne cuts of around £10 billion, would have triggered opposition from the Liberal Democrats.

That could have forced Osborne to reject Duncan Smith's reported proposal to inflict further housing benefit restrictions on the under-25s and limit state payments to families with more than two children, as they do not explicitly target the well-off.

The standoff came as Osborne revealed the news that seven government departments have agreed to spending cuts ahead of next month's spending review.

The unusual decision to reveal progress on internal government progress before the full unveiling of the comprehensive spending review for the 2015/16 financial year could be seen as putting pressure on other government departments, as a bitter struggle continues over which ministers will have to carry the biggest burden.

Philip Hammond and environment secretary Owen Paterson were identified in Sunday's newspapers as being especially troublesome ministers for the chancellor.

Osborne insisted the coalition was unified, however, behind the need to continue with its deficit reduction programme.

"All people who sit round the Cabinet table… accept we've got to go on making savings to reduce the deficit," he added.

"It has come down by a third but we're still carrying a historically high budget deficit.

"We've got to go on reducing that and go on funding the things we do care most about including our vital public services like the NHS and investment in the infrastructure, the capital backbone of the country, that are going to create the jobs of the future."

The Treasury is seeking around £11.5 billion of savings for the 2015/6 year but is only thought to have agreed cuts worth 20% of that figure.

Meanwhile communities secretary Eric Pickles, energy secretary Ed Davey and justice secretary Chris Grayling are all being identified as cooperating ministers who have agreed average cuts of around ten per cent.

Grayling could seek some savings by privatising the courts service, the Times newspaper reported.

Osborne's boasts that impressive progress has been made ahead of the review were played down by Tony Dolphin, the chief economist of centre-left thinktank IPPR.

He pointed out the remaining four departments – the Cabinet Office, Northern Ireland Office, Foreign Office and Treasury – are "really just administrative departments" and that the biggest challenge is still to come.

"It's the big boys who are making all the noise that matter here and they haven't agreed yet," he told "If you believe what you read in the papers, that's where the tough negotiations come."

The 2015/6 spending review will be delivered in full on June 26th. Total managed expenditure is being set at £745 billion, Osborne confirmed in March's Budget.

He suggested at the time that Cabinet Office minister Francis Maude and chief secretary to the Treasury Danny Alexander had identified an extra £5 billion in efficiency savings and cutting administration, which – if realised – will go a long way towards achieving the savings.

Local government and devolved administration budgets are also likely to be slashed, while public sector pay is also likely to bear a big burden of the cuts. Pay rises have been limited to an average of one per cent for 2015/6.

Shadow Treasury minister Chris Leslie said the upcoming spending review was one David Cameron and Osborne had never wanted to happen.

"They said their plan would balance the books by the next election, but their failure on growth and jobs means the deficit is now set to be over £90 billion in 2015," he commented.

"That's why the chancellor is now asking for even more spending cuts, with most big departments yet to reach agreement.

"After the IMF's damning criticism last week George Osborne should be asking himself what's gone wrong and taking action to get the economy growing strongly between now and 2015.

"Sadly he seems set to spend the next two years sticking to policies that are badly failing on living standards, growth and even deficit reduction."