Where will the axe fall? Whitehall waits for the bloodbath

As George Osborne puts the final touches to this Wednesday's Comprehensive Spending Review, Matt Chorley and Brian Brady reveal how much pain the big departments face.

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David Cameron used to joke that George Osborne would move into his grace and favour flat in Downing Street only when protests at the spending cuts "turned really violent". But his hopes of remaining one step removed from the £86bn bloodbath were dashed when he was forced to intervene in ferocious rows between the Treasury and Whitehall departments, most notably the Ministry of Defence.

What was a funny one-liner during the summer party season is about to become a grim reality. Before the Chancellor even rises to his feet in the Commons on Wednesday, those opposed to the cuts will already have laid siege to Parliament in a TUC rally.

By then it will be too late. Today "the Quad", the four men in charge of the process, will meet at Mr Cameron's country retreat, Chequers, to finalise the cuts package. While the hardline demand for defence cuts is thought to have softened to about 7 per cent in the past 48 hours, and education and social care will be spared the worst, there is no question of other budgets which ministers thought had been settled being reopened. However, the scale of the cuts in some departments has caught several ministers by surprise, one even warning that achieving them is "a metaphysical impossibility".

Defence

Cameron blinks as the top brass presents Armageddon scenario

The MoD has been forced to accept a 7.8 per cent cut in its budget, almost twice the level first put to the Treasury, The Independent on Sunday has learnt. Liam Fox, the Defence Secretary, drew up radical plans for a 3.8 per cent reduction, which included the loss of Harrier jump jets, amphibious ships and a substantial slice of the surface fleet. But the Treasury insisted on a further 4 per cent, which a senior MoD source admitted had led to "salami-slicing" of budgets that may have to be revisited in future years.

The MoD was already faced with a £38bn black hole in its finances, the equivalent of a budget cut of about 9 per cent, even before the review, making the final level of savings 16.5 per cent. The successor to Trident will continue to be funded from the MoD budget, but funds will be found from the Treasury reserve for Afghanistan.

Mr Cameron was forced to intervene in the stand-off after he discovered plans to cut the Army by a sixth to 82,000. Under pressure from service chiefs, he insisted there was "no way" he could back the idea. Mr Cameron also blocked a proposal from the MoD to place a two-year moratorium on all military activity outside Afghanistan. "We are not going to have people not training on Salisbury Plain or no ships sailing for two years," a Downing Street source said.

Mr Cameron is to order a review into the reserved forces, amid concerns the Territorial Army, in particular, is treated as an "afterthought" in Whitehall, despite playing a key role on the frontline.

Supporters of the Prime Minister point to his patriotic commitment to the Armed Forces as his motivation for stepping in to settle the Treasury row. But critics fear the PM has been "got at" by the uniformed service chiefs who briefed him later on Thursday about the "catastrophic" impact of reining in military spending.

Dr Paul Cornish, Carrington professor of international security at Chatham House, said there appeared to have been little strategic work to look radically at the future role of the forces. "What we have got is carry on with everything, for a bit less. It is neither strategy-led nor Treasury-led, but led by government indecision," said Dr Cornish who publishes a report today entitled Strategy in Austerity.

One senior military analyst added: "Senior military people have been lobbying hard to defend their patch, and everyone seems to have forgotten about thinking radically."

Work & Pensions

Ministers turn on benefits cheats in a desperate effort to find more savings

The DWP, facing a huge cut of some 35 per cent, will reach for a familiar target as it launches the latest official assault on the cheats blamed for taking billions of pounds from the benefits system. Measures in the "fraud and error strategy" include a new investigation service, the appointment of more than 200 new investigators to catch benefit and tax credit cheats, and the use of shared data to track professional fraudsters. The department also wants stiffer penalties, the abolition of cautions, the introduction of three-year benefit bans for people with multiple convictions, and "naming and shaming" fraudsters where they live.

Unveiling the plan that he hopes will tackle the £5.2bn fraud and error bill, the minister for Welfare Reform, Lord Freud, will say: "We are reforming the system and stepping up our efforts to catch the benefit and tax cheats who are stealing money which is meant for the most vulnerable people in our society."

Squeeze the contractors

Cabinet savings enforcer "persuades" private contractors to slash their charges for government work

Ministers have already shaved hundreds of millions of pounds off the cost of government contracts, after giving contractors a "take-it-or-leave-it" offer to reduce their overcharging by at least 10 per cent. Cabinet Office minister Francis Maude has reported "significant" successes following meetings with the first contractors on his list, and managed to beat their planned 40 per cent overcharge down to at least 30. Officials claim the process has already produced savings of up to £800m.

Mr Maude's "efficiency and reform group" has succeeded in getting most of the company bosses to agree to reduce their overcharging to between 20 per cent and 30 per cent. "The bosses of some of the most famous companies in the country have come out of Francis's office looking pretty miserable," the source said. "For some of these companies, the Government is their biggest client. If they want to win contracts in future they will have a better chance if they co-operate now."

Local government

Danny Alexander seeks to reassure pensioners over social care, but questions remain elsewhere

The charity Age UK last week warned of the dire consequences, particularly for the over-75s, of a 25 per cent cut – some £2.2bn – in spending on services including home care, meals on wheels and day centres. But the IoS understands that Danny Alexander will insist that the personal services grant to local authorities will be protected until 2015. A Treasury source said, "We have already announced the link with earnings for pensions and have protected the health budget. On Wednesday we will announce that there will be enough money for local authorities to protect social care services too." However, campaigners remain concerned over issues such as cold weather payments.

Labour fights back

The Opposition hopes to capitalise on the public anger

New Labour leader Ed Miliband and his shadow Chancellor, Alan Johnson, counter the coalition's claim that the cuts are unavoidable. Their "No to no alternative" strategy includes an assault on deficit reduction with capital investment that create jobs.

Mr Johnson criticised the assertion of Mr Osborne that "the deficit was wrong and that his emergency budget measures were unavoidable". Labour's united front suffered, however, when Mr Miliband appeared to slap down his Treasury spokesman over higher education funding. Mr Johnson had written an article in The Independent on Sunday after Mr Miliband's election as Labour leader, warning him: "For goodness' sake, don't pursue a graduate tax. We should be proud of our brave and correct decision to introduce tuition fees." But in an interview with the Yorkshire Post, Mr Miliband backed the graduate tax; in a sharp rebuke to Mr Johnson and others in the shadow Cabinet who oppose the idea, he said: "I think people realise I'm the leader of this party and everyone will accept collective responsibility."

Scotland

Partying like it's 2005

Michael Moore sought to tackle "scare stories" about a post-CSR Scotland regressing to the bad old days of the 1980s, but he was hardly reassuring. "That is not what is going to happen," the Scottish Secretary said. "Indicatively we would anticipate that the spending that we are talking about may take us back to roughly 2005-06." Or, as one aide put it: "We aren't so much talking about firing up the Quattro as switching on the Prius." Only when removal vans are being fired up in Downing Street will the real impact of the cuts be known.

Public backs Cameron and Osborne on economy

For years, David Cameron and George Osborne wanted voters to think they could be trusted with the economy. Now, admittedly with the assistance of the Liberal Democrats, they are running the show, and a new poll for The Independent on Sunday reveals 45 per cent of people believe they are the right people to steer Britain through the downturn.

Only 23 per cent back Ed Miliband, the new Labour leader, and Alan Johnson, his shadow Chancellor. Older voters trust the Tory pair most, but with a third of all voters responding "don't know", the Labour duo appears to remain an unknown quantity to many. How they respond to the Comprehensive Spending Review will be crucial.

Cameron and Osborne may be the most trusted, but 46 per cent also think the coalition "understands the interests of the wealthy better than the interests of ordinary people", rising to more than half among the least well-off.

Specific policies are also criticised as unfair, including higher tuition fees, welfare reforms and the programme of spending cuts. But there are differences between the parties. Among Tories, 55 per cent think the loss of hundreds of public sector jobs is a price worth paying to reduce the deficit, falling to 30 per cent of Lib Dems and only 10 per cent of Labour voters.

Both coalition partners are braced for unpopularity as the cuts bite. The Tories at least start from a relatively high base. In the past two weeks, their rating has risen by one point to 40 per cent, with Labour down two points to 34 per cent, signalling the end to hopes that a new leader would create a bounce in popularity.

In that fortnight, the Lib Dems, who started with 24 points in May, dropped another point to 14 per cent. Almost a quarter of those who voted Lib Dem in May would now vote Labour, a trend Mr Miliband will hope to accelerate in the coming months.

Suggested savings: Sounds like a good idea ...

Charging better-off patients to visit their GP Could raise £1.1bn Charging those not on benefits £20 to visit the GP would manage demand, according to the Social Market Foundation.

Why not? All the main parties are signed up to the principle of the NHS being free at the point of access. Patients with long-term illnesses would be forced to pay out large sums and the genuinely sick could be deterred from seeking medical help.

Cut winter fuel payments to wealthy pensioners: £1.3bn Even over-sixties who are still working receive the £250 payout, which is supposed to help to pay for heating bills. Expats, many living in warm countries, receive £16m a year.

Why not? Think of the headlines. David Cameron told voters to "read my lips" when he promised the winter fuel allowance, along with other pensioners' benefits, would be protected.

Scrap Trident: £15bn-£34bn Opponents of the nuclear deterrent, including Greenpeace, claim a successor to Trident would cost £34bn, about double what the Ministry of Defence estimates.

Why not? The Tories are committed to retaining it. Britain would lose its status as a permanent member of the UN Security Council.

Stop paying Whitehall civil servants bonuses: £130m The budget for performance-related pay for senior civil servants is falling by two-thirds, saving £15m. More junior members of staff will continue to receive incentives.

Why not? Incentivising staff to do well can prevent complacency in the notoriously conservative civil service.

Withdraw from Afghanistan immediately: £2.6bn a year Why not? The coalition is committed to troops leaving by 2015. A rushed withdrawal could leave a vacuum in the war-torn country, into which the Taliban would flood.

Stop using management consultants: £2bn Some consultants employed by central government are on salaries of up to £600,000.

Why not? It can be cheaper to bring an expert in on a short-term contract for a specific task, instead of having them on staff full-time and eligible for other benefits including pensions, etc.

Scrap government advertising: £253m In the run-up to the election, spending on advertising and marketing rose by 40 per cent.

Why not? Some public information messages need to reach as many people as possible, particularly those related to safety and public health.

Abolish the Royal Family: £38m a year At a time of austerity, it seems anachronistic to use public money to support a hereditary monarchy.

Why not? Britain's monarchy generates more than £500m a year from overseas tourists, according to VisitBritain. And what would Prince Philip do?