In a shock demand that could put hundreds of thousands of jobs across the country at risk, government departments have been told to prepare plans for departmental budget cuts of not 25% but now of up to 40%.

There are a few areas that will not be subject to this austerity drive. Health and international aid will be ring-fenced with health actually getting a small increase. Defence and education are partially ring-fenced with cuts projected to be within the range of 10-20%.

All departments are expected to reduce administrative costs by 33% or even up to 50%.

Cuts of 40% are though unlikely to happen. It seems that what departments have actually been asked to do in a letter from Danny Alexander the LibDem Treasury chief secretary, is to prepare “illustrative plans” by the end of July that will be used to “inform” future decisions on cuts. The idea being that when looking at large cuts ministers can see what the effect is likely to be. This was confirmed by Philip Hammond, secretary of state for transport, on the Andrew Marr Show this morning.

The government has said that cuts to the annual £156 billion deficit are needed in order to maintain market confidence in the UK. Labour take the view that such cuts will damage the frontline services that people expect to receive.

Already the new Office for Budget Responsibility (OBR) has predicted job losses of about 600,000 by 2016 with cuts of 25%. This would be far higher for 40% cuts.

The final details of any cuts will be announced in the Comprehensive Spending Review (CSR) on 20th October.

Public sector unions have already warned that they will conduct co-ordinated industrial action if cuts in the order of 40% occur.

Average cuts across all departments of 25% but protecting some will of course mean that most will have to find far more than that 25%. This exercise will give ministers a menu of options to allow them to choose the least worst (political?) option.

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