George Osborne reaches agreement over spending cuts

Chancellor of the Exchequer George Osborne ahead of the Budget statement. Photo: PA

Two days to go until George Osborne unveils the government's spending plans for 2015/16 and all departments have finally settled with the Treasury.

The Chancellor was looking for £11.5 billion of savings for the one-year spending review which will set budgets for the year after the 2015 General Election.

It has been a tense few weeks for ministers as they battled with the Treasury over where the axe should fall.

The process is made much more difficult as some areas of government spending (hospitals, schools and overseas aid) are protected by a ring fence.

Some departments settled very early but others - in particular the Ministry of Defence and the Department for Business - have found it much more difficult to reach agreement.

Senior military officers fired warning shots across the bows of the Treasury when they warned that further cuts could become "dangerous." It led to the Prime Minster ruling out further redundancies for military personnel.

Defence Secretary Philip Hammond and Business Secretary Vince Cable settled on the extent of their departments' contributions to the cuts. Credit: PA

Defence Secretary Philip Hammond finally settled with his Cabinet colleague George Osborne on Saturday night. The forthcoming job losses in his department will be among the MoD's civilian staff.

Similarly Business Secretary Vince Cable was also holding out against Treasury demands. A couple of weeks ago I was told he'd only agreed to a quarter of what the Treasury was demanding.

Although he does not run a high spending department, Vince Cable believes his department is responsible for many of the growth-enabling measures which are critical to the economy.

Chancellor of the Exchequer George Osborne with Chief Secretary to the Treasury Danny Alexander . Credit: PA

I am told the Business Secretary spoke with his Liberal Democrat colleague Danny Alexander (the Chief Secretary to the Treasury) on Sunday morning. And the Treasury boffins had it signed off by the evening.

Whitehall sources on Sunday would not reveal the details of the new BIS budget.

But one stressed how Mr Cable previously insisted he would not settle until he had a budget he could "credibly defend" and hinted that he had won his battle with the Treasury.

We will find out on Wednesday exactly how departments have been financially affected in the drive to find further savings in government spending.