George Osborne shows way by firing 350 Treasury staff

Mr Osborne made a point of "leading by example" when he convened the first formal meetings of a "star chamber" of senior ministers who will intervene on disputes over the severity of cuts.

He aims to chop a quarter of the Treasury workforce, reducing staff from about 1,350 to 1,000 in three years by natural wastage rather than redundancies. At the same time, Mr Osborne wants to reverse what he regarded as "empire building" under Gordon Brown that extended the Treasury's activities into other Whitehall departments.

Mr Osborne is even asking his staff to sit at smaller desks so more people can be squeezed into his HQ, saving rents.

The Chancellor's willingness to lock in spending reductions in his own building is designed to strengthen his hand in negotiations with other government departments, which reach the final formal stages this week.

Mr Osborne's star chamber will sit in judgment on ministers who claim they cannot find cuts without causing excessive damage to services or to the Government's political fortunes.

Its core membership will be Mr Osborne, Treasury Chief Secretary Danny Alexander, Foreign Secretary William Hague, policy chief Oliver Letwin and delivery minister Francis Maude.

But the Chancellor will let those who reach quick settlements join the committee. Among those eager to help make decisions is said to be former chancellor Kenneth Clarke. Environment Secretary Caroline Spelman and Jeremy Hunt, the Culture Secretary, are also said to be close to settlements. Mr Hunt has offered to quit his headquarters in Trafalgar Square and move to cheaper offices.

Defence Secretary Liam Fox is expected to announce this autumn that Britain and France will share a new aircraft carrier to save money. But the MoD is locked in a battle over the cost of renewing Trident.

Spending cuts of 25 per cent to 40 per cent are being demanded by Mr Osborne from every department except health and overseas aid. A comprehensive settlement will be announced on October 20. A Treasury source told the Standard that the Treasury's internal cuts were in line with its demand for a third of administration costs to be pared back.

Smaller desks were already in use by most staff to make extra space, said the source. "This is typical of the sort of savings that we are looking for in other departments," he added.

The slimmed-down Treasury will "focus on core responsibilities" such as the economy and public spending totals rather than try to dominate or second-guess other departments.

KEY BATTLEGROUNDS

Defence
The £20 billion Trident renewal has caused a big rift. George Osborne wants the cost to go on the military budget, which would create competition for resources between the nuclear deterrent and regular troops. Defence Secretary Liam Fox wants Trident ringfenced instead.

Welfare
Iain Duncan Smith, the Work and Pensions Secretary, accused the Treasury of "disrespect" and of blocking major reforms to the benefits system. The Treasury responded by insisting he pay for his plans by finding more savings, on top of big cuts in housing benefit.

Transport
Mayor Boris Johnson is locked in a battle with Transport Secretary Philip Hammond to protect Tube upgrades, Crossrail and other infrastructure. He is under pressure to cut the £1 billion spent on free travel for children, injured war veterans and the unemployed.

Councils and Quangos
Town halls fear they will have to find big savings. Environment Secretary Caroline Spelman has pleased the Treasury with plans to cut or scrap quangos and reduce grants to schemes such as the coastal path.