Secretaries of state who do not reach a bilateral agreement with George Osborne within the next few weeks will be forced to appear before the committee, which will then have the final say on where the cuts fall.
The move comes following the announcement that seven departments – including energy, justice, local governments and communities – have provisionally agreed to reduce their spending by up 10 per cent for the 2015-16 financial year.
The final spending plans will be published on 26 June.
A Treasury source told City A.M. that Star Chamber was intended to act as a deterrent and ensure ministers agree cuts well in advance: “Last [spending review] no one wanted to go before it.”
“This is not just about cutting spending to keep taxpayers’ money in order, also about making sure we can spend money on infrastructure and the things that will create wealth, create growth, and the jobs of the future,” they added.
Ministers who agree provisional settlements with the Treasury on a bilateral basis will be rewarded with a seat on Star Chamber, which is a formal cabinet committee and will also consider inter-departmental issues such as sharing offices and pay scales.
Osborne has decided that total Whitehall spending has to fall by £11.5bn during 2015-16, with yesterday’s provisional deals representing just 20 per cent of the total required.
Most of the larger government departments have yet to settle with Osborne but the Treasury insider insisted that yesterday’s announcement was not an attempt to force their hands.
Home secretary Theresa May, defence secretary Philip Hammond, and business secretary Vince Cable have been dubbed the Union of Ministers after fighting a rearguard action to stop their departments being severely affected.
However, Osborne has rejected calls from right-wing Tory backbenchers for further cuts to welfare spending, while the government says it will stand by its pledge of ringfencing the overseas air budget.
NEED TO KNOW: THE SPENDING REVIEW
Q and A
Q What is a spending review and why is George Osborne organising one now?
A A spending review sets out the budgets for individual Whitehall departments over a fixed period. Osborne is having to set spending limits for the 2015-16 financial year so civil servants can plan ahead, even though this runs past the 2015 general election.
Q How much is going to be cut from Whitehall budgets?
A Osborne set an overall “spending envelope” in this spring’s Budget which will require Whitehall spending to fall by £11.5bn in the year beginning April 2015. But many major departments – including healthcare and schools – are ringfenced, meaning other departments face cuts of up to 10 per cent to make up the difference. Business minister Vince Cable has criticised this ringfencing policy.
Q How does the government decide which departments are going to lose out?
A Fierce lobbying between ministers is currently underway – both in private and in public – with Osborne and Lib Dem Treasury secretary Danny Alexander having the final say. If ministers are unable to come to an agreement then they face the prospect of making their case in front of the Star Chamber.