The Scottish Government's budget is set to fall by an estimated £1 billion a year as part of a new austerity drive ordered by George Osborne.

The Chancellor has told Conservative ministers to draw up plans cut the size of their departments by as much as 40 per cent, in a bid to find £20 billion over the next four years.

Schools and hospitals spending south of the border will be protected, a decision which means the scale of the cuts to the Scottish Government's 'block grant' will be smaller than it would have been otherwise.

Mr Osborne told MPs that the savings would mean departments would have to do "more for less".

The SNP's deputy leader Stewart Hosie predicted some of the high targets would prove "completely unmanageable".

Mr Osborne risked "setting himself up for a very large fall," he said.

"Perhaps he's setting the bar high and he'll appear to be the good guy if it's less when push comes to shove."

Shadow chancellor Chris Leslie said that Mr Osborne had no plan for "sensible savings" to public services.

"Departments are not being given a clear sense from the Treasury of what to plan for in the spending review, particularly since we've seen three sets of spending plans in the last few months," he said.

"Britain's public services need a coherent plan to balance the books and put productivity first, not a Chancellor who chops and changes from month to month, ditching manifesto commitments."

Within hours, however, another cabinet minister appeared to rubbish Mr Osborne's figures, calling the 40 per cent target "aspirational".

Foreign Secretary Philip Hammond said: "Past experience would suggest that initial pitching by the Treasury should be regarded as aspirational and a ranging shot."

He added, however: "It is clear that to deliver the overall fiscal trajectory departments collectively will have to make substantial savings, double digit percentage savings."

Each unprotected department has been asked to come up with savings plans totalling 25 per cent and 40 per cent of their budget.

The designation of some departments as protected means that the axe will fall heavier on others, Mr Osborne acknowledged.

AMong those ring-fencing are defence, education, health and international aid.

"It is right for a Government to make a judgment about its priorities. We have made those commitments," he said.

"That obviously increases pressures elsewhere in government. But government is ultimately about making these choices. I think we have made the right choices."

Mr Osborne suggested that part of the savings could come from giving people "more say over their lives".

He also made clear that departments should draw up plans to sell off billions of pounds worth of land and other public sector assets.

The Ministry of Defence (MoD) alone currently owns around 1 per cent of all the land in the UK - some 227,300 hectares - according to a Treasury paper .

Earlier this month Mr Osborne confirmed plans to cut £12 billion from the welfare bill and save an extra £5 billion from a crackdown on tax avoidance.

He said that the latest cuts would complete the Conservatives' plan to eliminate the UK's Budget deficit.

"We have shown with careful management of public money we can get more for less and give working people real control over the decisions that affect them and their communities," he said.

"The spending review will deliver better government and economic security."

Using the Treasury's own calculation the Scottish Government' could have expected that its block grant would be cut by approximately £1.5 billion a year.

However, once protected spending is removed, that figure falls to £1billion.

The Treasury refused last night to say how by much Scotland Government spending would fall.

The result of the spending review will be announced on November 25.