Scottish councils today warn they face a half billion pound squeeze next year as George Osborne prepares to unveil his most far-reaching cuts yet.

The Convention of Scottish Local Authorities (Cosla) predicted his announcement would lead to “severe” reductions in vital services that would affect the most vulnerable in society.

The highly-respected financial think tank the Institute for Fiscal Studies (IFS), meanwhile, warned that since 2010 Mr Osborne will have presided over the deepest public spending cuts in UK history.

Yesterday Mr Osborne announced plans to spend an extra 30 per cent on the UK’s counter-terrorism budget, but failed to rule out major cuts to police funding, as the Conservatives tried to get on the front foot ahead of Wednesday’s spending review.

The Chancellor claimed that the cuts process had gone “smoothly”, despite reports of rows with the Home Secretary Theresa May and Work and Pensions Secretary Iain Duncan Smith.

He has told unprotected departments to prepare for spending reductions of between 25 and 40 per cent of their budgets.

Scottish Finance Secretary John Swinney has delayed his own budget to see the details.

Cosla’s finance spokesman Kevin Keenan said that he wanted both the Chancellor and Mr Swinney to be “fully aware” of the implications.

“Scottish local government is already facing nearly half a billion pounds of spending pressures for next year and this is before George Osborne or John Swinney even have their pencils out,” he said.

He warned that for the sake of communities across Scotland that he hoped neither of those pencils were “particularly sharp”.

“Because Scottish local government and the communities we represent cannot really take any more pain,” he said.

“We are already operating within a financial straightjacket in terms of the tools we have at our disposal with things like the Council Tax freeze restricting our ability to operate.”

This time around, he warned, there were no so-called “soft targets” to cut.

“We are talking of severe cuts in vital services and job losses in communities and undoubtedly these will impact on the most vulnerable in our society,” he said.

Paul Johnson, the IFS director, warned that the cuts would lead to huge changes in the shape of the state, which he predicted would become restricted largely to providing basic pensions and health care.

When the latest announcement is added to the cuts over the last five years, he said, “we have never had anything like it”.

Mr Osborne yesterday refused to be drawn on his plans for welfare cuts.

He suffered a humiliating defeat in the House of Lords earlier this month when peers voted down his proposals to slash working tax credits.

Mr Osborne, who has pledged to come back to the Commons on Wednesday with a reformed plan,

described as "perfectly legitimate” concerns around the policy but he insisted that his target to slash £12 billion from the welfare bill remained.

Former Conservative Chancellor Lord Lawson said he thought that Mr Osborne would delay the introduction of tax credit cuts, but also urged suggested the Chancellor look at fuel duty.

Mr Osborne also hinted that he could drop his plan to run a £10bn Budget surplus by 2020.

Experts have questioned the wisdom of the target.

Asked if he still intended to be so far in the black, the Chancellor said only that the “precise level” would be set out later this week.

Labour’s shadow chancellor John McDonnell accused the Treasury of being in “utter chaos”.

Home Secretary Theresa May had been reported to be in eleventh hour negotiations with the Chancellor over reductions to her budget after senior police officers warned major cutbacks would leave Britain vulnerable in a major terrorist attack.

But Mr Osborne predicted that the changes in counter terror funding would help “make sure we can deal with marauding gun attacks”.

Both the SNP and Scottish Labour have written to Mr Osborne to protest at his plans.

Scottish Finance Secretary John Swinney said it would be "unacceptable" to run a surplus at a time of benefits cuts.

Mr Swinney also urged for more help for the North Sea, in the wake of the slump in the oil price.

Scottish Labour leader Kezia Dugdale has also written to the Chancellor demanding a halt to his planned tax credits cuts.

A second letter to First Minister Nicola Sturgeon also urged the SNP leader to match Labour's commitment to use Holyrood's new powers to ensure no-one in Scotland loses out if the policy goes ahead.

A Treasury spokesman said that ministers wanted to deliver sustainable public finances and get the UK’s Budget deficit under control “to prepare the country for any economic shocks that lie ahead”.

"The Chancellor has already made clear that the Government will listen about how we make a transition to a higher wage, lower tax and lower welfare economy he wants to see, and will announce his proposals at the Spending Review and Autumn Statement.”

Meanwhile, Labour has announced it is launching a review into whether business tax breaks are “helping or hindering” companies and families.