Osborne: 144,000 more public sector jobs will go as pay freeze continues

"I don't want to deny there will be further reductions in the number of people working in the public sector," he told MPs.

The Chancellor added that for every job lost in the public sector in the past year, five had been created by private firms, "demolishing" arguments against the coalition's policies.

Brian Strutton, national officer of the GMB union, commented: "I predict another 70,000 local government jobs will go in these cuts on top of the 420,000 that have already gone.

"This will take total number of jobs lost in local government to nearly half a million since the election in 2010.

"This is more than half of the entire public-sector job losses. This has coincided with a three-year pay freeze. It really has been a dire time for local government under the coalition."

The chancellor also announced that wage rises would be held down to an average of 1% in 2015/16, continuing a policy of pay freezes or below inflation increases.

He added that automatic annual pay rises in the civil services would end by 2015/16.

Mr Osborne told MPs that every year, some public sector employees received an increase through an "antiquated" pay progression system, regardless of performance, which was "deeply unfair" to workers elsewhere in the public and private sectors.

The Public and Commercial Services union said it was "deeply unfair" to stop pay progression in the civil service.

"This will hold down pay for years to come and will deny workers an agreed rate for the job," a spokesman said.

Unions attacked the spending review, saying it is clear the Government needs a Plan B because of the "failure" of its policies.

Dave Prentis, general secretary of Unison, said: "The Chancellor has got it horribly wrong. Despite all the promises, the austerity measures and cuts, he still hasn't got the country out of recession.

"We are still in the slowest economic recovery in 100 years and yet all we get from this Chancellor is more of the same.

"The Government is losing grip on economic reality if they continue travelling down the same path, expecting to arrive at a different destination."

Terry Scuoler, chief executive of EEF, the manufacturers' organisation, said: "These overall numbers come as no surprise and, given the Government's approach to this review, the settlement is as good as can be expected.

"Crucially, the Government has prioritised spending in the areas that will deliver a greater growth dividend. Investing in science and innovation, export promotion and skills is critical to create a strong more balanced economy.

"It's also great to see the Government raising its ambition on investing in our infrastructure but it must ensure that ambition translates into delivery."

Public and Commercial Services union general secretary Mark Serwotka said: "While his mantra is that he is dealing with our debts, the fact is George Osborne is actually borrowing more for failure and has led our economy into the longest and deepest slump since the 1870s."

Mike Cherry, of the Federation of Small Businesses, said: "It is good that the Government has taken a long-term view of how to plan capital spending to the end of the decade.

"The FSB said in its submission that a longer-term view needed to be taken. However, what we now need is a clear timetable for delivery. Small firms tell us that school-leavers aren't ready for the world of work, with many concerned about their ability in maths and English.

"Giving the funding direct to schools should be used to address this issue. The continued investment in science, technology and apprenticeships is also good news."

TUC general secretary Frances O'Grady said: "This is a toxic mix of bad economics, nasty politics and dishonest presentation.

"The last thing our struggling economy needs is further cuts to spending to try to close a deficit made worse by the Chancellor's earlier cuts.

"When the medicine is not working and side effects are choking the patient, you need a change in treatment, not more of the same.

"Many services will be hard hit. Worst of all is a new attack on some of the most vulnerable in our society through the seven-day wait and other conditions for social security payments.

"The Chancellor may think attacks on welfare go down well with voters but these will lead to parents not having enough cash to feed their children."

David Hillman, of the Robin Hood Tax campaign, said: "It's outlandish of Osborne to claim that 'we're all in this together' when he's opted for billions of pounds of cuts that will hit the poorest whilst simultaneously letting the banks off the hook.

"If the Chancellor was serious about those with broadest shoulders bearing the greatest burden then he would support rather than oppose international efforts to tax the banks more."

Public sector workers, benefit claimants and expat pensioners were all hit by the austerity measures.

Osborne claimed that Britain was "moving out of intensive care - and from rescue to recovery".

But as he cut £11.5 billion in spending, he said balancing the nation's books involved "difficult decisions", adding: "There never was an easy way to bring spending under control."

Shadow Chancellor Ed Balls said the new round of cuts represented a "comprehensive failure" of the Chancellor's economic strategy.

Mr Balls said: "This out of touch Chancellor has failed on living standards, growth and the deficit and families and businesses are paying the price for his failure."

But Mr Osborne insisted his measures, which only spared schools, the NHS, overseas aid and the intelligence services, were necessary and fair.

Mr Osborne gave further details of his planned welfare cap, which will come into force in April 2015 - a month before the next general election. Housing benefit, tax credits, disability benefits and pensioner benefits will all be included although the state pension will not.

Mr Osborne announced that the council tax freeze, due to come to an end next April, would be extended for the next two years. He said that would mean nearly £100 off the average council tax bill for families.

But he warned that local councils would have to make "the kind of sacrifices central government is making".

He said the local government resource budget would be reduced by 10 per cent in 2015-16, but claimed that when changes affecting local government are taken into account including local income and other central government funding, local government spending would be reduced by around two per cent.

Sir Merrick Cockell, chairman of the Local Government Association, said the cut would "stretch essential services to breaking point in many areas".

Scotland, Wales and Northern Ireland do not escape the squeeze with all three required to find savings of 2%.

Mr Osborne also said that the Ministry of Defence would face further cuts to its civilian workforce as its budget was maintained in cash terms at £24 billion - representing a real terms cut.

But the equipment budget will rise by 1% per annum - as previously promised - and there will be no further reductions in military personnel.

The intelligence services - MI5, MI6 and GCHQ - emerged among the winners with a 3.4% increase in their annual budget.

But there will be cuts of 6% at the Home Office, 8% at the Foreign Office and 7% at the Department for Culture, Media and Sport - although funding for elite sports will be protected.

Winter fuel payments for expat pensioners who have retired to sunnier climes will be linked to a "temperature test" from autumn 2015, the Chancellor confirmed.

"People in hot countries will no longer get it. It is, after all, a payment for winter fuel," he said.

A "limit on the nation's credit card" will be brought in, he said, adding: "We will act to ensure that we will stop the cost of paying the Winter Fuel Payments made to those who live abroad rising in a way that no one ever intended.

"Paying out even more money to people from all nationalities who may have worked in this country years ago but no longer live here is not a fair use of the nation's cash."

Mr Osborne also announced that jobseekers will be required to come to the jobcentre every week rather than once a fortnight and the introduction of a new seven day wait before people can claim benefits.

He went on: "From now on, if claimants don't speak English, they will have to attend language courses until they do. This is a reasonable requirement in this country."