Faced with the need to find £200 billion in cuts over four years in the 2010 Spending Review, the Treasury took the axe to those budgets that were easiest to cut, even though they might undermine the Government's stated priority of encouraging growth, the House of Commons Public Accounts Committee found.
In a report, the cross-party committee described some cuts as "ill thought-through" and said there was "no evidence of clear thinking" about how savings in one Whitehall ministry could impose knock-on costs for other departments.
The report cited the decision to slash spending on capital projects from £60bn to £38bn in real terms, some of which was later reversed as the Chancellor struggled to inject life into a moribund economy.
And the MPs said that staff numbers at the UK Border Agency were cut "too quickly", causing a backlog of immigration case work and some of the employees having to be rehired.
The Chancellor was constrained by political decisions to protect the budgets for the NHS, schools and overseas aid, which left departments accounting for just 40% of the Government's day-to-day spending – including local government and justice – bearing the brunt of the cuts, the report found.
The committee also raised concerns that the Treasury did not have enough information to make "meaningful comparisons" between different candidates for the chop.
The Government's budgetary system encourages departments to focus on their own interests, rather than working together to lower costs, the report found.
The committee's Labour chairwoman Margaret Hodge said: "The Government does not fully understand the impact of the cuts it is making. It is focusing on short-term priorities rather than the longer-term view. The 2010 Spending Review concentrated on what could be cut quickly, rather than assessing the likely impact of the cuts."
Ms Hodge said the Treasury needed to "up its game", adding: "Too often, departments concentrate on their own self-interest, protecting their turf rather than ensuring joined-up thinking across Government."