Nearly 10,000 jobs are to be lost and up to 100 courts could close as budget cuts hit the public sector.

The Times has learnt that more than £900 million must be saved at the Ministry of Justice in the next two years, threatening initiatives that include Gordon Brown’s programme to tackle knife crime. The news comes as figures revealed that inflation hit a 16-year high of 5.2 per cent last month, driven by soaring gas and electricity bills.

Analysts predict that the spike will also blow a £3 billion hole in Britain’s welfare budget because the annual increase in pensions and benefits is pegged to the September figures. With most experts forecasting that unemployment will exceed government estimates, the bill for welfare payments is almost certain to rise further.

A confidential presentation made to officials by Suma Chakrabarti, Permanent Secretary at the Ministry of Justice, detailed the savings required from the department 18 months after it was set up. They include the loss of 9,891 jobs in the prison, probation and court services – more than a tenth of the workforce – with one in three coming through redundancies. These cuts, along with a freeze on new recruits or the use of agency staff, could lead to the closure of up to 100 courts.

The presentation also showed that £1 billion of policy initiatives are in jeopardy, including the Prime Minister’s pledge for an independent commissioner for victims of crime, and a £100 million drive to address teenage gang violence. There are also plans to charge immigrants for deportation appeal hearings and to halve the legal representation at court hearings over the future of children.

The cutbacks planned for the Ministry of Justice offer the first sign of the impact that the credit crunch and rising inflation will have on public services. The department was planning savings; however, the extent of predicted cuts – forced in part by increased pressure on prisons and global financial turbulence - is being revised.

The Department for Work and Pensions, which has been given a budget cut of 5.6 per cent over three years in real terms, has announced 12,000 more job losses on top of 30,000 posts that were originally due to disappear. Revenue & Customs has announced 12,000 job cuts on top of the 17,500 lost so far, while the Home Office and the Communities Department are also expected to produce drastic plans to reduce staff and cut spending.

Mark Serwotka, the general secretary of the Public and Commercial Services Union, said the cuts confirmed “our worst fears”, adding: “Banking bail-outs should not be at the expense of public services. The Government has got to realise that further cuts will not only stop the wheels of justice turning but have an impact on the economy.”

A spokeman for the Ministry of Justice conceded that a £1 billion package of savings was being drawn up. The details would focus on “reducing overheads, removing duplication and increasing efficiencies in order to prioritise frontline services”. Inflation surge, pages 6, 7

Times Recommends

• 6 reasons not to give gifts this Christmas
• Remembrance Day: All the lonely heroes