Alistair Darling has demanded a further clampdown on Whitehall departments, in the first sign of a much tougher spending squeeze as public finances continue to deteriorate, The Times has learnt.

Next month’s Budget will outline a series of cutbacks in spending departments and quangos designed to save tens of billions of pounds over the next few years.

Yvette Cooper, the Chief Secretary to the Treasury, has written to Cabinet ministers in all Whitehall departments to demand cutbacks in a range of services including finance, IT and human resources, to save at least £5 billion by 2010-11.

Government sources have disclosed that this will be followed by bigger savings in subsequent years and the loss of thousands more Civil Service posts, in an effort to protect frontline services such as health and education.

The Chancellor is said to have been exasperated by the failure of Whitehall departments to pull their weight in cutting costs and has called for urgent action. Despite a series of efficiency exercises, led by Sir Peter Gershon, which have allegedly cut 70,000 posts and saved more than £22 billion, there is more fat to trim, he contends.

In a strongly worded letter to ministers, Ms Cooper has called for a 20 to 25 per cent saving in corporate services and back-office functions, including human resources, finance and IT, in all departments and up to 800 public quangos. Smaller public organisations are being told that any quango under a certain size should share services.

She also called for much more efficient use of electricity and other energy sources to shave hundreds of millions of pounds off Whitehall bills. The letter claimed that only 10 per cent of the £110 billion spent on goods and services goes through a central purchasing service. The Chief Secretary has said departments should increase this figure to 80 per cent by 2010-11.

Treasury sources said the operational efficiency programme, run by an independent panel set up last July, had already uncovered huge disparities in costs across Government.

The annual cost of IT, including hardware, software and back-up support, ranged from £800 to £3,000 for one desktop computer, while the cost of hiring human resources employees varied by 300 per cent, according to the panel’s findings, which will be published as part of the Budget on April 22.

The cost of electricity contracts can also differ by as much as 50 per cent through different providers, or types of contracts.

The latest efficiency drive comes as the battle over public spending rises to the top of the political agenda, with the Tories claiming that Labour’s plans are now unaffordable.

Both parties are carrying out efficiency reviews to trim bureaucracy but Labour claims that Tory proposed cutbacks will hit frontline services.

“We’ve got a long-term efficiency programme to help us keep increasing investment in frontline public services,” Ms Cooper told The Times. “The Conservatives want to cut housing and training budgets next month in the middle of a recession. That’s barmy and would cost us all more in the long run.”

The efficiency panel’s members are Martin Read, a non-executive director of British Airways and a senior adviser to Candover Partners, who is looking at back office and IT; Martin Jay, chairman of Invensys, who is in charge of central purchasing including energy and travel; Gerry Grimstone, chairman of Standard Life, who is advising on asset management and sales; Lord Carter of Coles, a Labour peer, who is looking at more efficient use of office space; and Sir Michael Bichard, a former permanent secretary, who is studying local incentives to encourage public servants to innovate.

The Gershon efficiency programme, which started a few years ago, has been attacked frequently by the Government’s critics as a “smoke and mirrors” exercise where new recruits are taken on in different services as old posts go through natural wastage. But civil service unions claim that Whitehall has already been cut till the pips are squeaking.

Mark Serwotka, general secretary of the Public and Commercial Services union, said: “We have already seen parts of the Civil Service cut to the bone, which has affected service delivery and hampered the government’s response to the recession in areas such as Jobcentres and welfare.

“As the recession bites and more people rely on public services, there is a danger that service delivery will be undermined by more arbitrary cuts,” he said.

Susie Squire, campaign manager for the TaxPayers Alliance, said: “Of course the Government needs to make efficiency savings in its bloated and inefficient departments, which don’t represent value for money for the taxpayer. It is high time we saw tangible outcomes from public sector reforms.”

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