Big cuts in the £170 billion-a-year ($370 billion) social security budget will be sought by the British Government as it launches a fundamental review of all public spending to reduce the country's £156 billion deficit.

Universal handouts such as child benefit could be means-tested for the first time and halted for the middle classes and the rich. The review is expected to consider the level and scope of benefits for the jobless, sick and disabled - including the option of freezing them temporarily.

Such moves would be controversial and would call into question the Liberal-Conservative coalition's promises to protect the poor and most vulnerable in society, and could anger many people who voted Liberal Democrat in last month's election.

In another blow to middle-income families, former Prime Minister Gordon Brown's £23.6 billion tax credits scheme will be pared back.

Benefits, tax credits and the generous pensions paid to public service workers were the three areas targeted for cuts in a Treasury document giving the first clues as to where the axe could fall.

George Osborne, the Chancellor of the Exchequer, warned yesterday that departments other than health and international development whose budgets are not ring-fenced could be cut by up to 20 per cent.

To give Cabinet ministers an incentive to provide "more for less", he said those who settled their budgets quickly with a new "star chamber" of senior ministers could join the group and sit in judgment on colleagues who were dragging their feet.

A "brains trust" of civil servants and outside experts will draw up innovative ideas to cut public spending. Labour's targets will be replaced by business plans for all Whitehall departments, who will have to ask whether all their functions are essential, whether they could be targeted to those most in need or whether they could be provided by the private sector, voluntary groups or citizens themselves.

Osborne, who refused to rule out means-testing child benefit, said: "This is the great national challenge of our generation: after years of waste, debt and irresponsibility, to get Britain to live within its means."

The Chancellor was silent on tax rises yesterday but intends they will meet about 20 per cent of his deficit reduction plan, with 80 per cent coming from spending cuts.

Some tax increases and the size of the public spending cake for the next four years will be announced in the Budget on June 22.

The pressure for deep cuts is expected to intensify on Tuesday when the independent Office for Budget Responsibility is likely to downgrade the former Chancellor Alistair Darling's forecast that the economy will grow 3 per cent next year.

Frank Dobson, a former Labour Health Secretary, claimed the coalition was "positively drooling at the prospect of slashing public services". He added: "Cutting pay and pensions and slashing public services won't narrow the inequality gap - it will widen it."

- INDEPENDENT