The civil service yesterday found itself in the front lines as Chancellor Gordon Brown announced that 40,000 civil service jobs were to go as part of government cost-cutting measures.

Mr Brown today defended the decision, which he said was a result of the Gershon review commenced more than a year ago and that some of jobs losses would result from the streamlining of the merged functions of the Inland Revenue and Customs and Excise.

He said that the civil service cuts, saving £20 billion, would be used to finance investment in schools and health.

Speaking yesterday, Conservative Party leader Michael Howard described the budget as a "credit card Budget from a credit card Chancellor" and warned that to fund the increased public borrowing taxes would have to raised following the next general election.

CBI Director-General Digby Jones welcomed the Budget as one that would "protect economic stability and curb public sector waste".

He said: "This is an innovative and meaningful package. The Chancellor has heeded company warnings about damaging rises in business tax and responded to calls for measures to invest in enterprise, education, science and transport. Firms will also be encouraged by commitments to cut regulation and improve the planning system in a bid to stimulate much-needed development."

He added: "I am delighted that the Chancellor has committed to increasing productivity from taxpayers' money. At last we are seeing a real attempt to tackle outdated ways of working that have often resulted in the inefficient use of public money. Our message to the government is: you will need sustained political courage to achieve genuine reform - failure is not an option."

Commenting on the merger of the Inland Revenue and Customs and Excise, he said: "The introduction of a merged single tax service should make life easier for small firms. But we urge the Chancellor not to allow this major reform to divert attention from other major tax policy priorities."

Following the Budget speech, TUC General Secretary Brendan Barber said: "The Chancellor has seen off his critics who were predicting cuts in public expenditure or increases in tax.

"Public services still need sustained investment, and we welcome the big boost to education for all ages. We welcome the extra cash for pensioners, though still more needs to be done.

"However the announcement of civil service job losses today had more to with shooting the opposition's fox than acting as a responsible employer."

(SP)