The prospect of further local government cuts loom large following Iain Duncan Smith's decision to reject a move from the Department for Work and Pensions (DWP) in prime minister David Cameron's reshuffle, experts have warned.

Simon Parker, director of the New Local Government Network think-tank, predicted Mr Smith would ‘fight hard' to protect welfare payments now that he would remain in post, potentially leaving the Government with few options but to slash spending throughout the next Spending Review period.

In March's Budget, chancellor George Osborne warned he would be forced to slash spending on almost all public services further unless the DWP could somehow save £10bn from its welfare bill by 2016.

Speaking to The MJ, Mr Parker said: ‘It is well known Iain Duncan Smith does not want to cut welfare payments any further in the next Spending Review but the Government is counting on cutting welfare to free up cash.'

‘If you imagine some form of Conservative Government wins the next election, it will want to protect the NHS and other major areas. So I think local government could expect a tougher ride than they might have if Iain Duncan Smith had moved.'

Unison's head of local government, Heather Wakefield, warned Mr Smith's flagship policy of universal credit and could cost councils many skilled jobs.