GEORGE Osborne will tomorrow (Wednesday, December 5) take the first step towards the possible transfer of huge spending pots - and control over skills budgets, infrastructure funds and job-creation schemes - to the regions.

The Chancellor is expected to use a 'mini-Budget' to announce a trial scheme designed to end decades of power-grabbing by Whitehall, building on radical plans put forward by Lord Heseltine.

The former Conservative deputy prime minister called for 'local enterprise partnerships' (LEPs) - made up of business leaders and local councillors - to control budgets worth £14.5bn-a-year across England.

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Now Birmingham is tipped to be unveiled as a test-bed to to explore how such devolution can deliver economic growth - a model for towns and cities in the North-East and North Yorkshire, if successful.

Tomorrow's autumn statement is also expected to deliver billions of pounds of extra benefit cuts, a raid on the pension pots of the wealthy and a fresh spending squeeze for many government departments.

Today, Treasury sources briefed that departments will be told to save an extra one per cent next year and two per cent in 2014-15, to release £5bn for new schools, science and transport projects.

About £1bn is expected to go towards building 100 new free schools and academies - creating an additional 50,000 new school places - in a bid to use "shovel ready" schemes to kick-start economic growth However, the cash will go towards tackling a chronic shortage of primary places, primarily in the South, rather than to rundown schools that missed out when Labour's Building Schools for the Future (BSF) scheme was axed.

Health, education and international development budgets will be protected, but the Home Office was missed off the list - raising fears of fresh police cuts.

Local government will be forced to make further savings in 2014.

North-East council leaders have already raised the alarm over a feared £100m of further 'stealth' cuts in this region - and an extra 1,000 job losses.

Controversially, Mr Osborne is also expected to make savings by imposing below-inflation increases in key benefits - such as jobseeker's allowance and income support - defying warnings that poverty will increase.

But he will also target the rich, probably by slashing the annual tax-free sum anyone can put into a pension pot from the current £50,000 a year.

Moreover, it is thought the Chancellor has found only half the £10bn of welfare savings he is aiming for, after the Liberal Democrats blocked plans to strip housing benefit from under-25s.

Motorists will be cheered if, as expected, the 3p fuel duty rise earmarked for January is shelved - even while rail fares again rise by more than inflation.

The Chancellor may also publish the recommendations of the review bodies that have been asked to investigate how to introduce 'local pay' for public-sector workers - which would lead to lower pay in the North-East.

And, following the double-dip recession, he is likely to face the embarrassment of being forced to abandon one of his prized fiscal rules - that debt will be falling as a proportion of GDP, by 2015.