George Osborne plays down reports of spending review rift with Iain Duncan Smith

George Osborne has insisted negotiations on next month's spending review are going smoothly, amid reports that he is at loggerheads with Work and Pensions Secretary Iain Duncan Smith over demands to take money from his welfare budget to pay for the Chancellor's climbdown on tax credits.

Mr Osborne used a speech in west London to announce that four Whitehall departments have agreed spending cuts of 30% each over the next four years as part of the spending review process.

But the Department of Work and Pensions is not among them, and reports suggest that Mr Duncan Smith is resisting proposals to pay for reductions in envisaged cuts to tax credits by making the new universal credit less generous.

The Chancellor declined to explain how he intends to lessen the burden of tax credit changes, after the House of Lords threw out his proposal to slash them by £4.4 billion next April, saying only that he would announce his plan in the spending review.

And he restated his intention to get the Government's accounts into surplus by 2020 - saying he wants to do so "by a reasonably comfortable margin".

Asked if he and the Work and Pensions Secretary were at odds over the spending review - in which he has asked unprotected departments to produce plans for savings of between 25% and 40% - Mr Osborne replied: "Compared to the other two spending reviews I have done, this one is going more smoothly and we are making further and faster progress.

"Things are going very much as we would hope them to go."

Asked whether he remains committed to a surplus of £10 billion by the end of the Parliament, Mr Osborne said: "You don't want to be just over the line, because a lot can happen over the coming years and these forecasts can move around.

"That's why I think you want a reasonably comfortable margin in delivering a surplus."

With just over two weeks until Mr Osborne unveils his spending review for the next five years, the Chancellor announced that he would seek "further savings" from tax evasion and avoidance to help balance the nation's books.

But he warned ministers in spending departments that, unless they agree to the cuts needed to bring down the deficit in the public finances, "the deficit could bring our country down".

He was backed by Prime Minister David Cameron in a speech to the CBI describing the spending review as "all about putting the security of British families first".

Their comments appear to be squarely aimed at ministers like Mr Duncan Smith, who is reported to be furious at plans by Mr Osborne to take £2 billion to soften the blow from the cuts to tax.

Sources close to the Work and Pensions Secretary have briefed newspapers that he is ready to walk out of the Government if he is forced to compromise on his Universal Credit reforms.

The high stakes were underlined when Foreign Secretary Philip Hammond could only say "I don't think so" when asked in a BBC interview on Sunday whether he thought Mr Duncan Smith was about to quit.

The Chancellor delivered an uncompromising message, insisting that repairing the public finances must be the first priority and declaring that the Government "must hold our nerve".

"While debt is high, our economic security is in danger. No-one knows what the next economic crisis to hit our world will be, or when it will come. But we know we haven't abolished boom and bust," he said.

"If we don't control spending, we run the risk of higher mortgage rates and higher taxes - and a loss of confidence in our economy.

"If our country doesn't bring the deficit down, the deficit could bring our country down again. That's why, for the economic security of every family in Britain, we must hold our nerve."

Cabinet ministers who have so far settled with the Chancellor are Transport Secretary Patrick McLoughlin, Environment Secretary Liz Truss and Communities Secretary Greg Clark, who have each signed up to an agreement similar to that accepted by Mr Osborne for the Treasury itself.

Under the terms of the agreements they will be expected to cut day-to-day spending by an average of 8% a year for the next four years through a combination of efficiency savings and closing low-value programmes.

Mr Osborne stressed that the agreements do not affect capital spending for investment, with large sums expected to be spent on transport infrastructure over the coming years.

International development, the NHS, schools and defence are protected from cuts, leaving major spending departments like the Home Office and Department for Work and Pensions to bear the brunt of the squeeze on budgets.