Plans to build hundreds of thousands of desperately needed affordable homes over the next decade could be scrapped after the Chancellor announced public spending cuts which imply a reduction of at least 25% to the housing budget over the next four years, the National Housing Federation has warned.

But the Federation, which represents England's housing associations, welcomed the Government's decision to rule out any further cuts to capital investment projects.

The Federation also warned that increasing VAT from 17.5% to 20% would unfairly hit the poorest the hardest.

The Chancellor announced that all unprotected government departmental budgets would be cut in real terms by 25% on average over the next four financial years.

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Plans to build around 250,000 homes could be axed as a direct result of the cuts. The Federation warned the nation's affordable housing crisis will plumb new depths as a result – with housing waiting lists already standing at a record 4.5 million.

Thousands of jobs in construction and related fields could also be lost or not be created.

Federation Chief Executive David Orr said: "We understand the Chancellor is faced with some difficult and painful decisions of where the axe should fall.

"However, we are in the midst of the worst housing crisis this country has seen in generations, with a record 4.5 million people languishing on housing waiting lists and 2.6 million people trapped in overcrowded housing. We simply cannot afford to stop building new homes and turn our backs on millions of hard up families.

"These cuts will hit the poorest hardest and could condemn an entire generation to living in substandard housing."

The Federation welcomed the Government’s decision to rule out any further reductions to the capital investment budget this year – and said investing in housing provided huge economic benefits to the wider economy.

(CD/GK)