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The UK government has defended its deficit reduction strategy after a watchdog warned about the scale of cuts in public services in Wales.

The Wales Audit Office (WAO) said the spending squeeze could cost up to 21,000 public sector jobs.

The Welsh government blamed a cut in its budget from the Treasury.

But the Wales Office said spending would remain higher in Wales than in England, and it was up to Labour in Cardiff to decide on devolved services.

The WAO's report is the most detailed assessment yet of the challenges facing the Welsh public sector as it gets to grips with the consequences of funding cuts.

The Wales Office said public spending per head in Wales was 12% higher than in England and the cut to the Welsh budget over the next three years was lower than the UK average.

A spokesperson said: "It is, of course, a matter for the Welsh government to decide on the funding of many public services in Wales based on what it sees as its own priorities and using the £15bn budget at its disposal.

"In particular, while the Welsh government is cutting the NHS budget in real terms the UK government is increasing investment in the health service in England by £12.5bn over the next four years."

Many of the cuts stem from the Spending Review conducted by Chancellor George Osborne last year when he outlined how the coalition government in Westminster would deal with the deficit it inherited.

"Risks in the global economy underline the importance of sticking to that plan," the Wales Office said.

Although the Welsh government has protected health spending in cash terms, the NHS in Wales faces a tougher funding settlement than the rest of the UK, the WAO points out.

The Welsh government, which published its draft budget last week,has rejected calls from the Conservatives to maintain health spending in line with inflation.

'Irresponsibility'

Paul O'Shea, Welsh secretary of public service trade union Unison, said it was a "myth" that the UK government had ring-fenced real-terms health spending in England.

Britain's debts had largely been brought about by "irresponsibility in the financial services sector", he said.

"Our real argument is we've got a big debt, it's got to be paid back at some time, but doing it in this short scale is too painful, causes too much social dislocation, wrecks the British economy and wrecks the lives of millions and millions of ordinary working people - so take your time."

The Welsh government welcomed the WAO report, saying it recognised its capital and revenue budgets would take a combined hit of £1.9bn in real terms over the next four years.

With less to spend, the government had made some tough decisions, it said.

"However, we have sought to prioritise and protect the services that the most vulnerable people in Wales depend on the most," a spokesman said.

The government pointed to savings in its running costs and a voluntary early-release scheme that had shed 1,000 staff.

It repeated its call for councils and other public services to find savings by working together.

The spokesman said Health Minister Lesley Griffiths had made clear she was "supporting" local health boards as they prepare plans to "ensure that the health services they provide are safe, sustainable, and effective and of the highest quality".

Plaid Cymru health spokeswoman Elin Jones said: "In their draft budget, the Labour Welsh government has made clear statements that they intend to address the NHS budget shortfall by reconfiguration.

"This cannot be allowed to mean unacceptable centralisation of services away from our district general hospitals.

"Such centralisation would jeopardise the safety of patients and undermine the very nature of Wales' NHS."

Darren Millar, the Tory chairman of the assembly's cross-party Public Accounts Committee said: "The auditor general's report clearly demonstrates that tough times lie ahead for public services in Wales and painful decisions regarding the way they deliver services must be made.

"Waste and inefficiency remains and cannot be tolerated as now, more than ever, every penny of public expenditure counts."

Welsh Liberal Democrat leader Kirsty Williams said: "Just this week, I was criticised by the health minister for comparing our NHS to a game of Russian roulette.

"I do not make statements like that lightly and without proof and this report just goes to confirm that the current and future financial situation of the NHS is putting patients' lives at risk."

Welsh Local Government Association (WLGA) chief executive Steve Thomas said the organisation endorsed many of the reports' key findings, but he challenged the assertion that there was uncertainty about how councils plan to collaborate.

"Councils are well advanced in negotiating a new 'compact' with the Welsh government which will outline which services we will collaborate around and by when," he said.