Sir Gus O'Donnell announced this morning that he will step down as cabinet secretary and head of the home civil service. His job will be split in three, with Number 10 permanent secretary Jeremy Heywood becoming cabinet secretary.

There will be a competition between permanent secretaries to find the next head of the home civil service - who will take on the role alongside their existing duties. Ian Watmore, the chief operating officer in the Efficiency and Reform Group, will become permanent secretary of the Cabinet Office.

The cabinet secretary will continue to be the most senior policy adviser to the prime minister and deputy prime minister, and will also act as secretary to the cabinet, responsible to all ministers for running cabinet government. The head of the home civil service will provide professional and corporate leadership, while the Cabinet Office permanent secretary will manage all responsibilites of the department, including cutting costs and driving efficiences across government.

Sir Gus wrote in a letter to staff: "I am extremely proud of the excellent work that you do up and down the country and overseas - delivering services to the public. I have been a civil servant for over 32 years and remain convinced of the importance of our traditional values of honesty, objectivity, impartiality and integrity in underpinning all of the work that we do."

"These are difficult times, but I am confident that you will continue to demonstrate professionalism and pace in facing the challenge of delivering better services with fewer resources. I am also sure that you will provide my successors with the same enthusiastic support which you have given me, and for which I am so grateful."

O'Donnell has been cabinet secretary since 2005, making him the second longest serving cabinet secretary since the post was founded in 1916.

Heywood has been permanent secretary of Number 10 since 2008, and has also worked for the IMF, the Treasury, and Morgan Stanley.

He said of his appointment: "It is a great personal honour for me to be asked by the prime minister and deputy prime minister to take on this new role. Building on Gus's tremendous leadership over the last six years, and working closely with the new head of the civil service and Ian Watmore, I shall do everything in my power to ensure that the finest civil service in the world continues to support the government of the day with dynamism, energy and fearless integrity and impartiality."

Written by Joshua Chambers, CSW