Chancellor George Osborne will use the Budget to impose a further £2.5 billion of cuts on Whitehall, with the proceeds to be invested in capital projects designed to kick-start growth.
Mr Osborne and Treasury Chief Secretary Danny Alexander have briefed Cabinet on the plan, on the eve of a Budget in which the Chancellor is coming under intense pressure to inject vigour into an economy teetering on the brink of a triple-dip recession.%VIRTUAL-SkimlinksPromo%
Health, schools, overseas aid and HM Revenue and Customs will be shielded from the cuts, and local government and police budgets will be protected for the first year, but other Whitehall departments will be told to deliver 1% savings on their day-to-day budgets for each of the two years 2013/14 and 2014/15, on top of cuts from previous budgets and autumn statements, the Prime Minister's official spokesman said.
Mr Osborne told Cabinet colleagues at a weekly meeting in 10 Downing Street that the savings were made possible because departments have under-spent their budgets this year by more than the historical average, according to forecasts to be published alongside the Budget on Wednesday.
The Chancellor has decided to take account of this under-spending when setting departmental budgets for the next two years, Cabinet was told.
The Ministry of Defence will be given special flexibility to roll over unspent money, which the Chancellor believes will more than compensate for the cumulative savings demanded from the department in December's Autumn Statement and the Budget. And capital spending plans across Whitehall will not be affected.
But departments such as environment, energy, transport and justice will have to find the 1% annual savings to day-to-day "resource" budgets in full. In total, Mr Osborne expects the change in spending plans to save the Treasury £2.5 billion over two years.
It is understood that the savings will be taken into account in Mr Osborne's Spending Review for 2015/16, to be unveiled in June, delivering around £1.2 billion of the £10 billion spending cuts which he is looking for in that year.
Ten most hated professions in the UK
Chancellor to impose Whitehall cuts
They might think they're masters of the universe. We know they've dobbed the rest of us in it. After lending out recklessly, they are blamed for causing the financial crisis. Even after they had to be bailed out by taxpayers, they still give themselves obscene bonuses.
Have the power to enter your home and seize your possessions. Debt collectors are a form of bailiff-lite. They can 'only' write, phone or visit your home to talk about the debt. Don't bother bringing out the best china.
Last year's heavy snow meant lost parking revenue, as attendants were stopped from handing out as many tickets as normal. Edinburgh Council lost more than £700k in parking revenue in just two weeks. Expect parking wardens to redouble their efforts as they make up for that in the rest of 2011.
Yes, there are honourable exceptions. There are also reasons why these guys have the reputation they do.
Not as venal as some on the list. But some of these guys would persuade their granny to sell for £50,000 less than her home is really worth. Just so they can get a deal done and take their commission. It's always one story with them when you're selling. Another when you're buying.
Not independent, despite what they claim. Until big changes in the law come into effect in the next couple of years, they are paid on commission. So it's in their interest to stuff clients into whichever products pay them the most - it doesn't matter whether the product is any good or not.
These guys will charge you for yawning. But there's no fighting them. They set up the system and know best how to work it. The ultimate parasites? But then, they earn so much money what do they care what other people think?
It's 6.30pm, the hour when hell gates open for every parent. The phone rings. It turns out to be a gentleman from Bangladesh, selling you phones in indescribably bad English.
Low barriers to entry mean spamming is on the rise. Experts expect 7 trillion spam messages to be sent this year, costing millions in lost productivity and fraud. Internet service providers are among those worst affected. They have been forced to add extra capacity to carry the messages.
An out-of-place figure on your tax return, or big fluctuation from year to year could be enough to prompt a dreaded tax inspection. Since 2009 HM Revenue and Customers have been able to check a wider range of payments than before. Previously they could only look at VAT and employer returns. Now they have the power to inspect income tax, capital gains, PAYE and corporation tax