Darling cuts costs to upstage Tories

Efficiency drive to help pay for tax cuts now and reduce future borrowing

A new front in the political battle over the economy will be opened today when Labour tries to trump David Cameron's plans for finding big savings in government spending to keep down taxes.

The Treasury's drive to reduce Whitehall waste has found between £4bn and £5bn more than the £30bn it has already announced. The efficiency savings will be used to limit the hike in borrowing needed to fund the tax cuts to be announced in Monday's pre-Budget report by the Chancellor, Alistair Darling.

Ministers hope the move will undermine Tory attacks on Gordon Brown's "borrowing binge". The extra savings will come on stream in 2010/11, the financial year in which the Tories, if they win the election, hope to reduce government spending so that they can keep next week's tax cuts in place.

Mr Cameron has ordered his Shadow Cabinet to consider radical options to find billions of pounds of savings, including reductions in some services, as well as hunting for "waste". Tory sources hope the exercise could create room for some tax cuts on top of Labour's. They insist vital frontline services would not be hit.

Labour hopes its own exercise will leave Mr Cameron with little scope for further savings. Some £300m will be saved this year on professional services such as lawyers, computer specialists and consultants. Further savings are expected on energy bills and desktop computer support.

In a speech today, Yvette Cooper, the Treasury Chief Secretary, will say: "This is no time to rest on our laurels... By delivering more efficiency savings and cutting back further on waste, we can keep improving and investing in our public services, help support our economy at a difficult time and help bring down levels of borrowing in the future as the economy grows."

That would help to limit any tax rises needed after the general election to bring borrowing under control. It would also help to justify what Labour MPs hope will be a huge package of tax cuts worth up to £15bn to keep the economy moving.

The pre-Budget report will include an expansion of the Small Firms Loan Guarantee Scheme, a joint effort between the Government and the banks, which provided a total of £70m in loans of up to £250,000 last year.

Mr Brown and Mr Cameron clashed during Prime Minister's Questions in the Commons yesterday over the lack of progress in persuading the banks to increase lending to businesses and home-buyers despite being bailed out with taxpayers' money.

Mr Cameron called for "new government guarantees" to underwrite bank loans to businesses through an arm of the Treasury. Citing specific cases, he told Mr Brown: "What's been done so far has not yet worked properly. We do need to do more on the credit side to make sure that small businesses like this aren't strangled."