Alistair Darling will today order cabinet ministers to draw up specific cuts in their departmental spending plans so that he can unveil a "hit list" in his Budget in March. The Chancellor's twin aims are to outflank the Conservative Party and reassure the financial markets that the Government is totally committed to its pledge to halve the £178bn deficit in the public finances within four years.
Mr Darling's edict is expected to put pressure on the budgets for transport, housing, the environment, communities (including local government), justice, Home Office spending other than the police, culture, and the Foreign Office.
The only areas of spending that were protected in last month's pre-Budget report were education, health, the police and international development. Independent experts have predicted that this would mean reducing other Whitehall budgets by about 17 per cent.
Treasury officials calculate that by 2013-14, public spending would be cut by about £38bn a year. The rest of the annual reduction needed to halve the deficit would come from tax increases of £19bn, with £25bn achieved by economic growth.
Liam Byrne, the Chief Treasury Secretary, has already opened talks with departmental ministers and asked them to identify non-vital programmes. Today's tough message from the Chancellor at the Cabinet's weekly meeting is designed to highlight the importance of the exercise.
Although Mr Darling has previously ruled out a full-scale government-wide spending review before the election, the new search for cuts could allow him to include a "mini-review" with headline figures for most or all departments in the Budget – the last major setpiece political event before the election campaign begins.
Mr Darling will urge ministers to follow the example set by Lord Mandelson, the Business Secretary, who has angered university leaders by announcing £135m of cuts on top of the £180m efficiency savings already demanded by next year.
A Cabinet source said: "We need more high-profile examples of where we could spend less – headline projects that resonate with the public – to show that we mean business. Ministers have got to come forward with things they no longer want to do."
Most of the new round of cuts would be unlikely to bite until the financial year starting in April 2011. Ministers argue that it would be dangerous to "turn off the tap" when the economic outlook is so uncertain – a view reinforced by the fragile recovery of just 0.1 per cent growth in the final three months of 2009.
However, Mr Darling wants to convince the markets that the Treasury is serious about halving the deficit. Mervyn King, the Bank of England Governor, has warned of a backlash unless specific cuts are outlined in the Budget.
The Tories have warned that Britain's credit rating could be reduced without a more detailed deficit reduction plan, forcing interest rates higher and putting the recovery at risk. They have demanded that the cuts start this year. Mr Darling hopes his new move will put pressure on the Tories to spell out how their proposed cuts before the election.
The Chancellor and Lord Mandelson have persuaded Mr Brown to take a tougher line on cuts. After the pre-Budget report, they were dismayed that the Prime Minister put the emphasis in his interviews and speeches on protecting frontline services rather than halving the deficit. But Mr Brown has now started to use the word "cuts" more regularly.