Four government departments have agreed to reduce their spending by an average of 30 per cent over the next four years.
The departments for Transport, Environment, Communities and Local Government and the Treasury have all agreed to the cuts of eight per cent a year.
Chancellor George Osborne is expected to say that the cuts will help the public finances back into surplus. A Treasury source added that the agreements were ‘really good progress’.
Furthermore, the departments will enforce the cuts over the next four years through a combination of efficiency savings and closing low value programmes.
While negotiations are continuing, plans have also been revealed that nine new prisons are expected to be built to replace old jails.
The chancellor has asked various divisions of the government to generate savings of between 25-40 per cent by the end of the current parliament. Other departments including health and overseas aid, have had their budgets protected.
Osborne will warn that such control over spending is necessary to maintain confidence in the economy. He is expected to say: "The deficit could bring our country down, while debt is high, our economic security is in danger.
"No-one knows what the next economic crisis to hit our world will be, or when it will come. But we know we haven't abolished boom and bust."
One department yet to reach an agreement is the Department for Work and Pensions, which Osborne is requesting £12 billion in welfare savings. In addition, the chancellor is seeking new ways to save £4 billion after the House of Lords rejected legislation paving the way for working tax credit cuts.
Ian Duncan Smith, Work and Pensions Secretary is resisting the Treasury’s attempts to make Universal Credit less generous. The Universal Credit scheme is a new form of benefit aimed to support people who are on a low income or out of work.
Universal Credit is replacing six existing benefits, including income-based jobseeker’s allowance, income-related employment and support allowance, income support, child tax credit, working tax credit and housing benefit.
However, Treasury officials are thought to be considering increasing the penalties faced by claimants who take extra work. The new plans have prompted speculation over whether Smith might resign over the row, although when questioned about the possibility, Foreign Secretary Philip Hammond said he didn’t think so.