Liz Truss’s cabinet is to be asked to find “efficiency savings” in Whitehall budgets, Sky News understands, putting huge pressure on frontline services.
During the leadership contest, Ms Truss said that she was “not planning public spending reductions”.
Now the Treasury is expected to send out a letter within hours to secretaries of state insisting that departments find savings where possible and live within existing budgets.
This is to reduce the level of government borrowing needed in future, in a bid to calm the market turmoil.
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Treasury’s financial secretary said the government won’t take responsibility for the financial storm hitting the UK following the chancellor’s mini-budget.
The move comes as Kwasi Kwarteng is putting together a plan to show the markets that he can bring spiralling borrowing under control after the market turmoil.
Double-digit inflation will leave frontline services under huge pressure, but the letter will make clear there is no money left to help ease the situation.
On top of real-term cuts, additional efficiency savings will be demanded by the Treasury putting budgets under the biggest pressure since Theresa May reversed the austerity policy of the Cameron-Osborne years.
Chris Philp, the chief secretary to the Treasury, will send the letter, alongside a second letter from the prime minister outlining her priorities in government.
In July, Ms Truss said: “I’m very clear I’m not planning public spending reductions, what I am planning is public service reforms.
“I’m certainly not talking about public spending cuts, what I’m talking about is raising growth.
“I want people to be able to keep hold of their own money, but we’ll also have more money to spend on our public services over the long term.”