George Osborne will unveil another £2.5bn of cuts across Whitehall today as he struggles to free up cash to kick-start growth.
The Chancellor has been coming under pressure from Labour, senior Liberal Democrats and Tory backbenchers to take drastic action to revive the economy.
But he has dismissed calls for unfunded tax cuts or more borrowing to boost infrastructure investment, insisting the coalition must stick to its plan for getting the deficit under control.
Health, schools, overseas aid and HM Revenue and Customs will be shielded from the latest round of reductions, while local government and police budgets will be protected for the first year.
But Mr Osborne told the Cabinet that other departments would have to find 1 per cent savings on day-to-day budgets for each of 2013/14 and 2014/15.
He pointed out that departments had underspent by more than the historical average, demonstrating it was possible to use that lower level when setting limits for the next two years.
Defence Secretary Philip Hammond appears to have won a concession after repeatedly warning that more curbs could seriously damage the military.
The Ministry of Defence will be allowed to roll over unspent money into the next two years - although the underlying budget will still fall.
Capital spending plans across government will not be affected. The Treasury said the cumulative saving over two years would be around £2.5bn.