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The Chancellor is due to address Parliament on Monday to announce billions of pounds worth of immediate cuts to plug a £20 billion surplus in the finances.
Rachel Reeves’ plan is expected to include cancelling some road and rail projects, cutting spending on external consultants and reducing public sector waste.
She will accuse the previous administration of “covering up” shortfalls in ministry budgets and then “running away.”
But the Conservatives claimed the Chancellor’s messaging was designed to “mislead the British people” so that taxes could be raised.
An internal audit of the Treasury’s finances, due to be published on Monday, is expected to reveal a gap of around £20 billion between tax revenues and projected spending.
The finance minister is expected to tell parliament that “immediate action” is needed to restore stability to the economy and “repair its fundamentals”.
Projects that could be paused or cancelled include the road tunnel under Stonehenge, Boris Johnson’s plans for a new hospital and the Euston section of HS2.
Before the election, leading economists warned that the amounts would not be proportionate and that the new government would face tough choices between raising taxes, cutting spending or abandoning its promise to reduce the debt over the medium term.
But the new administration said the situation was worse than expected. Described as “devastating”The new ministers have carried out a thorough review of each ministry’s accounts, revealing additional strain on government finances.
Reeves is said to have been “deeply shocked” by some of the findings.
But she would not suggest that tax increases are necessary at this stage.
Instead, she will commission the Office for Budget Responsibility to assess the state’s finances and will also begin a spending review process to look at departmental budgets over the longer term.
Budgets and similar financial events will only be held once a year, with Reeves planning to set an initial date in the fall.
Insiders suggest that if the Chancellor had wanted to raise taxes he would have brought in an emergency budget this week, but will instead restate his manifesto commitment not to increase personal income tax rates, including income tax.
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Mr Reeves is also expected to announce pay rises for some civil servants, following recommendations from the Independent Pay Review Body, which would mean above-inflation pay for teachers, military personnel and prison staff, but the money needed to cover the costs would need to be raised.
The finance minister is said to believe the financial cost of the deal should be weighed against the cost of economic disruption caused by strikes and the costs of failing to recruit and retain staff.
The finance minister will also announce a new “Value for Money Bureau” which will aim to identify and recommend savings, including for the current financial year, and “stop poor value spending before it starts”.
Last week, Home Secretary Yvette Cooper said that Conservative plans to return refugees to Rwanda were costing taxpayers £700 million – almost double the cost previously made public.
Other departments have also identified spending needs not covered in current budget plans. Environment Minister Steve Reid said on Sunday his department recognised the state of flood defences was “far worse than we believed”.
The Conservatives said the financial situation was clear before the election.
Former Conservative Chancellor of the Exchequer Jeremy Hunt accused the new government of “spreading nonsense”. He said the financial statements were “publicly available and show a healthy and growing economy”.
Gareth Davies, shadow chancellor at the Treasury, said:[Ms Reeves’] Her words and actions about saving taxpayer money while secretly planning to raise taxes at the same time are insulting.”
