Autumn Statement: Osborne Tightens The Screw
Chancellor George Osborne will warn there are no "miracle cures" as he admits more drastic action is needed to balance Britain's books.
Mr Osborne will confirm in a bleak mini-budget that Whitehall departments are being ordered to find another £5bn in cuts to fund projects aimed at kick-starting the economy.
He is also widely expected to concede that sluggish growth means it will take longer to tackle the deficit and that his key target of having public sector debt falling by 2015-16 may be missed.
Other key measures could include postponing the 3p fuel duty hike due in January, more benefits cuts, a fresh hit on the banks and a raid on the pension pots of higher earners.
The Chancellor's hands are largely tied because of weaker than expected economic growth and high borrowing, which have forced him to extend austerity well beyond 2015.
He has been battling to regain the upper hand since his Budget in March, which was heavily-criticised and led to a string of damaging U-turns over taxes on pasties, caravans and charitable donations.
Delivering his Autumn Statement this afternoon, he will argue that he is "confronting the country's problems, instead of ducking them" as he still seeks to show "we're all in this together".
"The public know that there are no miracle cures. Just the hard work of dealing with our deficit and ensuring Britain wins the global race," he will say.
Mr Osborne will confirm plans to use fresh cuts to fund capital projects in transport, schools, science and skills over the next two years.
They will include £1bn to build or expand up to 100 new academies and free schools over the next two years, with cash directed at areas experiencing a shortage in classroom places.
Departments will be forced to slash spending by 1% in 2013-14 and 2% the following year but health, schools, international aid, HM Revenue and Customs and nuclear decommissioning will be protected.
Treasury sources said the departmental savings amounted to less than the £3bn underspend by departments in the last two years and that the rest was coming from existing budgets.
But Labour claimed the move amounted to an admission that the reduction in infrastructure spending since 2010 had been "a catastrophic mistake" and weakened the economy.
The Chancellor is also expected to target the pension pots of higher earners by slashing the amount of annual tax relief earned on pension contributions from £50,000-a-year to £30,000.
Implementing the full cut could raise as much as £1.8bn for the Government.
A crackdown on people and businesses avoiding or evading tax is also likely, with a £77m boost for HM Revenue and Customs to track down those not paying their fair share.
Further plans to signal approval for up to 30 new gas-powered electricity power stations have already sparked controversy.
Mr Osborne will also float possible tax breaks and regulatory reforms to encourage investment in innovative "fracking" technologies for extracting gas from shale deposits.