The Coalition government is due to unveil its plan to wipe out Britain's structural deficit by 2014/15 in its Comprehensive Spending Review, due to be announced on Wednesday.
In total £83 billion of spending cuts are expected to be announced, putting government departments in line to have their budgets cut by an average of 25 per cent. Some departments are reported to have to make cuts of as much as 40 per cent.
The Health and International Development budgets will not be touched, nor, it is believed, will spending on schools.
Defence cuts are also expected to be just 7-8 per cent, following a protracted battle between Liam Fox, the Minister of Defence, and the Treasury.
The cuts are almost certain to mean more benefits cuts, following the announcement that child benefit will be withdrawn from higher earners two weeks ago, as well as job losses and cuts to public services.
As well as individuals, both companies and ratings agencies are likely to be looking closely at the proposals.
In particular companies in the Defence, Aerospace and Support Services industries will be watching to see if they can expect a fall in contracts from the public sector.
Meanwhile ratings agencies will be checking to ensure that the government does not shy away from the cuts needed to maintain Britain's AAA credit rating.
Howard Archer, Chief Economist at IHS Global Insight, said, "From a macroeconomic point of view, attention will focus on whether or not the government is essentially keeping to its timetable for reining in the public finances, and how credible - and achievable - the cuts are perceived to be. With the economy currently losing momentum, pressure is mounting on the government to delay some of the spending cuts due to the increasing danger that they could contribute to a 'double dip'. The indications are that the government will not buckle for now at least, although it is possible that some cuts be slightly delayed due to legal reasons relating to cancelling contracts and redundancy costs.
"This is something that the markets and the credit rating agencies will be looking at very closely. In particular, Standard & Poor's has so far maintained its negative outlook on the UK's AAA credit rating largely due to concerns that the government may not be able to deliver on its proposed spending cuts. Both Moody's and Fitch currently have a stable outlook for the UK's AAA credit rating, but this could change if the government is perceived to be slipping in its commitment to rein in spending or the plans in the Comprehensive Spending Review are not seen as achievable."