Hundreds of thousands of police, teachers and other frontline public sector workers face the axe, Labour has warned, after ministers were ordered to draw up plans for spending cuts of up to 40 per cent.
The Treasury said Government departments were being asked to prepare "initial planning assumptions" as a starting point for negotiations in the autumn spending review.
Treasury sources insisted that departments would not actually have to implement cuts on that scale, but Labour accused ministers of "softening up" the public for big job losses.
Shadow education secretary Ed Balls said the first blow of the axe could fall as early as Tuesday with the review of the Government's Building Schools for the Future (BSF) programme.
He claimed that rebuilding projects at 750 schools, approved under the former Labour government, were set to be cancelled.