Chris Philp, the Chief Secretary to the Treasury, will write to all government departments in the coming days to demand they look for cuts in a bid to calm the markets and restore the strength of the pound.
The move comes despite pledges by Liz Truss during the Tory leadership contest that public spending would not be reduced.
Speaking in July, she said: “I’m very clear I’m not planning public service reductions. What I am planning is public service reforms. I am certainly not talking about public spending cuts – what I’m talking about is raising growth.”
Despite the U-turn, the Treasury earlier rejected calls to abandon the policies contained in last week’s fiscal statement, which was criticised by the International Monetary Fund.
Mr Philp’s letter will insist that departments find savings where possible and live within existing budgets. The aim is to reduce the level of government borrowing needed in a bid to calm the markets.
Whitehall budgets were already under pressure because of high inflation, but the new instruction from the Treasury will make things worse.
The mini-Budget included controversial plans to scrap the top 45 rate of income tax and cut the basic rate of income tax – all funded through extra borrowing.
The markets reacted with alarm, and on Wednesday the value of the pound dropped to $1.05 after the Bank of England stepped in to stabilise the economy, announcing that it would buy government bonds on a temporary basis to help “restore orderly market conditions”.
Ken Clarke, a former Tory chancellor, told Sky News that Ms Truss and Kwasi Kwarteng, the Chancellor, “have made a catastrophic start” and said he hoped the mini-Budget is “torn up”.
But Andrew Griffith, the Financial Secretary to the Treasury, insisted it contained the “right plans” to grow the economy.
He said that “every major economy is dealing with exactly the same issues”, adding that the £45 billion package of tax cuts announced last week would repair “underlying problems in the economy”.
Mr Griffith added that the Bank had “done their job” by announcing the buying of bonds.