Rachel Reeves will announce immediate steps to cut costs amid a row over the economic inheritance left by the previous Tory Government.
The Chancellor is expected to unveil a black hole in the accounts of around £20 billion and blame the Conservatives for “covering up the true state of the public finances”.
Former Chancellor Jeremy Hunt will respond by accusing Ms Reeves of peddling a “fiction” about the economy and creating a “pretext” for tax rises, according to the Sunday Times.
Ms Reeves will say that a Treasury spending audit she commissioned shows that the previous government overspent this year’s budgets by billions of pounds after making a series of unfunded promises.
To address the deficit, Ms Reeves will announce a series of reforms that will target waste in the public sector and make government departments more efficient.
All non-essential spending on consultants will also be paused as part of measures to cut costs.
Ms Reeves will tell the House of Commons: “It is time to level with the public and tell them the truth.
“The previous government refused to take the difficult decisions. They covered up the true state of the public finances. And then they ran away. I will never do that.
“The British people voted for change and we will deliver that change. I will restore economic stability. I will never stand by and let this happen again.
“We will fix the foundations of our economy, so we can rebuild Britain and make every part of our country better off.”
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During the general election campaign, Labour insisted it would not impose taxes on working people but did not rule out potential changes to pensions relief, capital gains and inheritance levies.
Ms Reeves is also expected to approve above-inflation pay rises for teachers and around 1.3 million NHS staff, after previously saying there is a “cost” to not settling industrial disputes.
The pay rise, of 5.5 per cent, is expected to cost around £3.5 billion more than had been budgeted for.
A number of infrastructure projects are also expected to be scrapped or scaled back, including the £500 million Restoring Your Railway Fund and the A27 Arundel bypass, the Sunday Times reported.
Ms Reeves is expected to say: “Before the election, I said we would face the worst inheritance since the Second World War.
“Taxes at a 70-year high. Debt through the roof. An economy only just coming out of recession. I knew all those things. I was honest about them during the election campaign. And the difficult choices it meant.
“But upon my arrival at the Treasury three weeks ago, it became clear that there were things I did not know. Things that the party opposite covered up from the country.”
On Monday, she will confirm she has commissioned an Office for Budget Responsibility (OBR) forecast to coincide with the Budget and spending review to be held later this year.
She will announce she is committing the government to one major fiscal event per year to end “surprise budgets” and point to the Budget Responsibility Bill, which Labour introduced in the King’s Speech, which aims to guard against large-scale unfunded commitments in the future.
It will compel any Government making significant and permanent tax and spending changes worth more than 1 per cent of the UK’s GDP to put their plans to the OBR.
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