Graphic: Darling's measures | Blog: strategy? What strategy?

Full coverage of the Budget

Alistair Darling will demand £15 billion in Whitehall efficiency cuts this week after repeated warnings that public sector spending is out of control.

The Chancellor, who cut the rate of growth in annual spending to 1.2 per cent last November, will reduce it further in the Budget on Wednesday, with massive implications for services in the years after 2011.

Mr Darling, who tried to boost confidence in the economy last night with a video message on YouTube, will also announce a £500 million “green stimulus” to the economy.

Tens of millions of pounds will go towards promoting the building of wind farms off Britain’s coastline. The Chancellor is also expected to promise that the European Investment Bank will make available billions of pounds in loans to support energy projects that are threatened by the credit crunch.

Mr Darling acknowledged in his internet message that there had been a “huge downturn”, but said that the “underlying strengths” of British industry would help the nation to take advantage when the global economy emerged from recession.

Lord Mandelson, the Business Secretary, said that the Budget would “go for growth”. George Osborne, the Shadow Chancellor, described Wednesday as a “day of reckoning” for the Government.

In his second Budget, Mr Darling will temper his news of future spending cuts and tax rises with confidence about the upturn. The Times understands that the measures will include:

— £300 million for existing and new council homes to be better insulated;

— £200 million to help Britain to make better use of its island status by pushing the growth of wind turbines, hydro-electric power and other renewable energy technologies;

— A move to kickstart the housing market by offering to underwrite £50 billion worth of new mortgage-backed assets to bring the securitised home loans market back to life;

— £2 billion to help the jobless. There will be more benefits staff, while under-25s who have been jobless for more than a year will be guaranteed a job, work experience or training;

— A boost to North Sea oil companies through tax incentives to explore old or inaccessible fields;

— A “scrappage” scheme under which motorists would be given an incentive of up to £2,000 to buy a new car. The details are far from settled even now, but a plan will be included.

The Treasury has already said it is seeking efficiency savings of £5 billion by 2011. Mr Darling is expected to say that should be extended by a further £10 billion over the following three years. There will be huge implications for public-sector jobs as “back office” functions are pared back. Only frontline services such as education will have budgets protected.

In the YouTube message, Mr Darling said: “I want to make sure that we do two things. One is to help people now, through this difficult time. But equally importantly we’ve got to prepare for the future, to invest in Britain’s future to ensure that we can take advantage of the upturn, of the recovery when it comes, and it will come. . . We have underlying strengths that we can play to and I want to build on those so there are jobs and good prospects for the future.”

Mr Osborne said that the Chancellor would be forced to lay bare the “economic carnage” of the past decade and urged him to scrap “unrealistic” spending plans. “It will be a day of reckoning and I think you are going to see the Chancellor forecast the longest recession that Britain has had since the Second World War,” he told the Andrew Marr Show on BBC One.

Vince Cable, the Liberal Democrat Treasury spokesman, urged Mr Darling to be honest with the country about the scale of the problem. However, Lord Mandelson said that he would not let people talk the economy down. “Frankly I’m fed up hearing Tory politicians seizing on every piece of bad news economically,” he said. “What cheers them up is to be able to point to and pounce on bad economic news.”

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