David Cameron will warn tomorrow that Britain's "whole way of life" will be disrupted for years by the most drastic public spending cuts in a generation. The cuts, he will say, will have an impact on Britain's entire population.
In his most gloomy remarks since taking office, the prime minister will declare that Britain's public finances are worse than expected and are forcing him to take "momentous decisions".
Cameron will say: "How we deal with these things will affect our economy, our society – indeed our whole way of life. The decisions we make will affect every single person in our country. And the effects of those decisions will stay with us for years, perhaps decades to come."
On Tuesday George Osborne, the chancellor, will set out the first steps towards what Nick Clegg described last year as "savage" spending cuts when he outlines a framework for an autumn spending review that will introduce department-by-department cost savings.
The most radical plan will involve importing a Canadian-style "star chamber" in which members of the cabinet will be forced to justify their budgets in front of a group of ministerial and civil service heavyweights.
This follows the example of the former Liberal Canadian prime minister Jean Chrétien, who turned a fiscal deficit of 9.1% of GDP in the mid-1990s into a surplus by slashing federal budgets by 20%. Under his "nothing off the table" approach, ministers had to justify their budgets in front of colleagues.
One British government source said today that Osborne was keen to repeat the exercise in Britain, a reconfiguration of the old British "star chamber" in which spending ministers used to appear before the chancellor and prime minister if they could not reach agreement on their budget with the Treasury. "A small group of ministerial heavyweights and hitters and top officials will test colleagues' budgets and their methods of service delivery and challenge them to find ways of doing more for less," one Whitehall source said.
The decision to turn to Canada for inspiration in reducing Britain's record £156bn fiscal deficit is a telling illustration of the coalition's belief that drastic action is needed to restore stability to the public finances. Osborne, who has already announced £6bn of spending cuts this year, will outline the overall level of spending cuts for next year in an emergency post-election budget on 22 June. He will then set out the cuts department-by-department in the autumn.
The prime minister will balance his gloomy words by echoing his Liberal Democrat deputy, Clegg, who told the Observer that there must be no repeat of the "harshness" of the retrenchment of the 1980s. Cameron will say: "I want this government to carry out Britain's unavoidable deficit reduction plan in a way that strengthens and unites the country."
Osborne and his Lib Dem deputy, Danny Alexander, will follow Cameron's speech by outlining a framework tomorrow for the autumn spending review. In addition to the star chamber this will include a re-evaluation of the way in which government is run. "This is more than a budget setting exercise," one source said. Ministers will be expected to ask searching questions about which services the government should provide and to find new ways of making services more efficient.
Osborne and Alexander will also promise to give the public an unprecedented role in the exercise online and in public meetings. "George and Danny want to break out of the old-fashioned top-down stitch-up between government departments and the Treasury," a Whitehall source said.
The former BP boss Lord Browne is being lined up to be a "super director" with the job of inserting private sector business practices into the heart of government.
Browne, whose former company is fighting for its future after the worst oil spill in US history, will head a team of other commercial leaders such as Sir Chris Gent, chairman of drugs group GlaxoSmithKline, and Sir Roy Gardner, former head of British Gas.
The appointment of Browne may raise eyebrows in Whitehall, where officials will note that he left BP early in 2007 after lying in the high court and presiding over a string of high-profile accidents in America, including the Texas City refinery fire in which 15 people died. Browne, who was dubbed the Sun King in business circles after building BP into Britain's biggest company, continues to hold an array of senior positions in the world of business, culture and academia.
Whitehall sources said Cameron and Clegg had both held meetings with Browne and felt he was the best person for the job of marrying business principles with Whitehall policies. One source said: "Everyone is aware of Browne's past and accepts that he was not personally culpable for BP's problems in the past and certainly not for the current situation in the US Gulf, which is an utter disaster. Browne left BP three years ago and has previously turned down other requests to work with government but has accepted this one."
