George Osborne is to warn there are no "miracle cures" for Britain's problems as he admits more drastic action is needed to balance the Government's books.
In a bleak mini-budget, the Chancellor is to confirm that Whitehall departments are being ordered to find further cuts to fund £5 billion of "shovel ready" projects designed to kick-start the economy.
He is also widely expected to concede that sluggish growth means it will take longer to tackle the deficit and a key coalition target to have public sector debt falling by 2015-16 may be missed.
The political and economic high-wire act was made even trickier on Tuesday night when the statistics watchdog rejected ministers' claims that health service spending has been rising in real terms. David Cameron pledged at the general election to "cut the deficit not the NHS".
Delivering his crucial Autumn Statement, Mr Osborne will argue that he is "confronting the country's problems, instead of ducking them". "The public know that there are no miracle cures. Just the hard work of dealing with our deficit and ensuring Britain wins the global race," he will say.
Mr Osborne and Chief Secretary Danny Alexander briefed the Cabinet on the plans for £5 billion of capital projects over the next two years, which the Prime Minister said would "make a difference in our country and in our economy".
It will include £1 billion to build or expand up to 100 new academies and free schools over the next two years, with the cash directed at areas experiencing a shortage in classroom places.
Treasury sources said the cuts in departmental spending amounted to less than the £3 billion total underspend by departments over the past two years. The rest of the money is due to be found from existing budgets. But Labour said the announcement amounted to an admission that the reduction in infrastructure spending since 2010 had been "a catastrophic mistake" and weakened the economy. Concerns were also raised over the impact on services such as the police and social care of cuts to current spending amounting to 1% (£950 million) in 2013/14 and 2% (£2.5 billion) in 2014/15.
Mr Osborne will also use the statement to signal his approval for up to 30 new gas-powered electricity power stations, as well as floating possible tax breaks and regulatory reforms to encourage investment in innovative "fracking" technologies for extracting gas from shale deposits.
Mr Cameron wrote on his Twitter feed that the Chancellor had now briefed Cabinet on the statement, adding: "We are on the right track and making progress."