Rachel Reeves is reportedly planning to cut some Whitehall budgets by up to 11%.
The Chancellor is poised to slash spending in the spring as scrambles to avoid breaking her so-called fiscal rules. High borrowing costs and downgraded growth forecasts have wiped out the £9.9 billion headroom she raised in her tax-hiking October Budget.
The Treasury has asked some government departments to model scenarios ahead of the spending review due in June, according to Bloomberg.
It comes as Sir Keir Starmer is under mounting pressure to set out a plan to increase defence spending to a 2.5% share of the economy.
The UK currently spends around 2.3% of gross national product on defence.
Ms Reeves has faced an ongoing backlash for £40 billion of tax rises in her first Budget.
An Ipsos poll showed half of Britons said Ms Reeves’s decisions had made them less confident about economic growth, which was one of Labour’s flagship missions.
Two out of three disagree with the decision to strip millions of pensioners of winter fuel payments.
Speaking last week, Ms Reeves said: “It’s not possible to turn around more than a decade of poor economic performance in just a few months. But we are doing what is necessary to bring stability back to the economy.
“Reforming the economy, the planning system, regulation and pensions to encourage investment in our economy, which is the lifeblood of a successful economy.
“We need to go further and faster in doing that, to turn around our poor growth performance and to make working people better off.”
