Government plans to cut spending in Whitehall departments and invest an extra £5bn in schools and other capital projects will "make our country work better", says David Cameron.
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The new investment, to be confirmed by Chancellor George Osborne's autumn statement on Wednesday, will include £1bn to build 100 new academies and free schools over the next two years.
It is understood that the £1bn spending boost for schools will be aimed at providing more places in areas where there is a shortage, rather than the repairs to run-down premises which took place under Labour's own scheme.
This is likely to mean a significant proportion of the money going on building or expanding primary schools, where the shortage of places is currently being most acutely felt.
Labour said the announcement was an effective admission that the coalition government's cuts in infrastructure spending since the 2010 election have been "a catastrophic mistake" which have weakened the economy.
But Conservative sources insisted that the coalition was spending billions more on capital projects than the Labour plans that it inherited.
Mr Osborne and Chief Secretary Danny Alexander briefed the cabinet on Tuesday morning on the plans for additional investment in transport, skills, science and schools.
To fund the programme without extra state spending, Whitehall departments will be told to cut day-to-day spending by one per cent (£950m) in 2013/14 and two per cent (£2.5bn) in 2014/15.
But health, schools, international aid, HM Revenue & Customs and nuclear decommissioning will be protected.
Speaking on a visit to a south London school with Deputy Prime Minister Nick Clegg on Tuesday, Mr Cameron said: "Government departments aren't actually spending up to their budgets so I think we can say to them 'You've got to cut back some spending, including some unnecessary spending', and let's put that money into things that will make a difference in our country and in our economy - more roads, more school buildings, more infrastructure to make our economy work better, to make our country work better."
The changes apply directly to England only, but there will be knock-on effects for Scotland, Wales and Northern Ireland under the complicated formula which determines central funding for the different parts of the United Kingdom.
Local government will be exempted from the cuts in the first year, as it is already having to find savings to deliver a council tax freeze, but councils will be required to meet the two per cent cut in 2014/15.
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