Ministers have been told to stop spending that does not contribute to the government’s priorities, as Chancellor Rachel Reeves promises to take “an iron fist against waste”.

Reeves will ask departments to identify efficiency savings worth 5% of their current budgets, under a review of their spending plans for the coming years.

Budgets will also be scrutinised by panels, including former senior bankers, to advise what spending is necessary.

The Conservatives said Reeves had so far failed to make the public sector more efficient, or cut back on welfare spending.

The Treasury says the spending review will be “zero-based,” meaning departments will have to justify all spending anew for each year.

It will set departments’ day-to-day spending between 2026 and 2029, and investment budgets for the next five years.

Guidelines will set out that they will be “advised that where spending is not contributing to a priority, it should be stopped”.

Last week, Prime Minister Sir Keir Starmer set out his Plan for Change, including the six milestones he wanted to meet before the next election.

These include building 1.5m homes in England, and treating 92% of NHS patients within 18 weeks.

The Treasury says the chancellor will “work with departments to prioritise spending that supports the milestones to deliver the plan”, indicating that some areas not deemed a priority will be downgraded.

Budgets will be reviewed by panels, including former senior management at Lloyd’s Banking Group, Barclays Bank and the Co-operative Group working alongside experts from think tanks, academics and others from the private sector.

The Treasury says the panels will “bring an independent view to what government spend is or isn’t necessary”.

“The previous government allowed millions of pounds of taxpayers’ money to go to waste on poor value for money projects,” said Reeves.

“We will not tolerate it; I said I would have an iron grip on the public finances and that means taking an iron fist against waste.”

As an example of the type of programme the government intends to cut, the Treasury pointed to a scheme which placed social workers in schools.

It said the programme had cost £6.5m but an evaluation had found no evidence of “positive impact on social care outcomes”.

Shadow Treasury minister Richard Fuller said: “Delivering value for money for the taxpayer is a noble goal.

“But Rachel Reeves’ record so far has been to dole out inflation busting pay rises to Labour’s union paymasters whilst mandating nothing in return, and making no reforms to public sector productivity or welfare spending.”

The Liberal Democrat Treasury spokesperson, Daisy Cooper, urged the government not to make cuts to social care, warning that it would be a “false economy that will only put people at risk and damage the public finances”.

She said billions of pounds could be “saved in the NHS budget by investing properly in social care”.

In her Budget in October, the chancellor announced £40bn in tax rises, much of which will hit business.

At the time, Reeves said it was “not the sort of Budget we would want to repeat” but argued it was necessary to fill a £22bn “black hole” in the public finances left by the previous Conservative government.

She has since said she will not need to raise taxes to “top up” public spending.

Last week, the prime minister said: “I don’t want to suggest we’re going to keep coming back for more because that isn’t the plan.

“What I can’t do is say to you there are no circumstances unforeseen in the future that wouldn’t lead to any change at all.”

“If you look at Covid and Ukraine,” Sir Keir added, “everyone knows there are things we can’t see now, but I can tell you our intention was to do the tough stuff in that Budget, not keep coming back.”