Lord Mandelson will today prepare the ground for spending cuts when he promises that ministers will be "wise spenders, not big spenders".

In a speech to the Blairite group Progress, the Business Secretary will emphasise that while fiscal stimulus must be maintained in the short-term, the rate of public spending will have to fall during the recovery to allow public debt to be repaid.

Mandelson's intervention comes after cabinet ministers, including the Chancellor Alistair Darling, persuaded Gordon Brown that Labour could not avoid the need for cuts.

No departmental budget, including health and international development, will now be ring-fenced from cuts and ministers instead plan to focus on priority areas such as child poverty and primary education.

"We should not allow ourselves to be painted as a party that is oblivious to economic conditions," Mandelson will say.

"That has never been the New Labour approach to our nation's finances under Gordon Brown and it never will be. It would not be right to turn the remarkable and necessary period of catch-up in public service provision over which Labour has presided into some kind of eternal doctrine: that social democracy is about high growth in public spending for its own sake, against which everything else we do is secondary.

"Our 1997 manifesto described the New Labour approach as being 'wise spenders, not big spenders'. This is and remains a core New Labour principle. We do not believe that we should try to solve problems simply by throwing money at them."

Mandelson will accuse David Cameron of pursuing a "small state" at any cost.

"The Tories and their friends are yearning for people to think that because there is a need for public spending constraint in the future we face an era of deep, savage, indiscriminate across-the-board spending cuts, whoever is in power," he will say.