Gordon Brown has warned cabinet colleagues that their spending demands are too high.

At a special cabinet awayday on Friday the "iron" chancellor joined forces with Tony Blair to stress fiscal discipline in the toughest spending round since 1997, Brown told ministers that cash bids for schools, hospitals and public services outstripped the Treasury's budget by 20 per cent.

Taxes will rise in the April 17 budget to fund the NHS but Brown will meet with small businesses to reassure entrepreneurs that he aims to ease their tax and regulation burden.

Estelle Morris in education, Geoff Hoon in defence and David Blunkett in the Home Office are all said to be under pressure to trim their demands to meet Treasury rigours.