The Conservatives have set out their economic agenda for the next general election.

Under Tory plans unveiled by shadow chancellor Oliver Letwin, public spending would be cut by £35 billion by 2011, except in health, education and pensions.

Such a move, he argued, would allow tax cuts "even in the early years", although he did not offer any firm promises in this area.

However, the main plank of the party's proposals is to cut waste in the public sector, a move supported by the leaked Gershon review.

"Like a household whose spending grows more slowly than its income, we will be able to put a little away each year – to repay Mr Brown's borrowing or, if there is money left over, to begin to reduce taxes," Letwin writes in today's Telegraph.

But the government has accused the Tories of jeopardising the key public services, including health and education.

Meanwhile Liberal Democrats plan to carve themselves out as the only party not basing their spending proposals on cutting Whitehall waste.

Instead, they propose to scrap five government departments and divert £5 billion a year from existing programmes.

Details are expected to be unveiled by party leader Charles Kennedy next month.

In his report, Sir Peter Gershon is expected to argue that as much as £15 billion in annual spending could be saved by cutting bureaucracy and purchasing goods and services more efficiently.

His interim findings suggest that as many as 80,000 civil service jobs could be lost.

Such proposals have split the relevant trade unions. While the First Division Association yesterday argued that "in principle, unions should embrace this agenda", the Public and Commercial Services, whose members are holding 48-hour strike action, insisted it would fight any job cuts.