A £5 billion investment in schools and other capital projects will be partly paid for by deeper cuts in Whitehall departmental budgets.
Chancellor George Osborne and Chief Secretary Danny Alexander have briefed the Cabinet on the plans, which will be confirmed in Wednesday's Autumn Statement.
Whitehall departments will be expected to cut day-to-day spending by 1% (£950 million) in 2013/14 and 2% (£2.5 billion) in 2014/15.
But health, schools, international aid, HM Revenue and Customs and nuclear decommissioning will be protected.
The new investment will be targeted at transport, skills, science and schools, with an additional £1 billion going towards new schools, funding new places in areas with the greatest need.
Some 100 new academies and free schools are expected to be built in the next two years.
The cuts 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 2% cut in 2014/15.
Meanwhile, the Ministry of Defence will be given additional flexibility to roll over underspends - which last year amounted to almost £400 million - from one year to the next. As a result, ministers believe that there will be no reduction in military manpower and core MoD budgets.
The cuts across Whitehall departments relate to day-to-day resource spending, rather than capital spending projects. The imposition of cuts means that the new spending comes within the Government's existing fiscal plans and involves no additional state borrowing.