Britons will be forced to apply online for government services such as student loans, driving licences, passports and benefits under cost-cutting plans to be unveiled this week.

Officials say getting rid of all paper applications could save billions of pounds. They insist that vulnerable groups will be able to fill in forms digitally at their local post offices.

The plans are likely to infuriate millions of people. Around 27% of households still have no internet connection at home and six million people aged over 65 have never used the web.

Lord Oakeshott, a Liberal Democrat Treasury spokesman, said: "We must cut costs and boost post offices as much as we possibly can, but many millions of people – not just pensioners – are not online and never will be. They must never be made to feel the state treats them as second-class citizens."

Oakeshott argued that the ageing population meant that an increasing number would also find it difficult to get to post offices.

Cabinet Office officials say the full savings will only be felt if everything is moved online. Leaving even a small percentage of print registrations would be "prohibitively expensive", they say. The first service to go online-only will be student loans, followed by applications to schools, such as school meals; personal applications, such as driving licences; and benefits such as job-seekers' allowance. The changes would be phased in over a number of years.

Francis Maude, minister for the Cabinet Office, who will unveil the plans this week in response to a report by Martha Lane Fox, the government's digital adviser, said: "We want the UK to be at the forefront of the digital age, and that is why putting all services online has to be the aspiration. Online services are better for consumers and better for government, making services available in a convenient 24/7 format and reducing the costs of transactions.

"However, we will always provide support for those who need it, which is why assisted digital services are an integral part of our strategy."

Most concerned about the moves will be older people, who often depend on government benefits but are the least likely to be online. Michelle Mitchell, the charity director of Age UK, said: "While we welcome the government's ambition for a digital revolution, this should not come at the cost of the millions of people, many older, who are not online."

George Thomson, general secretary of the National Federation of SubPostmasters, said he was glad the government wanted post offices to be the place that people without internet connections would go to access government services. But he added it could also be a threat to Britain's 12,000 post offices.

"I do have a problem with everything going online," said Thomson. He argued that a lot much of the work of post offices was dealing face to face with people about their Post Office card accounts, green giros and taxing their cars, for example. "Those are important transactions, and the philosophy of everything going online means that despite the new products there could be a lower volume of work overall.

"Most post offices are also shops and they depend on the footfall that comes in. If 3,000 people come in during a week, they also buy their newspapers, bread and milk there. My fear is that, if you lose the volume, then the business model that sustains that disappears."