Departments have been asked to find £1bn more in cuts next year, rising to £2.5bn, to invest in schools, transport and science

George Osborne will announce on Wednesday that he is forcing a fresh spending squeeze on cash-strapped Whitehall departments to fund £5bn worth of investment in schools, transport and science over the next three years.

The Treasury is keen to be seen to heed the warning of the International Monetary Fund that cuts should be focused on day-to-day spending, and the government should boost infrastructure projects that could deliver a long-term return to the economy.

The chancellor will say that departments have been asked to find an extra £1bn cut next year, rising to £2.5bn in 2014-15, from budgets already hit hard by austerity measures. The Treasury has also earmarked £3bn in "underspends" by departments that have cut more rapidly than planned, to be put to use. Osborne and the Treasury chief secretary, Danny Alexander, briefed the cabinet on Tuesday morning on the plans, which will be confirmed in Wednesday's autumn statement.

The £5bn will be partly funded from cuts to the government's resource budget. In total, current spending on anything from wages to building rental will be cut by 1% in the next financial year, 2013-14, and 2% the year after, saving nearly £1bn and then £2.5bn.

Transport, education, health and science will be the major beneficiaries of the new spending, while some departments will suffer bigger cuts.

Other announcements expected on Wednesday include a new tax raid on pension savings by the highest earners, and cuts to welfare.

The £5bn investment would take capital spending as a proportion of national income during the current five-year parliament to above the average during the Labour governments from 1997-2010.

"The logic behind this is that as a country we face a competitive challenge," said the prime minister's spokesman. "There will be a series of measures set out in the autumn statement tomorrow to help us rise to that challenge. This [£5bn announcement] is one of them."

In cutting resource budgets, the PM's spokesman said the focus would be on administration costs, adding "clearly frontline services will be prioritised".

Business groups have suggested that kickstarting "shovel-ready" infrastructure projects, such as repairs to the road network, could help generate jobs and lift the economy. While the double-dip recession came to an end in the third quarter of the year, the Bank of England has warned that the economy could contract again in the current quarter, raising the risk of a "triple dip".

John Cridland, the director general of the Confederation of British Industry, said the business lobby group "very much welcomed" the announcement, having previously criticised government for cutting capital spending too fast. After the coalition government formed, capital spending as a percentage of GDP dropped from a peak of 2.5% to 1.2%.

"While sticking to the austerity plan there was room for more capital spending," Cridland said, "not least because of the levels of underspending.

"Our research shows targeted investment in infrastructure brings a return, and skills and science are areas where we can make a difference quickly."

On the possibility of spending the whole £5bn in just two years, as the government said it intended, Cridland said this was possible following a sharp drop in construction activity, mostly blamed on cuts to public spending. "If they are able to get some urgency in to the spending, there is capacity," he said.

The Treasury said the cuts in spending being required of departments over the next two years to fund the capital spending would not affect protected departments such as health, schools' annual budgets and overseas aid. The Ministry of Defence would also be protected in that it would be allowed to carry over any underspending into next year. As a result, the Treasury said, there would be no cuts in personnel or military equipment.

The Treasury also said local government would be protected in the first of the two years (2013-14) as it was already taking cuts in that year through the council tax freeze. But local government would not be exempt from the need to make savings in 2014.

The government largely financed a £3.8bn switch to capital spending last year through a public sector pay freeze, but this year the squeeze is being funded through squeezing departmental administration.

The extra spending is clearly designed as a direct growth measure, in the face of declining demand for UK goods in the EU and a small risk that the economy could slip back into a third recession.

Later on Tuesday the education secretary, Michael Gove, was expected to announce where the £1bn extra schools cash would be spent. The money would be directed at building new schools to meet the growing school population.

The cash is sufficient to fund either 100 new academies or 100 free schools, and Gove was expected to announce a mixture of the two. Currently there are 2,500 academies and 190 free schools. The cash for schools budget was sufficient to fund 50,000 extra school places, the Treasury said.

Although the extra capital investment in schools is being portrayed as a reward for Gove for controlling his departmental budget, the government has little choice but to offer more cash due to the growing shortage of school places in the south-east caused by immigration and the baby boom.

An extra £260m was allocated to London's councils last November and a further £307m in April, out of a national pot of £1.1bn released by the government. London councils say they expect a shortfall of 70,000 places by 2014, but the most recent analysis of Department for Education data has led them to claim the shortfall is now likely to be 90,000 by 2015, and the cost of meeting this is expected to be £2.3bn.

The cash for skills is likely to fund more higher education places and more apprenticeships. Vince Cable, the business secretary, will be delighted he has won extra money for science.

It was surprising that housing was not identified as one of the four target areas for extra capital spending, but the spending on schools and transport will help the ailing construction industry.

Labour claimed that the chancellor's plans amounted to an admission that he had erred in making cuts to infrastructure and schools spending earlier on. The shadow chief secretary to the Treasury, Rachel Reeves, said: "The chancellor seems to have finally admitted that abolishing the Building Schools for the Future programme and his other deep cuts to infrastructure investment were a catastrophic mistake, which cost jobs and weakened our economy.

"But this extra funding for new free schools will be smaller than the huge cuts he made two years ago to school and college buildings. And George Osborne must explain which frontline services, like the police and social care, he will cut further to pay for this latest U-turn.

"In last year's autumn statement ministers boasted that their infrastructure plan would boost the economy, but none of the road schemes they announced have even started construction. The government needs to ensure that this funding urgently gets through on the ground."

Tony Dolphin, the chief economist at the IPPR thinktank, said: "Any reasonable person might say, these departments are already suffering swingeing cuts, and we're seeing reductions in frontline services: how can you possibly say you're going to take another 1% off without affecting services?"