Lady Thatcher will be honoured with a funeral of a scale not accorded to a former prime minister since the lavish spectacle of Winston Churchill's state funeral half a century ago – and much of the cost is expected to be borne by the taxpayer.

Downing Street announced that Britain's first female prime minister would receive a ceremonial funeral, with gun carriage, military procession and a service at St Paul's Cathedral, in the style of the funerals of Diana, Princess of Wales, and the Queen Mother.

One rung below a state funeral – as normally accorded to sovereigns – a ceremonial funeral requires the consent of the Queen, which has been given. There will be no public lying in state, at Thatcher's own request.

One Whitehall source said: "It will look and feel like a state funeral to all intents and purposes."

Costs are to be borne by the government and Thatcher's estate, with Downing Street declining to reveal at this stage the proportion to be met by the nation. A No 10 spokesman said the payments from the public purse would be published after the event. They will undoubtedly include the costs of the planned military procession, involving hundreds of members of the armed services, and of the major policing and security operation expected to be mounted.

Thatcher was understood to fear that a parliamentary bill, which would have to be passed to permit public funds for a state funeral, could prompt a divisive debate.

Thatcher's coffin will be moved to the chapel of St Mary Undercroft in the Palace of Westminster on the night before the funeral. On the day, the streets will be cleared of traffic and the coffin will be taken by hearse to the church of St Clement Danes, the RAF chapel in the Strand. From there it will be transferred to a gun carriage drawn by the King's Troop Royal Horse Artillery and borne in procession to St Paul's, along a route lined by tri-service military personnel and members of the public who wish to pay tribute.

At St Paul's, there will be a military guard of honour and Chelsea pensioners will line the steps. The service, which will be televised, is expected to reflect Thatcher's love of Elgar. It is not known whether the archbishop of Canterbury, Justin Welby, will play a formal role.

Guests at the ticket-only service will include political leaders as well as people and groups with connections to Thatcher. It is not yet known whether the Queen will attend.

After the service there will be a private cremation. It is understood Thatcher wished to be laid to rest beside her husband, Denis, who died in 2003, in the cemetery of the Royal Hospital Chelsea. Apart from Churchill, three other prime ministers received a full state funeral in modern times: the Duke of Wellington in 1852, Viscount Palmerston in 1865 and William Gladstone in 1898. The funerals of later prime ministers have tended to be more modest affairs.

Ironically, the funeral of Thatcher, whose government was responsible for the "big bang" deregulation of the City, will take place in the middle of a series of open debates to run from 11 April at the cathedral on "the City and the common good".

St Paul's recently provided a backdrop for the Occupy movement in London, and when protesters were evicted it faced criticism from some quarters for its perceived acquiescence to the establishment.