Chancellor Alastair Darling has told the Commons that the government does not plan to “cut” its way out of recession while delivering a budget that promises low spending growth and big demands for efficiency savings from the public sector.

The Chancellor confirmed that local health services can expect to receive 5% funding increases on average this year, which is the final year of the NHS’ current settlement with the Treasury.

However, he indicated that overall public spending growth is likely to fall from 1.1% in real terms to 0.7% a year from 2011-12 onwards.

This would put growth in NHS spending well below what it has been in recent years and far below the increases recommended by Sir Derek Wanless in the report that he produced for the Treasury on future healthcare spending needs in 2002.

Darling also indicated that the NHS and other public services will be expected to find very significant efficiency savings.

The pre-budget report in November identified £5 billion of efficiency savings by 2010-11, on top of the £30 billion that had already been announced for the current comprehensive spending review period.

Darling said this morning that the Treasury has now identified a “further” set of efficiency savings, amounting to £9 billion by 2013-14.

Yesterday, the Treasury issued a paper indicating that many of these savings are expected to come from government IT, and, in particular, from an increase in shared services centres for “back office” functions.

“Some have argued that we should cut public services immediately rather than invest and grow our way out of a recession, but I believe that would be the wrong thing to do and I can confirm we are able to secure savings whilst increasing investment,” Darling told the Commons this lunchtime.

He added: “The savings will include efficiencies in the public sector, back office functions and IT, improved procurement and better collaboration and innovation at a local level.”

The Chancellor indicated that there would be increased investment in IT and green technologies. He said additional funding would be found to roll-out fast broadband to “most” communities.

The government outlined plans to ensure every home has a broadband connection by 2012 in January this year, and identified the spread of teleheatlh and telecare technologies as a major benefit.

Despite its own energy demands, roadband could also play a role in helping to meet the Chancellor’s pledge to cut Britain’s carbon emissions by 34% by 2020.

The NHS, which has been set tough targets to reduce its carbon emissions, has been told to make more use of teleconferencing and home working technologies, which rely on it.

Initial reaction to the budget from the healthcare sector was muted, with unions and management bodies focusing on the low growth and demand for efficiency savings.

Unison general secretary Dave Prentis said it was clear that “future growth plans have been revised down again” and the government’s hopes for world-class services were “at risk.”

“If efficiency savings are called for, politicians should be honest with the public and not pretend that savings can be made where clearly they cannot,” he added.

King’s Fund chief executive Niall Dickson said the budget was a "wake up call" for the health service. "No matter who is in power from 2011, the NHS will have to manage with very low or no growth in its funding," he said. "We are in a serious recession from which the NHS cannot be immune."

Dickson said the challenge for NHS managers would be to deliver efficiencies while still improving quality, by focusing on improving productivity and redesigning services.

"While a degree of short termism is inevitable, what the health service must avoid is crude cost cutting measures, such as freezing posts and delaying care to patients," he said. "This would ultimately leave the NHS in a poorer state when the recovery begins.