Treasury officials are conducting a rigorous review of the pound;10 billion a year the Government spends on children under the age of seven.

However, confounding their penny-pinching reputation, they want to spend more.

Social services directors, child psychologists, education professors and playgroup organisers have been surprised to receive faxes bearing the Treasury logo asking them to swap notes on how young children are faring.

The Treasury is considering setting up a challenge fund to support local authorities, schools and voluntary organisations which come forward with pre-school projects similar to the American Head Start scheme.

Head Start showed, and Treasury officials accept, that extra spending on pre-school services can save billions later in terms of prisons, juvenile crime, vandalism and unemployment.

Papers prepared for the review say the intention is “to assess whether a greater emphasis on preventative action could help cut the costs of crime and unemployment, and the costs of help needed for individuals at school age and in later life, by helping parents, carers and communities to provide the best possible start for their children”.

Eleven departments spend public money on children and more co-ordination is being sought. Treasury officials acknowledge their own past spending rules are part of the problem.

Norman Glass, a senior official from the public-spending division, has convened a series of high-level seminars to tap expertise from academics and organisations such as Barnardo’s, the Kids’ Club Network and the Thomas Coram Research Unit in London.

Whitehall is currently awash with reviews and scrutinies (including “comprehensive spending reviews” of education and local government, a review of family policy by the Prime Minister and the development of a national childcare strategy). The fate of this exercise will depend on how they are all eventually co-ordinated, though the Treasury is bound to play a central role.

Gordon Brown, the Chancellor, is already planning a children’s budget to be announced on Budget Day, March 17, and officials are anxious to align his proposals for childcare tax allowances with fresh thinking about pre-school services.

The Treasury review is separate from the initiative on social exclusion announced last year by Tony Blair. The review team are liaising with the social exclusion unit on how to target the “worst estates” - the 1,200 or so housing estates where poverty, unemployment and educational underachievement are concentrated.

One option under consideration is targeted assistance for families with children at risk of abuse or harm. Special task forces of doctors, social workers, health visitors and the police could be set up.

Another idea is for “one-stop shops” - a single government office, for example, on an estate replacing the various offices currently maintained by local authorities, the Benefits Agency, the Employment Services and the NHS.

Officials are understood to have been impressed by evidence - presented to a seminar this week by Cambridge criminology professor David Farrington, suggesting that intensive home visits by social and health workers to problem families would reduce underachievement and behaviour problems.

Professor Farrington advocates “resistance training” for young children to stop them being persuaded by contemporaries to break the law.