The new cabinet met for a three-hour policy discussion
The cabinet has met for a three-hour session to discuss the "next steps" for public sector reform as Gordon Brown tries to regain the initiative.
The PM is seeking to put recent turmoil behind him as he focuses on how tighter finances might affect domestic policy.
Mr Brown and Tory leader David Cameron have accused each other of planning spending cuts after the next election.
The Institute of Fiscal Studies has warned that whichever party wins faces "two Parliament of pain".
BBC political correspondent Ben Wright said Mr Brown was determined to focus on three areas - the economy, constitutional reform and public service reform.
He said Friday's marathon cabinet session concentrated on the latter, amid a wider debate within the Labour Party about devolving power from Whitehall and localising public services.
The BBC also understands the government has asked Whitehall departments to propose new policy ideas but, with at most a year to go until the next general election, the response was underwhelming.
Mr Brown's plans for the coming Parliamentary year - a draft legislative programme - is due to be unveiled in the next few weeks.
His spokesman said the Downing Street meeting would be "an opportunity to take stock of the next steps on the government's domestic policy agenda particularly in relation to public services in the light of the new challenges that we face.
"This is all part of the preparation for the draft legislative programme which we expect to publish in the next few weeks."
On Wednesday Mr Brown set out some of his intentions for constitutional reform - which included looking at whether Britain should change the first-past-the-post electoral system and reforming the House of Lords - both of which would be unlikely to change before next election.
He has also been looking at how to respond to the MPs' expenses scandal, which many Labour figures blamed in part for disastrous results in last week's local and European elections.
Among his proposals are a code of conduct for MPs, plans for which are expected to be brought forward before the summer recess, and an independent body to police MPs' claims.
Arriving at Friday's cabinet, Business Secretary Lord Mandelson was asked how important the meeting was, he replied: "It's an important meeting - it's about the future, not the past."
The government has faced Conservative claims it has become a "lame duck" administration, which may be unable to get key pieces of legislation, such as the part-privatisation of the Royal Mail, through Parliament.