Third Sector has learned that the review, expected to be announced in next week's Budget, has been initiated by Chancellor Gordon Brown. It could give an indication of the role the charity sector would be given under a Brown premiership.
The review will feed into the 2007 Comprehensive Spending Review, which will set government spending strategies from 2008 to 2011.
Sector representative organisations such as the NCVO, Acevo, NACVS, Volunteering England and the Social Enterprise Coalition are being consulted by the Treasury over the terms of reference of the review.
The last such cross-cutting review in 2002 led to the creation of ChangeUp and Futurebuilders, improved the Compact and paved the way for full-cost recovery.
In a lecture he gave three months ago, the Chancellor called for "a new debate on the vital role of the voluntary, charitable and community sector in our country and how we can do more to encourage the giving of both time and money". He said that any new settlement with charities should recognise their independence and role as "innovators in meeting new needs in new areas".
Nick Aldridge, director of strategy at Acevo, said he welcomed the expected review. "Involving the sector early on in the long-term thinking of government shows a real commitment to recognising our role in working alongside the state to deal with major change in society," he said.
"But in order for the sector to think long-term, it will need confidence that all the short-term problems that have compromised the relationship with government will be solved."
Kevin Curley, chief executive of the NACVS, said: "We need local partnerships that improve local services, local authorities that fund the sector in a sustainable way and community participation based on a real share of power and resources."