George Osborne warns 2014 'the year of hard truths'
This year will be "the year of hard truths" with more "painful cuts" needed to put the economy on a sustainable footing, George Osborne is to say.
He will say in a speech in Birmingham later that permanently cutting spending is the way to permanently cut taxes.
Labour wants to take the UK back to "borrowing and spending and living beyond our means", he will add.
But Labour says the chancellor should admit his policies have failed and have led to a cost-of-living crisis.
'Long way to go'
BBC political correspondent Carole Walker said that at the start of a new year - a time for many to face some harsh financial realities - Mr Osborne would remind people there was still a long way to go to fix the economy.
"As a result of the painful cuts we've made, the deficit is down by a third and we're borrowing nearly £3,000 less for every one of you and for every family in the country," Mr Osborne will say.
"That's the good news. The bad news is there's still a long way to go."
He said the UK was "borrowing around £100bn a year - and paying half that money a year in interest just to service our debts".
He added: "We've got to make more cuts. That's why 2014 is the year of hard truths - the year when Britain faces a choice.
"Do we say 'the worst is over, back we go to our bad habits of borrowing and spending and living beyond our means and let the next generation pay the bill'?
"Or do we say to ourselves 'yes, because of our plan, things are getting better - but there is still a long way to go and there are big, underlying problems we have to fix in our economy'?"
His speech comes as the head of the office that issues the government's bonds said the UK could find it harder to convince investors to buy its debt in the years ahead.
The next couple of years could potentially be a "little more challenging" because of rising interest rates, when investors may be more "reticent" to buy British debt, Robert Stheeman told the BBC.
Manifesto 'plank'
On Sunday, David Cameron promised older voters the state pension would continue to rise by at least 2.5% a year if the Conservatives won the next election.
The prime minister pledged to keep the "triple lock" system, which ensures the state pension goes up by whichever is higher - inflation, wages or 2.5%.
He described his announcement as the "first plank" of the Conservative general election manifesto.
Mr Cameron also hinted on the BBC's Andrew Marr Show that he was hoping to be able to offer tax cuts as the economy improved and left the door open to a further reduction in the 45p top rate of income tax.
Shadow chief secretary to the Treasury Chris Leslie said that "while millions of ordinary working people are worse off under the Tories", Mr Osborne and Mr Cameron were "paving the way for yet another top rate tax cut for millionaires".
He said the reason more spending cuts were needed was because Mr Osborne's "failure on growth and living standards since 2010 has led to his failure to balance the books".
"What we need is Labour's plan to earn our way to higher living standards for all, tackle the cost-of-living crisis and get the deficit down in a fairer way."
Source:BBC
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