A rough day to break bad news: Osborne unveils 2014 as year of ‘hard truths’

George Osborne brought the festive season to a decisive close today, with a speech in which he revealed the Conservatives will be spending the year confronting voters with "hard truths".

As many people take a grim look at the state of their own finances the chancellor did the same with the economy, announcing in a new year speech in Birmingham there must be a further £25 billion of spending cuts in the next parliament.

"There's still a long way to go. We're borrowing around £100 billion a year – and paying half that money a year in interest just to service our debts," Osborne said.

"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'?"

Osborne's speech marks a return to his previous downbeat rhetoric, after spending much of last autumn offering a more positive outlook.

When pressed by journalists about why he was offering such a cautious approach when the economy is returning to growth, he explained: "I'm confident about the improvements we're seeing in the British economy but I'm equally confident we've got to stick to the plan."

With David Cameron having yesterday committed to retaining the triple-lock commitment on the state pension, guaranteeing a rise of at least 2.5%, other public spending faces being disproportionately hit by the chancellor's plan.

The Treasury is preparing major cuts in welfare spending in order to minimise the impact on departmental budgets but areas like policing and education are bound to be hit hard.

"We will set a cap on the overall welfare budget so it will be properly controlled," he declared.

That approach even attracted criticism from within the government. Deputy prime minister used his monthly press conference to label the targeting of benefit claimants a "lopsided" approach.

Labour, which will spend 2014 focusing on the "cost-of-living crisis" it claims has been caused by the chancellor's approach, said the deficit needed to be brought down "in a fairer way".

"The social security bill is rising under George Osborne, but the best way to get it down for the long-term is to get people into work and build more homes," shadow chancellor Ed Balls said.

"The Tories should back our compulsory jobs guarantee for young people and the long-term unemployed. And in tough times it cannot be a priority to continue paying the winter fuel allowance to the richest five per cent of pensioners.

"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."

Opposition sources are deeply concerned by the threat of extended austerity. Many believe the resulting spending cuts will not really begin to be felt until 2016, leaving a potential incoming Labour government to face the brunt of the blame.

But Osborne's speech threatens to do more to damage Ed Miliband's options in the event of a Labour victory next year, however.

The chancellor announced he intended to force a Commons vote approving a new "charter for budget responsibility" which would "commit" the UK to reducing its debts.

"It means not spending again when borrowing falls, including using surpluses in good years to reduce debt – so in future, we fix the roof when the sun is shining," Osborne explained.