Osborne: general election offers voters a choice between the course to prosperity or a return to chaos

The highlight of the pre-election Autumn Statement was an £800 million stamp duty cut which came into effect at midnight, reducing the cost of moving house for 98% of home-buyers.

But the detail of the plan set out by Mr Osborne revealed a continuing squeeze on public services and benefits following the May election, which the independent Office for Budget Responsibility said "would pose a significant challenge".

The OBR suggested that government consumption of goods and services would fall to its lowest level as a proportion of GDP since 1938, with 80% of the reduction in the deficit still having to be found by cutting day-to-day spending.

From 2009/10 to 2019/20, spending on public services, administration and grants by central government is projected to drop from 21.2% to 12.6% of GDP, and from £5,650 to £3,880 per head in current prices.

Around 40% of these cuts are expected to have been delivered during the current Parliament, with about 60% to come during the next.

Mr Balls said a key to repairing the finances was supporting wage growth among the lower-paid, which would increase tax revenues.

"Unless we have action to deal with that problem of living standards and wages to make people better off, we are going to have tougher times in the public finances and on public services too," the shadow chancellor told ITV1's Good Morning Britain.

He admitted that Labour would have to make public spending cuts: "It's going to be really tough. We are going to have to have spending cuts. It is going to be very difficult. Unless the economy is growing more strongly and wages are rising we are not going to get the deficit down because the money is not coming in."

Mr Osborne insisted that the Government's long-term economic plans had put Britain "on course to prosperity" but insisted that the country had to "live within its means".

He acknowledged that there were further reductions in welfare spending to come, saying he expected "we are going to have to freeze working age benefits for another couple of years".

Speaking from the Bentley factory in Crewe, where the car-maker has just announced 300 new jobs, he told BBC1's Breakfast: "Britain has got a choice. You either have much higher taxes to pay for your government and your welfare bill, or you borrow a lot more and risk the economy going into a crisis, or you live within your means.

"This is a choice families face every single day. We are facing up to that choice as a nation.

"People are going to have their own choice at the general election - do they want to go back to the chaos or do they want to go on the course to prosperity?"

Mr Osborne was forced to admit in his second most important annual financial statement that weak tax revenues mean the deficit is not falling as fast as hoped and will be more than £90 billion this year.

But he pointed to surging 3% growth and insisted the UK's budget deficit had been halved since 2010 and was still forecast to fall every year. By 2018/19 the government is due to record a surplus of £4 billion.

He acknowledged that "substantial savings" in public spending will be required in the next parliament, now expected to be closer to £30 billion than the £25 billion envisaged previously.

Tensions within the coalition about how to finish the job of balancing the books by the end of 2017/18 burst into the open as Liberal Democrat Business Secretary Vince Cable said he had made "very, very clear" his opposition to Tory plans to achieve the goal by cutting departmental budgets and welfare, without increasing taxes on the wealthy.

Mr Cable said his Conservative colleagues wanted to cut public spending "rather more brutally than we think is necessary or desirable" and their plans were "simply not realisable".

Lib Dem Treasury Chief Secretary Danny Alexander hinted that including extra taxes for the wealthy could be a deal breaker in any coalition negotiations next May.

He told BBC2's Newsnight: "I argue, as a Liberal Democrat - something the Conservatives disagree with - that additional taxes on the wealthiest in society are going to be an important part of that period (after 2015/16), because the job doesn't just have to be finished, I believe it has to be finished fairly as well."

Institute for Fiscal Studies director Paul Johnson told the BBC: "The Chancellor has said he wants to reduce welfare as well as departmental spending. Even if he reduces welfare - and that's not easy - there are still big cuts to come on departmental spending.

"To be fair, it has proved easier than expected to do over this Parliament, but of course it's going to be more difficult the longer you carry on."

Mr Osborne insisted that the Autumn Statement showed progress in getting Britain's finances into order.

"We are making progress, but I am the first to say there is more to do," the Chancellor told Good Morning Britain.

"We have restored stability, Britain is the fastest growing of any major economy in the world, jobs are being created, unemployment is coming down at a record rate.

"These aren't just numbers, they are real opportunities for real families.

"We need to stay with the long-term economic plan, bear down on debts, create jobs. The alternative is to return to that chaos of four or five years ago."

Mr Osborne criticised the Liberal Democrats for apparently trying to distance themselves from the statement.

Asked about Deputy Prime Minister Nick Clegg's decision to make a visit to the South West instead of being in the Commons for the statement, he told Sky News: "Frankly, it's his business. He can chose to be anywhere he wants in the country.

"In private they sign up to all these decisions then in public they slag 'em off. But that's for them to explain to you."

Mr Osborne lashed out at "hyperbolic" media coverage of the Coalition's spending cuts, branding it "nonsense".

In a tetchy interview with John Humphrys on the BBC Radio 4 Today programme, the Chancellor admitted that the "job was not finished".

But he insisted: "When I woke up this morning and turned on the Today programme, I felt like I was listening to a rewind of 2010 - you had BBC correspondents saying Britain is returning to a George Orwell world of the Road To Wigan Pier.

"It is just such nonsense. I thought the BBC would have learnt over the past four years that its totally hyperbolic coverage of spending cuts has not been matched by what has actually happened."

He went on: "What I reject is the totally hyperbolic BBC coverage of spending reductions. I had all that when you were interviewing me four years ago and has the world fallen in? No, it hasn't.

"Government departments are going to have to make savings. On the welfare bill we are going to have to do things like freeze working-age benefits.

"I'm not pretending these are easy decisions or that they have no impact. But the alternative of a return to economic chaos, of not getting on top of your debts, of people looking at Britain across the world and thinking that is not a country in charge of its own destiny, is not a world that I want to deliver."

Mr Osborne said the BBC's approach towards him was "unfair".

"We promised to turn the British economy round and we now have the fastest growing economy in the developed world," he said.

"We promised to create jobs and we have seen unemployment fall at a record rate.

"We brought the deficit down by a half - I would love to have gone further in this parliament but we have been hit by all sorts of economic storms, as you know.

"We have stayed the course and we are continuing to bear down on that deficit so Britain can live within its means."

The Chancellor defended his decision to offer an £800 million stamp duty break rather than "pocketing" revenue raised by the Autumn Statement, and repeated the Tories' commitment to tax cuts in the next parliament.

"I've got a plan to reduce the deficit. I'm not going faster than that plan, I'm not going slower than that plan," he said.

He indicated that welfare cuts would be central to his proposals to balance the books.

"I've come on this programme many times, being attacked for welfare cuts. The new line of questioning is you haven't got welfare under control," Mr Osborne complained.

"We have demonstrated in specific ways over the past four years that we can reduce the cost of public services while actually improving the quality."

Mr Balls said voters would not forget that Mr Clegg and his party had "propped up" the Conservatives in government.

"Apparently he didn't turn up yesterday to the Autumn Statement because he thinks if he doesn't sit next to David Cameron and George Osborne, people might forget the fact that he voted for the VAT rise and the bedroom tax," Mr Balls told LBC.

But Mr Clegg denied trying to distance himself from the measures announced yesterday.

He told LBC: "I've been doing autumn statements and budgets for five years now and sitting dutifully there. And, by the way, of course I have worked on this meticulously for weeks.

"Everything in that Autumn Statement is in there because we have agreed it and I fully support it.

"But, then I had a choice - did I listen to Ed Balls in the House of Commons or did I go out and talk to normal people?"

Asked why he ever attended the Commons, Mr Clegg replied: "That's a good question, actually."

Pressed on whether he had "propped up" the Tories, he said: "No, it's not propped up, far from it. I've steered it."

Mr Clegg added: "Poor Ed Balls who now thinks I'm in any way sheepish or ashamed of what this Government has done or was in the Autumn Statement. You know what - far from it. I'm proud, I own it. We co-author it.

"It is a Liberal Democrat Autumn Statement just as much as anything else and this economic recovery wouldn't be happening without the Liberal Democrats.

"And, by the way, all this complete nonsense tittle-tattle about Vince Cable here or Danny Alexander there. What Vince Cable, Danny Alexander and indeed myself have been saying for ages is that we proudly stand together in this coalition Government to sort out the mess created by Ed Balls.

"As for the future, clearly we have a completely different approach to the Conservatives."