2014 will be "the year of hard truths" George Osborne will warn today, with further austerity measures needed to pay for tax cuts and improved job prospects.
In a speech setting out his priorities for the year, the Chancellor will warn voters that despite a much-improved economic outlook, there is "still a long way to go".
But Labour wanted to take Britain back to "borrowing and spending and living beyond our means - and let the next generation pay the bill", he will suggest.
Prime Minister David Cameron kicked off an economic offensive yesterday by committing to sustained rises in the state pension until 2020 and stating his desire to offer more tax cuts.
He insisted easing the burden on lower earners was his priority but faced Labour claims of planning a new "tax cut for millionaires" after failing to rule out cutting the 45p top rate of income tax.
Mr Osborne will caution voters that tax cuts could only be afforded if further significant reductions were made in the public spending the revenues paid for.
"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," he will say.
"That's the good news. The bad news is: 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. We've got to make more cuts."
He will say in his speech in Birmingham today: "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'."
Shadow chief secretary to the Treasury Chris Leslie said: "George Osborne should admit his policies have failed and led to a cost-of-living crisis.
"While millions of ordinary working people are worse off under the Tories, he and David Cameron are paving the way for yet another top rate tax cut for millionaires."
