Britain is facing a longer-than-expected battle to reduce its debts, Chancellor George Osborne is expected to tell MPs in his Autumn Statement.
Mr Osborne will say there is no “miracle cure” for Britain’s economic woes – and the coalition will not duck its commitment to deficit reduction,
He is being tipped by the FT to freeze fuel duty and is expected to announce a spending squeeze to fund new schools.
Labour has called the government’s economic policy “a terrible failure”.
The chancellor will set out the state of the UK economy and his deficit-cutting programme from 12:30 GMT, in one of two big set piece speeches on the economy he makes each year.
He is expected to say: “In this Autumn Statement, we show that this coalition government is confronting the country’s problems, instead of ducking them.
“The public know that there are no miracle cures. Just the hard work of dealing with our deficit and ensuring Britain wins the global race.”
Mr Cameron wrote on his Twitter feed that the chancellor had now briefed the cabinet on his statement, adding: “We are on the right track and making progress.”
The Office for Budget Responsibility is expected to downgrade its forecasts for growth in figures to be released alongside Mr Osborne’s statement.
If the figures are as bad as many expect, the chancellor could be forced to abandon two key coalition targets: A five-year plan to eliminate the underlying deficit, which could be stretched to eight years, and his commitment to have Britain’s debts falling as a share of GDP by 2015.
Paul Johnson of the Institute for Fiscal Studies told the BBC the apparent “permanence” of the UK’s low growth was the real problem in terms of the public finances, rather than the chancellor’s slipping time scale.
BBC Political Editor Nick Robinson said that, in contrast to the leaks ahead of March’s budget, the details of the Autumn Statement have been successfully kept under wraps.
But Mr Osborne is being tipped by the Financial Times to freeze the 3p a litre fuel duty rise planned for January.
And The Times says the chancellor will introduce measures to force banks to hand over a higher proportion of their profits in tax – and to squeeze the international aid budget, while still meeting the UK’s commitment to spend 0.7% of GDP on it.
Lib Dem President Tim Farron claimed his party had blocked Treasury plans to cut housing benefit for under 25s and limit welfare payments to families who have more than two children.
“I am fairly confident we have stopped all this. I don’t think there will be a freeze on benefits as well,” he told the BBC News channel.
The chancellor is expected to give more detail on plans to squeeze spending in most Whitehall departments and use the money to build new schools and transport schemes.
All but four departments will be asked to save an extra 1% next year and a further 2% the following year, with the £5bn saved to be spent on capital projects in an effort to kick start growth.
Mr Osborne is expected to detail how £1bn will go towards building 100 new free schools and academies, creating an additional 50,000 new school places.
The changes apply to England only, but will have knock-on effects in Scotland, Wales and Northern Ireland because of the funding formula used.
Labour claims low and middle-income families are being hit the hardest by the government’s austerity measures and it wants more investment to promote growth.
Labour leader Ed Miliband said Mr Osborne’s policies had been a “terrible failure” which were “bad for Britain… and I’m afraid what we’re going to see is ordinary families paying the price of that”.
He told the BBC: “What we need, and what we need George Osborne to admit, is if you’ve been trying an approach for two and a half years and it hasn’t worked, you don’t just keep ploughing on regardless.”
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