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Chancellor George Osborne warns 2014 will be a "year of hard truths"
A further £25bn spending cuts will be needed after the next election, including £12bn from the welfare budget, George Osborne has warned.
Speaking in Birmingham, the chancellor said the economy was far from fixed and spoke of a "year of hard truths" ahead.
He suggested making welfare savings by cutting housing benefit for under-25s and restricting council housing for those earning over £65,000 a year.
But deputy prime minister Nick Clegg warned against "cuts for cuts sake".
The Lib Dem leader said his party and his Conservative coalition partners had a "very different vision" about how to balance the books during the next Parliament.
BBC political editor Nick Robinson said Mr Osborne's announcement was about politics as much as economics in the run-up to the 2015 election.
Mr Osborne, he said, "wants to to set the political baseline for the economic argument in the run up to the next general election and if... Labour refuse to back his plans he will accuse them of planning to run a higher deficit or to raise taxes in ways which they have so far failed to spell out".
'Long way to go'Mr Osborne has said he wants the government's annual finances to be in surplus by 2018-19 and that will require billions more of cuts in spending - including £60bn over the next four years.
In his speech, Mr Osborne warned the welfare budget could not "be protected from further substantial cuts", saying he was beginning "not ending" a debate on the "difficult choices" that he believed had to be made.
Only by reducing welfare, he suggested, could a future government avoid either cuts in areas such as education, "big tax rises" or increased borrowing.
"Start Quote
End QuoteMr Osborne wants to set the political baseline for the economic argument in the run up to the next general election. "
Mr Osborne has argued the savings needed after 2015 can be found entirely from spending cuts, with welfare accounting for about half of the £25bn targeted - the remainder coming from a further squeeze on departmental budgets.
Although the government's economic strategy was working, with the deficit down by a third since 2010, the chancellor warned the job of repairing the public finances would take many more years.
"It is too early to say the job is done," he said. "It is not even half done."
The UK, he said, 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'?"
'Ideological'Asked earlier if some pensioner benefits could be means-tested the chancellor told BBC Radio 4's Today programme the Conservatives' values had not changed, suggesting they would continue to support all pensioners getting things like the winter fuel allowance, irrespective of income.
He said changing universal benefits for pensioners would save only "tens of millions" of pounds.
"Start Quote
End QuoteThe chancellor has on the kind of hair shirt that consumers should perhaps still be wearing, given that they went so spending and borrowing bonkers in the boom years."
Issues that he did highlight as possible areas for savings were the payment of housing benefit to people aged under 25 and also people living in council houses while earning more than £65,000 a year.
Nick Robinson said the amount that could be recouped from well-off council house dwellers was "not huge".
While housing benefit for under-25s was a larger expense - it costs about £2bn a year - he said it was nowhere near the total savings the chancellor was suggesting.
At his monthly news conference, Mr Clegg said the "black hole" in the government's finances needed to be addressed.
But he claimed his party would do it in a "fairer way" than the Conservatives and oppose welfare cuts on such a scale.
The Conservatives were making a "monumental mistake" if they thought they could reduce the deficit solely "on the backs of the poor", he added, suggesting it showed they wanted to "remorselessly pare back the state for ideological reasons".
'Worse off'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%.
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.
But shadow chief secretary to the Treasury Chris Leslie said "millions of ordinary working people are worse off under the Tories",
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."
The Institute for Fiscal Studies says the £25bn spending cuts target looks "tough" to achieve, particularly if a future government continues to ringfence spending on the health service and schools in England, as well as protecting pensions.
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