Cameron to pull no punches over debt crisis

In a major speech on the economy, the Prime Minister will say the proposed cuts programme will affect "our whole way of life" and could be felt for decades, such is the scale of the debt problem.

His warnings come as Ministers prepare the ground for the emergency Budget on June 22, when Chancellor George Osborne will try to make serious inroads into the 156bn annual deficit.

Mr Osborne and Danny Alexander, the new Chief Secretary to the Treasury, will tomorrow publish the principles meant to underpin both the Budget and the spending review coming later in the year.

The Government is desperate to persuade people of the need for what they call the "difficult decisions" they are set to take.

Mr Cameron will today warn that nobody will escape the effects of the Tory-Liberal Democrat coalition's strategy to address the deficit and growing public debt.

"How we deal with these things will affect our economy, our society – indeed our whole way of life," he will say at an event in Milton Keynes.

A draft of his speech, released last night, goes on: "The decisions we make will affect every single person in our country. And the effects of those decisions will stay with us for years, perhaps decades to come.

"It is precisely because these decisions are so momentous, because they will have such enormous implications, and because we cannot afford either to duck them or to get them wrong that I want to make sure we go about the urgent task of cutting our deficit in a way that is open, responsible and fair.

"I want this government to carry out Britain's unavoidable deficit reduction plan in a way that strengthens and unites the country.

"I have said before that as we deal with the debt crisis we must take the whole country with us - and I mean it.

"George Osborne has said that our plans to cut the deficit must be based on the belief that we are all in this together – and he means it."

Mr Osborne and Mr Alexander will announce a process to "engage and involve" the whole country in "the difficult decisions that will have to be taken", he will say.

The Prime Minister himself will set out why the Government needs to take such "painful" measures, saying the debt problem facing the Government is "even worse than we thought" and the implications could be "more critical than we feared".

In a newspaper interview yesterday, Mr Cameron suggested that high welfare and public sector pay bills were high on the Government's list for cuts.

Child tax credits for better-off families are expected to be curbed.

Capital gains tax is likely to rise, although there is speculation that there could be generous exemptions for certain groups of people, including entrepreneurs and pensioners, after opposition from Tory right-wingers.

Ministers have steadfastly refused to rule out a rise in VAT, from its current rate of 17.5 per cent.

However, the Government wants the bulk of its savings to come from reducing expenditure rather than raising taxes.

Nick Clegg, the Liberal Democrat Deputy Prime Minister, insisted today that the Government's plans would not mark a return to Thatcherism.

"It is important that people understand that fiscal retrenchment does not mean a repeat of the 1980s. We're going to do this differently," he told another newspaper.

Mr Clegg also spoke of "a level of public engagement in this that you've never seen in this country before".