The Office for Budget Responsibility said the cuts needed to be implemented under Government plans were so sever as to be almost undeliverable.
The Chancellor will have to pare back the rate of Government spending as a proportion of gross domestic product (GDP) to its lowest level in 80 years as he battles to wipe out annual borrowing, official forecasts suggest.
Robert Chote, OBR chairman , said there would have to be a “very sharp squeeze” on spending in the next parliament. He added that so far the UK has seen 40% of the necessary cuts in this parliament and the next 60% would come under the next parliament.
At least some of those savings will come from public sector pay.
Already the chancellor has saved £12bn from pay caps for council workers, nurses and teachers, and it is expected the same target will be set in the next parliament.
Mr Osborne warned that a further tight squeeze was needed. He said: “There are going to have to be very substantial savings in public spending.”
The Chancellor said spending plans for 2015/16 would save £13.6 billion while two further years would also require “decisions on this scale”.
Plans to cut the deficit have been hit by lower wage growth dragging on income taxes, which in the five years from 2014/15 to 2018/19 are now expected to produce a total of £38.9bn less in receipts than forecast in March. Len McCluskey, Unite general secretary said: “The vast majority of people listening to George Osborne talking about an economic recovery will think it’s a figment of his imagination.
“This is a phoney recovery, built on dangerous levels of consumer debt that are the highest across Europe, run up as people borrow to get by because his Government’s policies have made people poorer, the rich richer and cut income to the Treasury. Not only are the people worse off since he took office, but so is the nation
Charities have also expressed concern that the Chancellor has decided to freeze Universal Credit work allowances as part of a raft of welfare announcements.
George Osborne said the allowance will be maintained at its current rate for a year from April 17 in addition to the three years already announced, to offset increased childcare support for those on the benefit.
In addition, if a claimant leaves Universal Credit and returns within six months, they will be able to keep their existing assessment period.
Barnardo’s chief executive Javed Khan said: “Barnardo’s is deeply concerned that Government plans to further freeze working benefits leave poor children out in the cold. Struggling families are already telling us they are having to choose between heating and eating, as cuts have left them unable to pay electricity bills.