Chancellor George Osborne has stated ‘2014 is a year of hard truths for our country' and warned there is a long way to go with deficit reduction – with additional £62bn budget cuts pencilled in between now and 2017/18.

Giving a New Year speech on the state of the economy in Birmingham this morning, Mr Osborne said: ‘Government is going to have to be permanently smaller – and so too is the welfare system'

He claimed that on current forecasts issued by the Treasury, additional £12bn welfare cuts would be needed in the first two years of the next Parliament.

‘That's how to reduce the deficit without even faster cuts to government departments, or big tax rises on people,' Mr Osborne said.

The chancellor reconfirmed proposals set out in the Autumn Statement last December to set a cap on the overall benefits bill this year and to enshrine budget responsibility through a Parliamentary charter.