Chancellor admits Britain taking longer to recover than hoped, but insists he will stick to deficit plan

George Osborne has admitted it is taking longer for Britain to recover from the financial crisis than he hoped, amid warnings that the government would miss its key economic targets.

The Chancellor also warned the rich would pay more when he unveils his Autumn Statement on Wednesday, but ruled out Liberal Democrat proposals for a mansion tax.

Mr Osborne said the independent Office for Budget Responsibility would report on Wednesday on whether the government would meet its economic goals.

“We had two targets, one was to get debt share falling as a share of national income by 2015-16 and also to balance the current budget,” he said.

“It is clearly taking longer to deal with Britain’s debts, to recover from the financial crisis, than one would have hoped, but we have made real progress.

“The deficit is down by a quarter, there are a million more jobs in the private sector and to turn back now, to go back to the borrowing and the debt and the spending that [shadow chancellor] Ed Balls represents would be a complete disaster for our country.”

Mr Osborne added: “I’m very clear going forward, we have got to deal with this deficit. It is going to take longer; that means more difficult decisions and it’s got to be done fairly.”

He said the government was also going to tackle welfare bills in the mini-budget. “That is the Conservative approach to fairness: make the rich pay, but also make sure you are tackling the welfare system, which is deeply unfair.”

Economic experts warn Mr Osborne will have to put back his goal to cut the nation’s debt as a percentage of gross domestic product in 2015-16 without major spending cuts and tax rises.

Mr Osborne added: “The latest GDP figures showed growth. If you are telling me it’s a tough environment out there and I wish the British economy was growing more like the rest of the world economy, well of course I would say yes. But the question is, how do you get there, how do you deliver that? I think undermining the credibility of our deficit plan would be a complete catastrophe for Britain and would put us into the place where some European countries are at the moment, and that is not where Britain wants to be.”

Asked if he was in favour of a squeeze on welfare, shadow chancellor Mr Balls replied: “Of course”. Pressed on how he would cut the bill, he said: “Get people back to work. The welfare bill is up because inflation is up and long-term unemployment is up.”

Mr Balls added: “[Mr Osborne] is cutting taxes at the top and then he says, ‘I’m going to hit people at the bottom’ and you are saying to me, ‘He’s in a deep hole, here’s a shovel, why don’t you dig too?’ I’m not going to dig our way to unfairness and economic failure, that is perverse.”

Labour’s former chancellor Alistair Darling also accused Mr Osborne of having a “bankruptcy of ideas” over how to generate growth. He said the Chancellor was “wildly off all his targets” for cutting the deficit and called for major engineering projects.