Alistair Darling: "It is necessary to see slower growth in public spending in the coming years"
Chancellor Alistair Darling has said the government will have to "cut costs" and "shift resources to the front line" to deal with the recession's effects.
He said "hard choices" included looking at selling off "non-essential public sector assets" and shifting resources to "where they are needed most".
But he said cutting spending now risked "choking off" the recovery.
Tory leader David Cameron said Labour's planned spending increases next year were "unaffordable".
In a speech in Cardiff, part of the Chambers of Commerce Business Week, Mr Darling said "targeted public investment" was essential for the economy to recover.
But he said the government was prepared to make the "tough choices necessary" while continuing to build a "fair society".
He said the role of government was important - and accused the previous Conservative administration of abandoning "hundreds of thousands who lost their jobs".
Mr Darling's speech is a signal that Labour is moving to a new line of defence over public spending cuts. Until the summer its line was that the Tories will cut, Labour will invest through the downturn.
"Gordon Brown and I have spoken of the hard choices needed in public spending over the coming years," he said.
"We won't flinch from the difficult decisions that will be necessary, and we will always act guided by our core values of fairness and responsibility.
"This will be our test of character. Properly targeted public investment can and should make a difference.
"That means making choices and setting priorities - shifting resources to the front line. It means more efficiency, continuing to reform, cutting costs, public and private sectors working together."
In April's Budget, Mr Darling forecast that public borrowing this year would reach £175bn and arguments about how that figure will be reduced are set to dominate the political agenda in the run-up to the general election.
The Tories have accused Labour of not being honest about planned cuts in previous rows on public spending.
And the party says the government's stated aim of cutting its spending deficit by half in four years is based on little more than "hope".
In his own speech earlier, Tory leader David Cameron said only his party was being "straight" with people about dealing with the "deficit crisis".
"We've taken the bold step of saying to the British public very clearly, with a Conservative government, public spending will be cut. Not reduced in growth, not frozen, but cut," he said.
"That candour is a world away from the current Labour government. "
The Liberal Democrats say both of the main parties need to be more honest about the fact that "big programmes" will have to be cut back.
Leader Nick Clegg said last month he recognised "serious savings" had to be made to bring the public finances under control but said frontline services had to be protected.
And treasury spokesman Vince Cable said the issues of public sector pensions, tax credits which "go right up the income range" and defence contracts such as Trident had to be talked about.
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