George Osborne announced further cuts to spending across government departments on Wednesday, including ending automatic pay rises for millions of public sector workers.
Setting out the Spending Review that will see £11.5bn slashed from Whitehall budgets, the chancellor told the Commons the UK economy was "out of intensive care" but more cuts were necessary to avoid a relapse.
"We act for every taxpayer and every future taxpayer who wants high quality public services at a price our country can afford," he said. "The greatest unfairness is loading debts on to our children."
"The decisions we take today are not easy and these are difficult times," he said. "Step by step this reforming government is making sure Britain lives within its means."
Total government spending for 2015/16 will be £745 billion - £120 billion lower than if it had risen at the average rate of the last three decades.
Osborne announced that public sector pay rises will be limited to an average of up to 1% for 2015/16 and automatic progression pay in the civil service will be ended by 2015/16.
And he said the government is working to remove automatic pay rises for time served in schools, NHS, prisons and police - the Armed Forces are excluded from these reforms.
The further cuts in public spending will also lead to an estimated loss of a further 144,000 jobs by 2015/16.
Osborne told MPs that every year, some public sector employees received an increase through an "antiquated" pay progression system, regardless of performance, which was "deeply unfair" to workers elsewhere in the public and private sectors.
Labour has said it will stick to Osborne's spending plans should it win the election in 2015. But Balls, the shadow chancellor, told the Commons the further spending cuts were needed as a "direct result" of Osborne's "abject failure to get the economy to grow".
"The chancellor spoke for over 50 minutes. But not once did he mention the real reason for this Spending Review today; his comprehensive failure on living standards, growth and the deficit too," he said. "All we got today is more of the same from a failing chancellor."
He added: "No plan to turn the economy round. No hope for the future. Britain's families and our public serives are paying the price."
Public and Commercial Services union general secretary Mark Serwotka, who represents the civil servants who will see a clampdown on their pay, said Osborne was "making things worse not better".
"While his mantra is that he is dealing with our debts, the fact is George Osborne is actually borrowing more for failure and has led our economy into the longest and deepest slump since the 1870s," he said.
"He is not only incompetent and wildly out of touch, Osborne has been disastrous for our communities, with half a million of our friends and neighbours now relying on food banks to get by."
The Department for Communities and Local Government led by Eric Pickles has agreed a further 10% cut in its budget and the chancellor praised the rotund communities secretary as the model of "lean government".
The Department for Culture, Media and Sport will see its budget slashed by 7%. Announcing that the site of the Battle of Waterloo will be restored in time for its 200th anniversary Osborne said Waterloo was like today's politics: "a great victory for coalition forces over a discredited former regime that impoverished millions".
Theresa May has seen the Home Office budget cut by 6%. Transport secretary Patrick McLoughlin will see a 9% reduction. Chris Grayling's justice department will see his budget but by 10%. And Vince Cable, who held out the longest against cuts, will see the business department's budget reduced by 6%.
William Hague's Foreign Office will see its budget reduced by 8%. However there will be an increase of 3.4% in intelligence services budget.
The Ministry of Defence will have its budget cut by 1.9% and there will be no reduction in numbers of soldiers, sailors or airmen, but cuts in civilian workforce.
The Department for Work and Pensions committed to 9.5% savings in running costs. And Osborne announced that payment of winter fuel allowance for people living abroad will be linked to a temperature test - meaning pensioners in "hot countries" will not get it.
Osborne also announced a new welfare cap will be set each year at the Budget for four years, applying from April 2015, which will trigger a public warning from the Office for Budget Responsibility if the government looks set to breach it because of a failure to control welfare.