Ed Miliband has ruled out borrowing more money to pay for his party's election manifesto commitments as he sought to show voters that Labour can be trusted with the nation's finances.
In what he said was his first pledge of the general election campaign, Mr Miliband said Labour would cut the deficit every year of the next Parliament and balance the nation's books if it wins power next May.
But Chancellor George Osborne said the Labour leader's plans would result in more borrowing and higher taxes and create "economic chaos".
In a speech in the City of London setting out his party's economic priorities, Mr Miliband said the 2015 election would be "a fight for the soul of our country", between Conservatives determined to reduce public spending to 1930s levels and deliver a £23 billion surplus by 2020, and a Labour Party offering a "tough and balanced" approach which would eliminate the current deficit "as soon as possible".
He warned that Tory plans to cut spending "way below" the levels seen during Margaret Thatcher's premiership would have "dramatic consequences for the social and economic fabric of our country".
Mr Miliband confirmed plans to restore the 50p rate of income tax for earnings over £150,000 and impose a "mansion tax" on expensive properties.
But the Institute for Fiscal Studies said that the address delivered little additional detail about Labour's plans. The thinktank's deputy director Carl Emmerson said Mr Miliband had left himself "wriggle room" to borrow up to £50 billion more than Mr Osborne in 2019/20, which would allow a virtual halt to spending cuts after 2016 but mean "much more borrowing, and therefore government debt".
And Labour backbencher Diane Abbott - until last year a member of Mr Miliband's frontbench team - told London Live TV he needed to "make it clear we are making socialist choices, not just offering a version of Tory austerity."
Outlining his election pledge, the Labour leader said: " We will build a strong economic foundation and balance the books. We will cut the deficit every year while securing the future of the NHS.
"And none of our manifesto commitments will require additional borrowing.
"These are my commitments to the British people."
Asked to sum up Labour's appeal to voters, he coined the slogan: "A country that works for you, not the privileged few."
Shadow chancellor Ed Balls last night wrote to shadow cabinet ministers to tell them to prepare for cuts in every Whitehall department each year until the current deficit is eliminated, with exemptions only for the t he NHS, international development and a "limited" number of other areas to be set out in the 2015 manifesto.
Mr Miliband - whose speech was seen as an attempt to lay to rest criticisms over his failure to mention the deficit in his high-profile conference address in September - said he wanted to make clear that under a Labour government, "it's going to be tough, it's going to be difficult and there will be cuts".
While Labour would offer a "credible and sensible" approach, with fully costed spending plans and tax hikes on the richest, the Conservatives would subject public services to "slash and burn" cuts while promising unfunded tax reductions to the comfortably off, he said.
Mr Miliband said last week's Autumn Statement exposed Conservatives as " extreme, ideological and committed to a dramatic shrinking of the state, whatever the consequences".
He cited the findings of the independent Office for Budget Responsibility that Mr Osborne's plans imply a cut in overall public spending to 35% of GDP - the lowest for 80 years - by 2019/20.
"Our tough and balanced approach will balance the books through an economy based on high wages and high skills, common sense spending reductions and fair choices on tax," he said.
"Their unbalanced approach of 1930s public spending and unfunded tax cuts will put at risk our National Health Service, undermine our economic future and threaten working families."
He set out five principles which would underpin Labour's approach to deficit reduction: eliminating the current deficit "as soon as possible" in the next Parliament; tackling the "cost of living crisis"; making "common sense" cuts to departmental spending; ensuring the richest bear the greatest share of the burden; and never making uncosted promises.
Mr Miliband declined to say how big he believed the state should be: "I have never been a person that targets a particular percentage of national income, but when the Tories say 35% is our plan, it is a plan which I believe will be deeply destructive for the productive potential of the economy and for public services."
Final details of the spending cuts a Labour administration would make would not be decided until he was in Number 10, he said.
Mr Osborne told Sky News: "Ed Miliband demonstrates today that he is a weak leader with no economic plan.
"It was he and his party that created the deficit and by delaying paying off the deficit what he is really telling the British people is that he would borrow more money and put up taxes.
"There is a very stark contrast today between the economic competence you see with us and the economic chaos that is offered by the alternatives."
Liberal Democrat Chief Secretary to the Treasury Danny Alexander said: "What we are saying as Liberal Democrats is that we need to finish the job - and do so in the first couple of years of the next Parliament - of eliminating the structural deficit, and then the country has a chance to turn the corner and have a different approach to the public finances because the books are balanced.
"Labour would take longer, borrow more. The Conservatives would go on much more than is necessary, cutting further than is necessary for basically ideological reasons."