George Osborne to unveil deficit reduction plan

George Osborne is keen to draw dividing lines with Labour

The chancellor will use Thursday's Autumn Statement to harden up the coalition's commitment to clear the deficit by 2018.

Sources say George Osborne will unveil a process designed to reassure the markets and business that the government has a credible commitment to the fiscal path needed to "finish the job".

So far Conservative and Liberal Democrat ministers have agreed spending plans for the year of the general election - 2015-16. They have made clear that after that their parties will take different views about the right mixture of spending cuts and tax rises.

George Osborne is due to spell out how a cap on welfare spending will work, in advance of a number for the cap being set in next year's Budget.

The more that welfare is cut, the less needs to be raised through cuts or tax rises in order to balance the books.

Thus it is possible that the coalition could agree on this and challenge Labour to explain whether they would match the cap or, if not, where they would find other ways to make savings.

Sources are refusing to confirm whether the chancellor will pursue this path but a well-placed source told me that ministers in both coalition parties were determined to use the Autumn Statement to draw a political dividing line with the Labour Party on deficit reduction.

Earlier, I interviewed David Cameron on the Autumn Statement, and asked if he wanted to tell people what public finances would look like for the next five years under his government.

"I do want to do that and I will do that and the chancellor will do that in this Autumn Statement by saying we have a long-term plan," he told me. "It has involved difficult decisions about spending, about getting our deficit down.

"But this long-term plan is paying off. We are on the right track, we should stick to that track, recovering our economy, getting jobs for our people and over time really fixing for the long-term the mess we were left in the public finances.

"You will have to wait for the chancellor's red book [Treasury document containing Budget facts and figures] and his announcement in the Autumn Statement but be very clear - this Autumn Statement is about the next steps in a long-term plan to turn our country round."