Chancellor Alistair Darling has warned significant action is needed next year to reduce Britain's ballooning national debt, but said public spending cuts would be "fair and manageable".

In a Treasury Select Committee hearing on last week's Budget, Mr Darling defended targets to halve public sector borrowing in four years as "sensible and doable", although he braced the country for tough action next year once the economy is on a firmer footing.

He cautioned in last week's Budget that the upcoming spending review, which is planned post-Budget, would be "the toughest in decades".
Government efficiencies planned for public services include annual savings of £15 billion to £20 billion by 2013-14 from the NHS - a fifth of its budget.

"From next year, we do need to take significant action to reduce the amount of borrowing we are carrying," he told MPs.

"We can do it in a way that we can protect front line services and that doesn't damage the fabric of our economy," he added.

Mr Darling said he is more confident of "modest" economic growth this year, but he added that risks over growth in Europe pose a threat to the UK's recovery.

In a boost to Britain's battered finances, Mr Darling said the cost of financing the national debt had been lower than expected.

"One of the encouraging things is, if you look at what we're paying in debt interest at the moment, it's less than we thought we were going to be paying," he said. "Indeed, yields have come down slightly - they're about 4% at the moment - which is historically lower than they were."

On plans for a tax on banking activities, Mr Darling said an international levy was now more likely than six months ago as countries move closer towards agreement.