Labour is to open up its election pledges to scrutiny by a spending watchdog set up by George Osborne in its battle to convince voters that it has economic "iron discipline".
Ed Balls will tell activists tomorrow that he needs to be "straight" with the country about the tough choices the party would have to take in office, admitting that budget cuts will need to be made to balance the books.
In a push to boost the party's fiscal credibility, the shadow chancellor intends to show how Labour's "sums add up" in the approach to the 2015 election by asking the Office for Budget Responsibility (OBR) to independently review the costings of every spending and tax commitment in its manifesto.
Mr Balls has written to OBR chairman Robert Chote setting out the audit request, which party sources said appeared to be possible under the terms of its charter.
Treasury minister Greg Clark said that the row over whether David Cameron misrepresented the views of the Office for Budget Responsibility of the impact of austerity measures on the economy was over a technical detail.
Mr Clark said: "It's a technical point, but it is an important one. Every budget since we came into office has been analysed by the OBR. Because Government spending is part of national income, any reduction in it has always been part of the forecast.
"What David Cameron was addressing in his speech - was to where there has been an extra contribution to the relatively slower growth than was expected from policy.
There's been embarrassing criticism of the Prime Minister's keynote speech on the economy from the independent economic watchdog set up by his government. Yesterday, David Cameron claimed spending cuts had not damaged growth and that the Office for Budget Responsibility agreed.
But today the head of that watchdog said the opposite was true.
Shadow Chancellor Ed Balls said on Twitter that the letter from the Office for Budget Responsibility to Number 10, rebuking David Cameron over claims he made about the economy, was 'deeply embarrassing' for the Prime Minister.
I think it could be regarded as something of a rebuke.
I think he is correcting a statement that the Prime Minister has made and the important thing is that the Prime Minister is attributing a view to the OBR which it doesn't hold and I think when that happens it is absolutely right to write to the Prime Minister and point out that he has made an error.
In a letter sent to Number 10, the chairman of the Office for Budget Responsibility Robert Chote, said that it believed fiscal consolidation had "reduced economic growth over the past couple of years".
The Office for Budget Responsibility has published a letter sent to Number 10 by its chairman in which he took exception to claims made by David Cameron.
In the letter, Robert Chote criticised the PM's claim that austerity measures were not responsible for a dip in growth:
To date our forecasts have used 'multipliers' that imply that every £100 of fiscal consolidation measures reduce GDP in that year by around £100 for capital spending cuts, £60 for welfare and public services cuts, £35 for increases in the VAT rate and £30 for income tax and National Insurance increases, with the impact diminishing thereafter.
We believe that fiscal consolidation measures have reduced economic growth over the past couple of years, but we are not yet persuaded that they have done so by more than the multipliers we use would suggest.
As the independent Office for Budget Responsibility has made clear growth has been depressed by the financial crisis, the problems in the Eurozone and a 60% rise in oil prices between August 2010 and April 2011. They are absolutely clear that the deficit reduction plan is not responsible. In fact, quite the opposite.
A Downing Street spokesman said David Cameron made accurate claims about the economy when he explained why forecasts came in lower than expected.
The OBR has today again highlighted external inflation shocks, the Eurozone and financial sector difficulties as the reasons why their forecasts have come in lower than expected. That is precisely the point the Prime Minister was underlining.