George Osborne has promised to use next week's budget to move the UK "from rescue to reform" as official figures show that the number of people out of work has climbed to its highest level since 1994.

Speaking at the Treasury, as he presented a survey of the UK economy by the Organisation for Economic Co-operation and Development thinktank, the chancellor promised to tackle some of the "deep-seated and long-standing weaknesses" of the British economy to restore growth and boost employment.

He said last year's budget had been "a rescue mission bringing us back from the brink of fiscal disaster", but that "the mission of this year's budget will be to move from rescue to reform". Taking his lead from a series of policy changes suggested by the OECD, the chancellor signalled that he would shake up the planning system, target more resources at the poorest children to boost educational standards, and streamline environmental policies to help deliver sustainable economic growth and create new jobs.

"The debt-fuelled model of growth pursued in Britain is fundamentally broken. We need to produce a new model that is more sustainable," he said.

But news that more than 2.53 million Britons were out of work in the three months to January – the largest number since 1994 – underlined the tough task Osborne faces in convincing voters he can fix the economy.

On the International Labour Organisation measure preferred by the government, 27,000 people joined the ranks of the unemployed over that period, according to the Office for National Statistics. However, the number of people claiming out-of-work benefits fell by 10,200 between January and February to 1.44m, and the improvement in this more timely measure will raise hopes that the labour market is beginning to thaw after December's freezing weather brought the economy to a halt.

Unemployment declined for much of 2010 as the economy clambered out of recession, but began to deteriorate later in the year as GDP growth slowed and the government's spending cuts took their toll on employment.

The OECD's secretary-general, Angel Gurría, praised the government's austerity measures, urging Osborne to "stay the course". "The package that was put together here has cleared the market," Gurría said. "It had the necessary credibility; it had enough information and detail, and at the same time enough conviction and determination." He added: "Inaction would have been much worse."

However, the OECD warned that recovery would be "subdued" over the next two years as the spending cuts depress demand. Its forecast for 1.5% growth in 2011 and 2% next year is considerably weaker than the projections from the Office for Budget Responsibility on which Osborne based last autumn's spending review. The OBR is expecting GDP growth of 2.1% this year, and 2.6% in 2012.

There was good news in the jobless figures for the "doves" on the Bank of England's monetary policy committee who have been resisting an interest rate rise.

The ONS said pay was growing at an annual rate of 2.3% including bonuses. That was a jump from December's 1.8%, but still well below inflation, which is running at 4%. Excluding bonuses, underlying annual wage growth was 2.2%.

A rash of bumper pay deals would support the argument of the hawks, who believe interest rates should be raised to clamp down on inflation.

"Weak wage inflation will buy time for the Bank of England's monetary policy committee while it evaluates the underlying growth momentum," said Chris Williamson, chief economist at research group Markit.

The unemployment figures showed that young people are continuing to bear the brunt of job losses, with 974,000 16-to-24-year-olds now out of work – the highest number since comparable records began in 1992, and an increase of 30,000 over the previous three months.

At the same time, workers at the other end of their careers are clinging on to jobs, to compensate for the lower-than-expected value of their pension pots. The number of over-65 year olds remaining in work has increased to a record high of 900,000, according to the ONS, up 56,000 over the quarter.