If Labour forms the next government, who will be the most hated man in the cabinet? A leading candidate for that unenviable role is Chris Leslie, the MP for Nottingham East. It will be nothing personal. He is a smart and pleasant individual. The "baby of the House" when he first entered parliament in Tony Blair's 1997 landslide, he has grown into one of the more credible, persuasive and forward-thinking people in Labour's ranks. The unpopularity that awaits him will be professional. If he moves into the job that he is currently shadowing, he will become the chief secretary to the Treasury, the man who holds the purse-strings.

When his colleagues want to spend money on what they identify as good causes, and it is the default instinct of Labour people to search out good causes and spend on them, he will be the man who has to deny them their dreams. Actually, this nice guy is going to have to be much nastier than that. He will have to laugh at his colleagues' dreams. He will have to tear up their dreams and stamp them in the dirt. And he will have to do so without mercy. He will be the abominable no-man who has to tell a Labour cabinet that they will have to cut spending, cut often and cut deep. As he noted in a recent speech: "The settlements we will need to make following the general election will be the toughest faced by an incoming Labour government for a generation."

Far from everyone on the Labour side grasps this. Some sort of appreciate that there will be hard choices to make, but have yet to fathom just how difficult it is going to be. Some know it, but are reluctant to talk about the cuts Labour would have to make for fear of jeopardising their slender poll lead. And then there are those who simply don't want to face it, which may help to explain why such a miserably small proportion of voters think Labour is capable of taking tough decisions. But Mr Leslie speaks to the brutal truth: no previous Labour government will have inherited such a horrendous fiscal position. And it is better that Labour faces up to this rather than try to deceive the voters before the election or wait to be surprised after it.

The daunting size of the deficit, the all-consuming subject during the early years of this parliament, has largely dropped out of the national conversation. The issue has lost its sizzle. This is partly because the media have got bored with the subject. And partly because, as we enter the pre-election phase, most politicians prefer to be in the upbeat business of trying to sell sunbeams rather than levelling with voters about the awful state of the national finances. With growth going up and unemployment coming down, you could be fooled into believing that austerity is behind us.

The moment is deceptive. For whoever wins the next election, the biggest fact of life will be the deficit. The gap between what the government is taking in and what it is spending remains very wide. George Osborne likes to boast that he is on course for halving the deficit, a brag that conveniently forgets that, according to his original 2010 plan, the chancellor was supposed to have had it eliminated by the end of the coalition's term. As things have turned out, whoever wins the next election is projected to inherit a deficit of nearly £80bn. Even once that is cleared, the national debt is forecast to be around £1.5tn. That will be a straitjacket on government for many years. High levels of debt mean substantial debt-interest payments. Paying for borrowing will be the third-largest cost to the government after spending on welfare and health. And that drain will grow larger with increases in interest rates.

Labour likes to mock the chancellor for missing what was his single most important target, but it is also a cause for Labour regret that Mr Osborne hasn't been more successful at delivering on his original plan. There's the paradoxical threat that the Tories will flip their failure into a danger for Labour by making a big election issue of deficit reduction. They will do so because the Tories enjoy a substantial polling lead when people are asked which party is most convincing on the issue and because they know that attacking Labour as "the party of borrowing" has resonance with swingable voters.

It also means that a Labour government would inherit the task of clearing the deficit. Because we can't be sure exactly how the economy will perform, we can't put an absolutely precise number on the scale of the spending squeeze required. At the moment, all the parties are talking in generalities; none is specifying where further cuts will fall. That's not surprising. Because whoever wins the next election, the spending cuts in the next parliament will be more severe than those in this.

Governments can always find money to fund their favoured causes by switching spending from one thing to another. Many of Ed Miliband's leftish-populist promises – the energy price freeze or cap on rent rises – have been carefully designed not to require more spending. Labour would also hope to raise extra revenues from tax rises targeted at the wealthy: the restoration of the top rate to 50p, the mansion tax and more cash levied from the banks. Some doubt that they would bring in all the money that Labour assumes. Even if they did, it wouldn't be anything like enough to bridge the gap.

Before Christmas, Eds Balls and Miliband announced a "zero-based" spending review in which Labour would scrutinise every pound spent by government to determine whether it could be justified. On the surface, nothing much has happened since. Behind the scenes, Mr Leslie has been quietly going around the shadow cabinet asking Labour's senior team to specify their priorities and identify items and areas where spending cuts can be found. This exercise would not have had the co-operation of the shadow cabinet without the support of both the Labour leader and the shadow chancellor.

That it has had. Those close to him say Ed Miliband is "very exercised" about the onslaught that the Tories will unleash on Labour, an onslaught that will be designed to stamp Labour as a party of reckless spendthrifts. Exercised he should be when all the polling suggests that Labour is acutely vulnerable in this area. Ed Balls can't be happy with the solid advantage enjoyed by the Tories when voters are asked to say which team they regard as the most economically competent. During last week's Queen's speech debates in the Commons, the shadow chancellor renewed his proposal that all the parties should subject their tax, spending and borrowing numbers to pre-election audit by the Office for Budget Responsibility. Something like this happens in many other European countries. It is a good idea. Independent inspection of everyone's figures would offer the hope that the next election might be a debate about who has the right priorities, rather than a foggy battle between rival sets of dodgy maths. But there is no way George Osborne is going to agree. If the OBR were to inspect Labour's numbers and pronounce them plausible, that would wreck the chancellor's game plan to paint the two Eds as the last of the irresponsible big spenders. Labour will have to look to other respected independent bodies, such as the Institute for Fiscal Studies, for certification. "We can't just assert that our sums add up. People won't take it from us," observes a senior Labour figure. "We need others to say that we are credible." To gain that credibility, it is imperative for Labour to have a plausible plan for dealing with the deficit and it won't be so unless Labour starts to itemise where it will cut to balance the books.

The purpose of the Leslie interrogation of the shadow cabinet was threefold. An element of it was intelligence gathering to discover whether members of the shadow cabinet are informed about the departmental budgets they would take over. I hear that the scorecard is a bit mixed. Some of the putative Labour cabinet demonstrated an impressively intricate knowledge of where money is being spent. Others were fairly clueless. The second and most practical purpose was to start identifying potential cuts that a Labour government could make. The shadow chief treasury secretary has recently presented his preliminary findings to both Mr Balls and Mr Miliband. Some of the cuts are likely to cause anguish within Labour's ranks, especially to those still suffering under the illusion that a Labour government will mean milk and honey flowing through the streets.

The final, and arguably the most important, purpose of the Leslie exercise has been psychological. Many Labour people would rather not worry about what may face them in government until they are there. Says one of his colleagues: "It is Chris's job to scare the shit out of us about what we will face if we win the election and the sort of decisions that we will have to take very shortly after moving into office."

This is going to be tough for Labour, exceptionally tough, but it is absolutely essential if it wants to approach the next election with any confidence. Labour won't win power over the people's money unless it is trusted with the people's money.