The chancellor, George Osborne, has set out dramatic plans to move Britain from the red into the black that will see public spending as a percentage of GDP fall to its lowest level since the 1930s and could require cuts in non-protected departments such as police, local government and justice amounting to a further £60bn by 2019-20.

The plans, according to the Treasury spending watchdog, the Office for Budget Responsibility, also presume the loss of a further one million public sector jobs by 2020, a renewed public sector pay squeeze and a further freeze on tax credits.

The scale of the implied spending cuts required to drive the country into a surplus of £23bn by 2019-20 in part prompted the Liberal Democrat business secretary, Vince Cable, to write two weeks ago to ask the OBR to distinguish in its forecasts between the spending plans agreed by the coalition up to 2015-16 and any spending projections after that date which could only be an assumption about tax and spending policy.

Cable described the Osborne plans to bring public spending down to 35 % of GDP as “wholly unrealistic”.

Among the measures in a politically-dominated autumn statement was a surprise shakeup of stamp duty, with an increase in rates levied on the most expensive properties designed to trump Labour’s plans for a mansion tax six months before the general election.

Osborne claimed 98% of home-buyers would pay less stamp duty as a result of the changes, which, from midnight on Wednesday night, axed the big jumps in tax currently triggered when the cost of a home moves into a higher band.

Under the new system, based on income tax bands, home buyers will pay no stamp duty on the first £125,000 of a purchase, then 2% up to £250,000, 5% up to £925,000, 10% up to £1.5m and 12% on everything above £1.5m. Anyone buying an “averagely priced” home worth £275,000 would pay £4,500 less in tax.

The chancellor also unveiled a crackdown on tax avoidance, including a so-called Google tax aimed at multinational companies that shift their UK profits offshore, and revealed a less generous regime for banks to use past losses to cut their current tax bills.

Cable’s unprecedented letter, sent on 24 November on his own initiative, was designed to assert the independence of Lib Dem macro-economic policy after the election. However, the OBR rejected his plea, saying it did not have the statutory power to distinguish between the spending plans of individual coalition parties.

Cable argued the public faced different choices over the way tax rises, spending cuts and welfare could reduce the deficit and added: “It would be very helpful if the OBR were to say what the consequences were of different mixes and options, then we have got the evidence to have an informed debate”. He has asked to meet the OBR to talk through the consequences. He also laid out this concerns at Wednesday’s cabinet meeting.

Robert Chote, the OBR chairman, conceded the projections sent to him by the Treasury meant there would have to be a “very sharp squeeze” on spending in the next parliament. He added that so far the UK has seen 40% of the necessary cuts in this parliament and the next 60% would come under the next parliament.

The OBR says spending on public services as a share of gross domestic product is set to fall by considerably more over the next five years than it did over the last five years, accounting for the lion’s share of the shift from a budget deficit of 5% of GDP to a surplus of around 1% of GDP. The OBR says that spending in non-protected departments will fall from £147bn in 2014/15 to £86bn in 2019/20 – on top of all the cuts to spending in recent years.

Nick Clegg, the Lib Dem leader, decided to stay away from the Commons for the day so as not to be pictured alongside Osborne, instead travelling to the south west to campaign with his aides.

In a further twist, Lord Palumbo, the Lib Dem peer and its chief donor will use a speech on Thursday to condemn a political system that has seen public debt spiral, and the deficit. “There’s no sanction for the government having missed all its economic targets without penalty in modern democratic politics,” he will say. “What are instantly sackable offences in the private sector are excused. We were promised a deficit of £35bn this year. It’s at £100bn.”

Osborne admitted: “There are going to have to be very substantial savings in public spending”, but did not give any details of the numbers.

The plausibility of the cuts will raise questions about whether a VAT rise will be necessary after the election. The Conservatives said some of the departmental cuts could be reduced once welfare savings and tax avoidance measures are taken into account.

With weakness in tax receipts set to increase the size of the deficit by £25bn during the next parliament, the OBR said the only way Osborne could balance the books would be through shrinking the state to a level not seen since before the Second World War.

“Total public spending is now projected to fall to 35.2% of GDP by 2019-20, taking it below the previous post-war lows reached in 1957-8 and 1999-2000 to what would probably be its lowest level in 80 years”.

The OBR warned that the scale of the projected spending cuts – which would leave public spending per head of population cut be a third during the 2010-2020 decade – would lead to slower growth from 2016 onwards and require the Bank of England to boost activity at a time when interest rates were at rock-bottom levels and the outlook for UK exports was weak.

“The government’s fiscal plans imply three successive years of cash reductions in government consumption of goods and services from 2016 onwards, the first since 1948”, the OBR said. “The corresponding real cuts directly reduce GDP. The economy should be able to adjust to such changes over time, but it is unlikely to be a simple process when monetary policy is already very loose and external demand subdued.”

Osborne’s room for manoeuvre was constrained by a deterioration in the public finances since the budget in March. The deficit this year is now forecast to be £91.3bn, against £86.4bn in March. In 2010, the chancellor said borrowing would be less than £37bn by the end of the current parliament.

“Britain is on course for surplus, on course for lower taxes, on course for more jobs, on course for higher growth, on course for a truly national recovery,” Osborne said. “A long term economic plan, on course to prosperity.”

He used his limited scope for giveaways to target key electoral groups. He announced a small increase in the tax-free personal allowance to £10,600, which for the first time since 2010 will be passed on to those paying the 40% and 45% rates of income tax. Savers will benefit from tax free inheritance on ISAs and children will pay no air passenger duty if they travel in economy class.