The shadow chancellor, Ed Balls, is to give a binding commitment that a Labour government will be running a budget surplus by the end of the next parliament, putting himself under severe pressure to deliver big public spending cuts if the party wins the next election.

The significant move means that Labour will now face the dilemma of either raising taxes after the election or adopting a similar daunting level of cuts in day-to-day departmental spending already proposed by the chancellor, George Osborne.

The politics behind the statement, to be made in a speech to the Fabian Society on Saturday, underline the uphill battle that Balls and the Labour leader, Ed Miliband, have been waging to persuade voters that they will be tough on government spending, or that they have an economic plan for sustained recovery.

Balls, who is expected to make a major announcement on tax in the speech, will also promise to undo the fiscal rules that allow the coalition to commit itself to falling debt on a five-year rolling programme.

Balls, in internal discussions, has been keen to keep his tax-and-spend options open until as close to next year's general election as possible, but some party strategists are concerned that voter scepticism about Labour's economic message is hardening, and fear a commitment to fiscal rectitude just months before the election would be too late to shift perceptions.

In his speech, Balls will promise to legislate for new fiscal rules within 12 months of the general election, including a commitment to a budget surplus by the end of the parliament. While he has spoken before of an aspiration towards running such a surplus, he has never committed to a time frame.

He will promise: "The next Labour government will balance the books and deliver a surplus on the current budget and falling national debt in the next parliament. So my message to my party and the country is this: where this government has failed, we will finish the job."

He will point to the necessity of cuts saying: "Labour will inherit a deficit currently set to be nearly £80bn and the national debt still rising."

In the battle for advantage between Osborne and Labour on the economy, Balls has so far said he would match current Tory spending plans for 2015-16. His new commitment does not bind him to Osborne's cuts timetable, but he now has considerably less scope than before.

The Conservatives have promised to bring the current account into surplus in 2018-19, in part by reducing public spending as a proportion of national income from 46% in 2010-2011 to around 37% in 2018-19. Osborne has highlighted the need for an additional £25bn of cuts for 2016-17 and 2017-18, on top of the £20bn cut already announced for 2015-16.

Balls's new statement leaves Labour with some routes to differentiate itself from the Tories – higher capital spending, higher taxes to form a larger part of the deficit reduction programme and different spending priorities, including fewer welfare cuts allowing him to switch spending to favoured areas.

The Balls plan leaves it open for Labour to eradicate the deficit in the final year of the parliament while Osborne has said he will do it by 2018-19. Balls will argue in his Fabian speech: "We will get the current budget into surplus as soon as possible in the next parliament. How fast we can go will depend on the state of the economy and public finances we inherit.

"Without fiscal discipline and a credible commitment to eliminate the deficit, we cannot achieve the stability we need. But without action to deliver investment-led growth and fairer choices about how to get the national debt down while protecting vital public services, then fiscal discipline cannot be delivered by a Labour government – or, in my view, by any government." He will also repeat his offer to send his tax-and-spend manifesto plans for scrutiny to the government fiscal watchdog the Office of Budget Responsibility, a proposal yet to be accepted by Osborne.

Balls will also go on the attack, accusing the government of using misleading statistics to hide the living standards crisis. He will say that, far from government economic policy being vindicated, "simply to catch up all the lost ground since 2010 we need 1.5% growth each quarter between now and the general election. And Tory claims their plan is working are not going to wash with working people who are seeing their living standards falling and for whom this is no recovery at all. Because the current cost-of-living crisis is not just about people on tax credits, zero-hours contracts and the minimum wage. It's also about millions of middle-class families who never thought that life would be such a struggle."

Referring to government efforts to show that living standards are now rising, Balls will say: "In the last 24 hours David Cameron has gone from not wanting to talk about the cost-of-living crisis to effectively telling people they've never had it so good. A desperate attempt to use highly misleading and selective statistics to tell people they are better off when they feel worse off.

"It makes the Tories look even more out of touch than before."

"As the IFS has made clear, household incomes will be substantially lower in 2015 than in 2010. No amount of smoke and mirrors can allow David Cameron to wriggle out of this basic fact: hard-working people are worse off under the Tories".

A spokesman for the Conservative party said Balls's announcement was confirmation that a Labour government would lead to more capital borrowing and higher taxes.