Ed Balls, the shadow chancellor, has moved to challenge accusations that Labour is not credible on the economy by telling the public sector unions that he endorses George Osborne's public sector pay freeze until the end of the parliament, and that he accepts every spending cut being imposed by the Conservatives.

His remarks on pay are likely to infuriate unions, including some of the party's biggest financial backers.

In an interview with the Guardian, Balls said: "It is now inevitable that public sector pay restraint will have to continue through this parliament. Labour cannot duck that reality and won't. There is no way we should be arguing for higher pay when the choice is between higher pay and bringing unemployment down.

"I know there will be some people in the trade union movement and the Labour party who will think of course Labour has got to oppose that pay restraint in 2014 and 2015. That is something we cannot do, should not do and will not do."

Additional pay restraint announced by Osborne in the autumn statement will save the Treasury an extra £600m in 2013-14 and £1.075bn in 2014-15. The chancellor said departmental budgets would be adjusted to assume an average 1% rise in both years, 1% below expected inflation. The chancellor imposed a total freeze in the previous two years.

Balls blamed Osborne's misjudgments for creating the need for additional restraint, and urged the Treasury to retain national pay review bodies.

He said: "Even if Osborne took our advice to kickstart the recovery, there are still going to be difficult choices to make. Jobs have to come before higher pay and that is why that restraint on spending and on pay is important for Labour."

But with Labour badly trailing the Conservatives on economic trust, he told the Guardian: "I admit that we have a big task ahead for the future to show that we are the people to take the tough decisions."

He tells his shadow cabinet colleagues that at this stage they have to work on the assumption that every coalition budget cut will have to be retained.

"My starting point is, I am afraid, we are going to have keep all these cuts. There is a big squeeze happening on budgets across the piece. The squeeze on defence spending, for instance, is £15bn by 2015. We are going to have to start from that being the baseline. At this stage, we can make no commitments to reverse any of that, on spending or on tax. So I am being absolutely clear about that."

Balls suggested it might take beyond 2012 for Labour to win back economic trust, and says he always expected the electorate to start to listen to the party around this stage of the parliament. "If we are seen as the people that are short-term, soft touch, give into vested interests, throw money at every problem of course we are never going to succeed."

He said Rachel Reeves, the shadow chief secretary, was looking at how waste can be rooted out in public spending; and that the shadow work and pensions secretary, Liam Byrne, was working hard on tough decisions with announcements soon on welfare.

Balls defended Ed Miliband's leadership of the party, saying that even Margaret Thatcher had a difficult first year as party leader.

He said: "The more the Conservative party becomes worried about the state of the economy, the more intense their focus on Ed Miliband will become."

Miliband also received enthusiastic support from the former Labour leader Lord Kinnock, who attacked his successor's critics within the party as "cowards". He told BBC Radio 4's The Week in Westminster: "In politics, division carries the death penalty and they must learn that. Because in the end it's their own chests they will stab as well as the back of the leader of the party."

Kinnock added: "Ed is highly intelligent. His intellectual strength is one of his greatest accomplishments. He is courageous … But a section of the press has decided that, for some reason, he doesn't fit the mould into which they want to pour him and consequently he is the subject of attacks."