Gordon Brown was dealt an embarrassing blow last night when Brussels gave warning that Britain must do more to curb its spiralling debt.

The European Commission wants Labour to outline further spending cuts and spell out where the axe will fall.

The intervention, a week before the Budget, will electrify the debate over the economy. David Cameron promised in a BBC interview last night to fight the election campaign by going farther than Mr Brown in saying where cuts will be made.

The Commission is due to release its latest assessment of Britain’s plans to reduce the deficit tomorrow, but a leaked draft makes uncomfortable reading for the Prime Minister and Alistair Darling, the Chancellor.

It states: “The fiscal strategy in the convergence programme is not sufficiently ambitious and needs to be significantly reinforced.

"A credible timeframe for restoring public finances to a sustainable position requires additional fiscal tightening measures beyond those currently planned.”

It says that plans to cut spending in the current year are sufficient but raises doubts over official growth forecasts. It says that the size of the taxpayers’ stake in Britain’s banking sector is adding to worries over whether the Government can scale back its borrowing.

Figures on Thursday will show whether Britain has plunged farther into the red than the £178 billion Mr Darling forecast last December.

He has said that the Budget on March 24 will be sensible and “reflect the times in which we live”. Jobless figures due out tomorrow and the latest mortgage approval and house price data will also determine what room he has to manoeuvre.

He is expected to provide details on how Labour would meet its promise to halve the deficit over four years. Labour claims that the Tory pledge to cut the deficit faster would put the fragile economic recovery at risk.

Britain is liable for assessment by the European Commission because it breached EU stability rules, which say that debts cannot exceed 3 per cent of gross domestic product.

The Treasury pointed out that most of Europe’s leading economies were in a similar position, including Germany and France.