Ed Balls, the schools secretary, was on Monday slapped down by the Treasury after he claimed Labour could increase spending on health and education in real terms after 2011, as he sought to accentuate divisions with the Tories on public spending.

Mr Balls spent the day attempting to make political capital from an admission by George Osborne, shadow chancellor, that overall public spending would have to be cut regardless of which party wins the next election.

But Mr Balls, who had hoped to become chancellor in this month’s reshuffle, seemed to overstep the mark when he claimed that Labour could afford real-terms increases in school and hospital spending after 2011 if the economy picked up.

Speaking on BBC Radio 5 Live, Mr Balls said: “If we can get the economy right, as I believe we are doing, I think we can see spending on schools and hospitals rising in real terms after 2011.”

His comments brought an immediate clarification by Liam Byrne, the new Treasury chief secretary, who refused to echo Mr Balls’ assertion and appeared to confirm that the government’s own figures added up to real cuts in overall spending.

Mr Byrne said he did not think it was “plausible” to talk about the state of the economy in 2012.

Mr Balls wants to fight the next election by mapping out clear “dividing lines” between “Labour investment and Tory cuts”, but Monday’s confusion showed the problems facing the government.

The Institute for Fiscal Studies said the real choice facing voters was between “Labour cuts and Tory cuts” and that public spending was set to contract in real terms, once social security spending and debt interest were included.