David Cameron has rebuffed Tory calls to cut taxes and dismissed Vince Cable's suggestion the chancellor should borrow more, as he insisted his government would not and plough on with its current economic plan.
It came after Lib Dem business secretary Vince Cable suggested the government should consider changing direction and borrow money in order to revive the economy by investing in infrastructure such as road, rails and housing.
But Cameron dismissed the idea which is also backed by Labour. He warned it would jeopardise the nation’s finances as borrowing more would add to the deficit and ultimately lead to greater austerity . "It’s as if they think there’s some magic money tree," he said. "Well let me tell you a plain truth: there isn’t."
As well as pressure from the left, the prime minister is facing a challenge from the right-wing of his own party who, pointing to the fact borrowing is actually rising under the coalition, do not think current austerity measures go far enough.
On Monday a group of Conservative MPs told the prime minister to "man up" and cut taxes as well as bring in further “massive spending reductions" to bring down the deficit.
Cameron said:"Of course, there is a case for going even further – and making even more tax cuts. But the key point is this: you have to be able to fund them."
He told his backbenchers that he would not introduce unfunded tax cuts that would increase borrowing. "Most of the time tax cuts don’t completely pay for themselves," he said. "A tax cut paid for by borrowed money is no tax cut at all."
"This month’s Budget will be about sticking to the course. Because there is no alternative that will secure our country’s future."
Cameron also defended the motives behind his and Osborne's plan for the economy. "I know some people think it is being stubborn to stick to a plan, that somehow this is just about making the numbers add up with no care whatsoever for what it means for people affected by the changes we make," he said.
"But nothing could be further from the truth. My motives for sticking to the plan are exactly about doing the right thing to help families and business up and down the country."
Responding to the speech, Ed Balls said families across Britain "will wonder what planet David Cameron is on".
"He claims the economy is getting better and his plan is working, but everyone else knows that the economy is flatlining, living standards are falling and the deficit is rising to pay for the costs of economic failure," Balls said.
"Britain cannot afford another two years of falling living standards and economic failure. If David Cameron and his downgraded Chancellor won’t listen to Labour then it’s time they started listening to the IMF, Boris Johnson and now even Vince Cable who are calling for a change of course.”