PM refers to Thatcher tax-cut stance as he warns extra government spending would jeopardise public finances
David Cameron has slapped down a call by the business secretary, Vince Cable, for increased government borrowing, warning that Britain had no "magic money tree" that would allow extra spending.
In a major speech on the economy ahead of the budget later this month, the prime minister said extra borrowing would jeopardise the public finances.
Cameron also used his speech to invoke the memory of Margaret Thatcher to dismiss calls on the Tory right for George Osborne to stimulate economic growth through unfunded tax cuts.
The prime minister said: "Most of the time tax cuts don't completely pay for themselves. Margaret Thatcher understood that a tax cut paid for by borrowed money is no tax cut at all when she said: 'I've not been prepared, ever, to go on with tax reductions if it meant unsound finance.'"
Cameron's speech in Keighley West Yorkshire was overshadowed by an article in the New Statesman magazine in which Cable argued that the Treasury should use record low-interest rates to fund housing and infrastructure projects. The business secretary said such borrowing was "crucial" to promoting economic growth.
Downing Street and the Treasury said they were relaxed by Cable's article which was vetted by the chancellor's aides. But Cameron made clear in his speech on Thursday that he is wholly opposed to increased borrowing, though he did not name Cable, focussing his criticism on Labour.
He said: "Those who think we can afford to slow down the rate of fiscal consolidation by borrowing and spending more are jeopardising the nation's finances and they are putting at risk the livelihoods of families up and down the country.
"Labour's central argument is exactly that. They say that by borrowing more they would miraculously end up borrowing less. Let me just say that again: they think borrowing more money would mean borrowing less. Yes, it really is as incredible as that …There's no magic money tree to fund this ever more wishful borrowing and spending."
Cameron was also highly critical of Tories on the right, such as the former leadership contender John Redwood, who are demanding tax cuts. Cameron said: "We are doing a great deal to help hard working families. But all of these changes have to be paid for – and they have been paid for.
"Getting taxes down to help hard working people can only be done by taking tough decisions on spending. That is what we are doing in our plan. And this month's Budget will be about sticking to the course. Because there is no alternative that will secure our country's future."
The prime minster answered critics, who say that the recent downgrading of Britain's credit rating highlights the failure of the government's economic policy, by saying the decision by Moody's showed the need to tackle the nation's debt. Cameron said: "If we don't deal with it interest rates will rise, homes will be repossessed and businesses will go bust and more and more taxpayer's money will be spent just paying off the interest on our debts.
"Even just a 1% rise in mortgage interest rates would cost the average family £1,000 in extra debt service payments. So there's not some choice between dealing with our debts and planning for growth."