George Osborne came under mounting pressure to change his economic strategy after unemployment rose to 2.57 million yesterday, its highest level for 17 years.
Labour said the gloomy figures showed the Government's policies were hurting but not working.
The opposition's calls for the Chancellor, pictured, to slow the pace of spending cuts were endorsed by Christopher Pissarides, the London School of Economics professor who won the Nobel Prize in economics last year.
He told the New Statesman magazine Mr Osborne (pictured) was being "inflexible" and warned the cuts could "slow the recovery and may even cause a double-dip recession".
In a highly-charged Commons debate, Ed Balls, the shadow Chancellor, clashed with Mr Osborne as he repeatedly asked him how long he would stick to his strategy before adopting the more flexible approach the International Monetary Fund said may be necessary.
"Plan A is not working, the markets know it," said Mr Balls.
But the Chancellor refused to countenance a change of course. Claiming that delaying the cuts would do more harm than good, he produced new Treasury figures showing that a 1 per cent rise of interest rates would cost families £10bn a year in higher mortgage payments. He said the Government was "sorting out the mess that we inherited", which could not be done overnight.
Yesterday's figures from the Office for National Statistics (ONS) show that the number of over-65s in employment fell by 74,000 in the three months to August – the biggest drop in employment among that age group since records began in 1992.
The default retirement age ended on 30 September, fuelling speculation firms got rid of older workers before the deadline.
Michelle Mitchell, charity director of Age UK said: "The indications are that the dramatic fall is the result of many employers rushing to use the final months of the default retirement age to fire staff for no reason other than they are aged over 65."
But Nick Palmer of the ONS said the likely explanation is that many of those over-65s work part-time and in the public sector, where most jobs are being shed because of the cuts.Reuse content