Chancellor George Osborne insisted today he will not borrow money to pay for tax cuts.
Mr Osborne said that in the current economic circumstances it was "not worth running the risk" of higher interest rates by making tax cuts in the hope of stimulating economic activity.
His comments, to the House of Commons Treasury Committee, will be seen as a dig at his Labour shadow Ed Balls, who has called for a temporary cut in VAT to put money in shoppers' pockets and restore demand into the economy.
He is also coming under pressure from Conservative backbenchers and London mayor Boris Johnson to reverse the 50p top rate of income tax on earnings over £150,000 introduced by his Labour predecessor Alistair Darling.
Mr Osborne indicated that he might be ready to make cuts to specific taxes, so long as they are balanced by spending reductions and leave the Government's budget unchanged overall.
But he insisted MPs would have to wait until his Budget on March 21 to hear precise details of his plans.
Answering questions on his Autumn Statement, which painted a gloomy picture last week of Britain's prospects over the coming years, Mr Osborne insisted that the UK economy had not been permanently damaged by the banking crisis and recession.
"There has been no evidence to suggest permanent damage to the British economy from what has happened," he told the cross-party committee.
"There is plenty of evidence that the financial crisis has had a bigger impact than had previously been thought by anyone and that it is causing a more prolonged recovery than anyone would have hoped.
"I have not seen any evidence that there is permanent, forever, damage to the British economy."
Asked whether he would be ready to contemplate tax cuts if they can be funded by spending cuts elsewhere, Mr Osborne told the MPs: "Within the spending review totals, within the tax and spending totals we have set out, I have been perfectly prepared over the past couple of fiscal events to reduce some taxes or increase other taxes, to reduce spending or increase spending in different areas.
"What I am not prepared to do is borrow additional money in a discretionary way to fund a tax cut, because I simply think the risk you would be running with Britain's fiscal credibility at a time like this is not worth it."
A tax cut of the kind being advocated from some quarters would inject only around £1-£3 billion into the economy, while risking a 1% rise in interest rates that would cost mortgage-holders £10 billion and the Government £30 billion, he said.
"I don't think it's worth running the risk that that measure would have such a transformative effect, that you would hazard your chances out on the international debt markets with our country's interest rates to pay for that tax," said Mr Osborne.