Britain would be in "financial turmoil" if the Coalition abandoned its deficit reduction plan, and has no alternative but to follow it through, George Osborne warned today.
The Chancellor said no politician liked cutting spending and raising taxes, but the measures were necessary to clear up the "mess" that the previous Labour government left.
His comments came as his Labour counterpart Ed Balls called for a new economic strategy and described the relentless tax hikes and budget cuts as an "irresponsible and dangerous" political strategy.
Mr Osborne, who has this week been discussing financial issues at the World Economic Forum in Davos, Switzerland, told BBC's The Politics Show: "If on Monday I went to Parliament and got up in the dispatch box in the House of Common and said I am abandoning the deficit reduction plan that Britain set out last year, what do you think the reaction would be?
"Within minutes Britain would be in financial turmoil. I am not prepared to let that happen.
"It requires tough difficult decisions. No politician likes cutting spending and increasing people's taxes, but I was delivered a mess by the previous Government and I am trying to clear it up."
Mr Osborne was last week forced to defend the Government's tough austerity measures after statistics showed that the UK economy unexpectedly shrank in the fourth quarter.
The severe weather last month triggered a drop in demand for the key services sector, which makes up more than 75% of the economy, sparking a shock 0.5% plunge in gross domestic product between October and December.
Shadow chancellor Mr Balls described the figures as "shocking".
Writing in the Independent on Sunday he said: "While George Osborne insists it was the Big Freeze in December that caused the contraction, it is the impending Big Squeeze on family budgets and public services that is driving the collapse in confidence and holding back investment."
Mr Balls criticised the Chancellor's plan to clear the deficit by 2015, claiming there was "an economically more credible alternative to what this Conservative-led Government is doing".
He used the example of the American economy, which saw growth towards the end of last year, saying the UK should follow in the footsteps of its economic policy to get back on a stronger financial footing.
"The fact is that the US Treasury Secretary is right and George Osborne is wrong," Mr Balls said.
"In the US, there are still big risks and challenges ahead. But supporting job creation, reforming our financial systems and investing in jobs for the future is the best way to get economies moving again and to cut the deficit.
"Simply slamming on the brakes with drastic tax hikes and deep spending cuts is not a credible economic policy."
He continued: "When I hear George Osborne refuse even to countenance the idea of a Plan B, I can see no economic judgment at work at all - just a political gamble with the nation's economy. We badly need an alternative - and we need it now."