The Chancellor has ruled out “tax and spend” policies ahead of her spring statement next week.
Rachel Reeves is under pressure to increase taxes or cut spending to meet the financial rules she set at the budget in October amid disappointing growth figures and higher-than-expected borrowing.
Figures released on Friday came as a further blow, showing that government borrowing had soared past forecasts in February.
She signalled that she would neither raise taxes nor Government budgets in an interview with the BBC.
“We can’t tax and spend our way to higher living standards and better public services. That’s not available in the world we live in today,” she said.
The defence budget has already been boosted by slashing spending on aid, and sweeping cuts to welfare were announced this week.
When she delivers her spring statement on Wednesday, Ms Reeves will be responding to new forecasts from the Office for Budget Responsibility made after the Bank of England reduced its forecasts for growth this year.
Public sector net borrowing was £10.7 billion in February, £4.2 billion more than had been forecast by the OBR.
Former Labour work and pensions secretary Lord Blunkett has urged the Chancellor to loosen her fiscal rules.
“I would like the Chancellor to loosen a little the self-imposed fiscal rules, this is Treasury orthodoxy and monetarism at its worst,” he told BBC Radio 4’s the Week in Westminster.
“I would lift them marginally. I would raise the self-imposed rule by at least £10-15 billion and I would spend a great chunk of it on what we did back in ‘97 with the new deal for the unemployed.”
Treasury minister Darren Jones denied the Government was “blindly cutting spending” and moving towards austerity earlier this week.
Government departments have been asked to go through their spending line by line.
Experts estimate that around a million people in England and Wales will lose their disability benefits as part of a welfare overhaul that the Government believes will save more than £5 billion a year by the end of the decade.
Ms Reeves told the BBC: “I recognise that with the privilege of doing a job like the one I’m doing today also comes a great deal of scrutiny. I absolutely believe that every policy that I announce, every pound of public money, of taxpayers’ money that I spend, and every pound that I take from people is properly scrutinised. That’s part of the job.”
