There will be no scope for any unfunded giveaways in this year's Budget, Chancellor George Osborne will say on Tuesday, warning that Britain needs to keep the trust of financial markets by sticking to its deficit reduction plan.
Osborne is facing growing calls from within the coalition government to ease up on the pace of fiscal consolidation to boost the faltering economy, and cut taxes to stimulate growth in his March 21 Budget.
In a speech to manufacturers on Tuesday, Osborne will say the budget deficit is still too high and will argue that any let-up in the plans could raise doubts on markets about the government's commitment to cutting borrowing.
Britain enjoys record low borrowing costs on its debts, despite having one of the highest budget deficits of any developed economy, helped in part by the Bank of England's massive bond purchases to stimulate the economy and by demand from investors seeking shelter from the crisis-hit euro zone.
I can tell you: we are not going to put that credibility and stability and low interest rates at risk, he will say.
The days of unfunded giveaways are over - they're not coming back in this budget. Everything has to be paid for.
The coalition government has staked its reputation on erasing a budget deficit that was a record 11 percent of gross domestic product when it came to power two years ago. But weak growth has already forced the government to admit it will take longer to achieve this goal.
MPs from the Liberal Democrat party have been calling for Osborne to scrap the 50 pence rate of income tax on the highest earners, and replace it with a tax on wealth.
Osborne is also facing a revolt over plans to remove child benefit - a universal payment that all families with children receive - from higher income households.
Osborne confirmed on Tuesday that the government's 20 billion pound credit easing scheme - an attempt to boost lending to small firms - will be launched before the budget.
Treasury officials said talks with lenders over the terms of the scheme were ongoing. The scheme aims to reduce the funding costs for banks which they can pass on to small firms, without the government having to take on any credit risk.
However, some larger banks say they do not stand to benefit from the scheme, raising questions about its viability.
(Reporting by Fiona Shaikh)