The Chancellor hit back after the loss of the country’s prized AAA credit rating amid worries about weak growth and rising levels of debt.
He faced political flak after repeatedly stressing the importance of staving off any downgrade, vowing before the 2010 general election: “We will maintain that AAA rating.”
However, Mr Osborne said Moody’s, the ratings agency which took the decision, had sent out a “clear message” that Britain had a debt problem which needed to be tackled “head on” and which required “tough measures”.
He is expected to use next month’s Budget to do more to help hard-pressed businesses.
Conservative MPs expect the main rate of corporation tax, already cut to 21p from 2014, to be further reduced.
The special rate for smaller enterprises could also come down from its current level of 20p as Mr Osborne looks to create the most favourable tax regime for business of all G20 nations.
Further Government spending cuts are also under way as Mr Osborne grapples with the deficit.
He is already looking to achieve at least £10billion extra savings from welfare spending in 2015-16 - and sources close to him indicated this programme would be driven through with conviction.
Mr Osborne will look to use the Budget next month to spell out how much extra savings need to be achieved - and then spell out exactly how this will be done in the Spending Review, which will set detailed totals for government departments from 2015 to 2017, in early summer.
A source close to him said: “If people don’t want cuts to public services such as the police and the armed forces they have to accept that there need to be savings elsewhere.”
Three senior cabinet ministers - Theresa May, the Home Secretary, Chris Grayling, the Justice Secretary, and Philip Hammond, the Defence Secretary - are currently said to be digging their heels in during intense negotiations ahead of the Spending Review.
Mr Osborne appears unlikely, however, to meet the wishes of some Tory MPs who are urging the abolition of capital gains tax.
A Treasury source said: “We must get away from the illusion that there is a silver bullet that would end all our economic problems.”
In a BBC interview, the Chancellor said Britain’s situation would get “very much worse” if the coalition abandoned it efforts to deal with Britain’s debt mountain - a course of action he said Labour were advocating.
Question on the credit rating downgrade, Mr Osborne said: “I think we’ve got a very clear message, a loud and clear message that Britain cannot let up in dealing with its debts, dealing with its problems, cannot let up in making sure that Britain can pay its way in the world.
“What is the message from the ratings agency? Britain’s got a debt problem. I agree with that. I’ve been telling the country for years that we’ve got a debt problem, we’ve got to deal with it.
“What do they also say? That if we abandon our commitment to deal with that debt problem, then our situation would get very much worse and I’m absolutely clear that we must not do that.
“In the end, the test of our credibility as a country is there every day in the markets when we borrow money on behalf of this country from investors all around the world.
“At the moment we can do that very cheaply with very low interest rates precisely because people have confidence that we have got a plan, we’ve got to stick to that plan and we are going to deliver that plan.”
While Labour went on the attack, the party faced questions of its own after Ed Balls, the shadow chancellor, admitted borrowing would now be higher if he were in charge.
Mr Balls told Radio 4: “The economy has flatlined. There has been no growth now for two years, our deficit is getting bigger... the plan has not worked.”
In a separate interview, on Sky News, Mr Balls insisted that the economy would be in a better condition if the coalition had stuck to Labour’s spending plans in 2010.
However, he admitted he would currently be increasing borrowing if he was in charge.
“That is what I would do right now,” he said. “I would slow the pace of deficit reduction. I would have an immediate stimulus in the economy.”
In the wake of the shadow chancellor’s interview John Penrose, the Conservative MP, demanded: “Can anyone think of a question where Ed Balls’ answer would not be 'borrow more money’? No? Me neither.”
Andrea Leadsom, a Conservative member of the Commons Treasury select committee, said: “Labour will no doubt claim it’s all the government’s fault. The truth is Labour brought our country to its knees.
"Labour want us to spend more....it was excessive spending that got us into this mess and anyone who calls for yet more borrowing and spending must be off their rocker.”
Mark Littlewood, director general of the Institute of Economic Affairs, said Mr Osborne should now take “immediate action” to cut the deficit.
“George Osborne should focus on making sufficient savings in public spending to implement a substantial programme of tax reductions,” said Mr Littlewood.
“With the size and scope of the state in Britain at current levels it is no wonder our economy is so fragile.”
Moody’s said it had acted to downgrade Britain for the first time because of “continuing weakness in the UK’s medium-term growth outlook”, the risk that the Government will fail to hit its targets for reducing the deficit and the UK’s “high and rising debt burden”.
However, Moody’s predicted that on its current course, the UK will eventually regain its AAA status.
Danny Alexander, the Liberal Democrat Chief Secretary to the Treasury, said the downgrade was “disappointing news.”
However, he added: “Our credibility as a country is tested every day in the financial markets. We continue to command very low interest rates.
Credit ratings agencies were not the “be all and end all” but “one benchmark among many,” Mr Alexander added.
Reading this stuff makes me feel so angry these days. I'm grinding my teeth here. Mark Littlewood of the IEA seems to be a very intelligent person, but he is is purposely playing dumb in regards to his (or most certainly the IEA's) policy on economic recovery. He knows full well that cutting corporate tax will not help the economy. He knows that it will only help corporations get richer.
Mark Littlewood knows full well that cutting public spending, namely welfare benefits, will not aid the economy. He knows that it will only make the poor even poorer. As there are a lot of poor people in the UK, making up a large percentage of the population, it means that there will be less money available to spend, and therefore, less money being paid into the economy.
In summary, it would appear that Mark Littlewood's policy has no intention of aiding economic recovery at all. Indeed, one might conclude that it has purposely been designed to do the complete opposite - that is, break the economy, and to break the power held by a large consumer group. To be too unkind to Mark Littlewood is perhaps a little unfair, as after-all, he is nothing but a shill. shill(shl)Slang
One who poses as a satisfied customer or an enthusiastic gambler to dupe bystanders into participating in a swindle.
v.shilled, shill·ing, shills
To act as a shill.
1. To act as a shill for (a deceitful enterprise).
2. To lure (a person) into a swindle.
So, who the hell are the IEA (Institute of Economic Affairs) anyway? What type of "libertarian" think-tank purposely dreams up a scheme to break down and hurt a society? One that works only in the interests of corporations, that's who. This of course is by no means a new phenomena. It's been going on for centuries:
"The governments of the present day have to deal not merely with other governments, with emperors, kings and ministers, but also with the secret societies which have everywhere their unscrupulous agents, and can at the last moment upset all the governments' plans. "
British Prime Minister Benjamin Disraeli, 1876
There is a very telling quote which is often taken from Woodrow Wilson's book "The New Freedom"(1913). Oddly, he not only talks of men of commerce being afraid of something, but apparently afraid of one person in-particular:
Since I entered politics, I have chiefly had men's views confided to me privately. Some of the biggest men in the United States, in the field of commerce and manufacture, are afraid of somebody, are afraid of something. They know that there is a power somewhere so organized, so subtle, so watchful, so interlocked, so complete, so pervasive, that they had better not speak above their breath when they speak in condemnation of it.
When are we going to make these corporations stop in their strong arm tactics of government? A more constructive question perhaps would be to lead, not with "when" but "how"?