A raft of weak economic data has prompted George Osborne to warn he might be forced to impose further austerity in his Budget in two weeks' time.
The Chancellor made the comments in an exclusive interview with the BBC during his visit to China for the G20 meeting of global finance ministers and central bank chiefs.
Speaking to political editor Laura Kuenssberg, he said he wanted to "root our country in the principle that we live within our means" – and that negative economic readings and gathering threats to growth might necessitate a decision to "undertake further reductions".
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He did not spell out the details of any cuts that might be under consideration and stressed that decisions would only be made once the official assessments from the Office for Budget Responsibility have been supplied and reviewed.
However, Kuenssberg said it was "understood" any cuts would be modest and would take the form of further savings to non-protected government departments' spending.
Warnings over the faltering fiscal position facing Osborne have been circling since the turn of the year. The government remains behind its borrowing target – it would need a deficit of just £7bn across February and March, compared to more than £14bn last year, to hit a forecast fall – and wages and weaker growth continue to undermine individual and business tax receipts.
Separately, the Office for National Statistics revealed last week that in cash terms, the economy is around 1.5 per cent and two per cent smaller this year than the Office for Budget Responsibility had estimated last November. This means a supplementary target set by Osborne for debt to fall as a proportion of the economy is likely to be missed by £17bn, says the Daily Telegraph.
All of this adds to the case for tax rises or further cuts. Alongside additional savings on public spending, there are also rumours the amount of relief received on pensions' savings might be reduced for higher earners or that the taxation of pensions might be overhauled to an upfront system akin to Isas for new savers.
However, there is also the chance that Osborne is drawing triumphalist criticism from his opponents only to wrong-foot them later. He has form for this: he remained tight-lipped on how he was going to mollify opposition over tax credit cuts only to undertake a surprise U-turn at the Autumn Statement – during which he also shocked critics by easing the pace of cuts, enabled by savings on the cost of servicing government debt.
As market turmoil has continued, the interest rates on government bonds hit record lows this month, reducing these debt costs further and saving the government potentially more than £20bn over the next five years. It is conceivable this will allow Osborne to pull yet another rabbit from his hat on 16 March.
Shadow chancellor John McDonnell accused Osborne in comments to the BBC of having "sneaked off to China to admit what Labour have been saying for months - that his recovery is built on sand". He added: "Far from paying our way, Osborne's short-term economics means Britain is deeper and deeper in hock to the rest of the world."
