Senior Tories see gain after spending pain

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George Osborne has said the Conservative Party is "deadly serious" about dealing with the country's £175bn deficit.

In an interview with the Times, the shadow chancellor also revealed that the Tory leadership has held private talks with international credit-rating agencies.

He told the newspaper that preserving Britain's AAA rating was "incredibly important for our international reputation and for the cost of our debt".

"We must do what we can - if we are elected - to preserve that rating. I think there will be a lot of pressure on a government early on to be able to demonstrate they have a credible fiscal plan," Osborne added.

He said that the government was holding similar talks with the agencies.

Osborne confirmed that a Budget would be held soon after an election victory to "reassure domestic business and international investors that this country can pay its way".

And the shadow chancellor rejected criticism that confronting the nation about the need to cut borrowing was electorally damaging.

"Look, this is the real world. And the real world is that these things are being discussed," he said.

"I don't see preparing for the Budget as somehow entirely separate from persuading the public to put us into office, because they are closely linked."

He added that three agencies - Moody's, Fitch and Standard & Poor's - all had concerns about Britain's ability to pay off its record debts.

Osborne also told the Times that the package he set out on Tuesday, which he claimed would trim £23bn from the deficit, was "not the whole solution".

A Conservative government would slash "tens of billions" from Whitehall budgets after the election.

Asked whether he would bring in a windfall tax on the banks, he said: "I am absolutely clear that the money provided by the taxpayer should not be distributed in excessive profits and excessive pay and bonuses."

"We reserve the right to take action through the tax system. The credit crunch may be coming to the end in the City, it's not coming to an end in places like Manchester. The banking system is not functioning normally."

Meanwhile, shadow chief secretary to the Treasury Philip Hammond told the Financial Times that Britain could suffer "a couple of years of significant pain" before the economy fully recovers.

He said that the Conservatives would axe more than 20,000 jobs in Whitehall and its quangos.

Hammond continued: "Nobody likes to be told that there's going to be a couple of years of significant pain for everybody, but we are being honest with people and the prize is great."

The shadow Treasury chief secretary said that within five years Britain could see similar growth rates to that of the mid 1990s, when the economy grew by an average 3.4 per cent a year.