In a key speech on the economy in advance of this month's budget, the prime minister said on Thursday that Britain had no "magic money tree" as he revived one of Margaret Thatcher's pronouncements to say the government would not change course.
"There is no alternative that will secure our country's future," Cameron said, and warned that increased borrowing would jeopardise public finances. Thatcher famously responded to calls for her to abandon her monetarist policies in 1980 by saying: "There really is no alternative."
Cameron also invoked the memory of Thatcher to dismiss calls from the Tory right for George Osborne to stimulate economic growth through unfunded tax cuts. "Margaret Thatcher understood that a tax cut paid for by borrowed money is no tax cut at all when she said: 'I've not been prepared, ever, to go on with tax reductions if it meant unsound finance.'"
Hours earlier, the deputy prime minister also poured cold water on Cable's calls for extra capital investment. Clegg said it would require a £20bn-£40bn expenditure and would risk pushing up interest rates.
Speaking on LBC radio, he said everyone supported extra capital investment, but added: "I am afraid there is no cost-free, risk-free, magic wand solution to this."
Cameron's speech in Keighley, West Yorkshire, was overshadowed by an article in the New Statesman magazine in which Cable argued that the Treasury should use record low interest rates to fund housing and infrastructure projects. The business secretary said such borrowing was "crucial" to promoting economic growth.
Downing Street and the Treasury said they were relaxed about Cable's article which was vetted by the chancellor's aides. But Cameron made clear in his speech that he was wholly opposed to increased borrowing, though he did not name Cable, focusing his criticism on Labour.
He said: "Those who think we can afford to slow down the rate of fiscal consolidation by borrowing and spending more are jeopardising the nation's finances and they are putting at risk the livelihoods of families up and down the country.
"Labour's central argument is exactly that. They say that by borrowing more they would miraculously end up borrowing less. Let me just say that again: they think borrowing more money would mean borrowing less. Yes, it really is as incredible as that …There's no magic money tree to fund this ever more wishful borrowing and spending."
Cameron was also highly critical of Tories on the right, such as the former leadership contender John Redwood, who are demanding tax cuts. Cameron said: "We are doing a great deal to help hard working families. But all of these changes have to be paid for – and they have been paid for.
"Getting taxes down to help hardworking people can only be done by taking tough decisions on spending. That is what we are doing in our plan. And this month's Budget will be about sticking to the course. Because there is no alternative that will secure our country's future."
But Ed Balls, the shadow chancellor, threw the prime minister's language back at him by pointing out that the lack of economic growth had forced the government to borrow more than it had planned. "He stole my magic money tree and he has been using it to borrow money ever since," he told Sky News.
The exchanges on the economy came as it emerged that Clegg has been given private polling data suggesting the Liberal Democrats can reach 20% of the vote at the next election, after a party donor gave the Liberal Democrats the chance to do some detailed polling on where its potential vote lies.
The party believes it is polling at about 12% and the rise will mainly come from the centre ground vacated by Cameron and by Labour's failure to define itself more clearly.
If the economy continues to flatline, the Tories will be blamed more than the Lib Dems, the polling suggests.
Clegg believes last week's Eastleigh byelection win shows the party can hold its seats.
He will tell his party's spring conference this weekend that he is happy for Ukip to take the transient protest vote since the Lib Dems are now a party of government.
But Tim Farron, the Lib Dem president, told parliament's House magazine that the party could not take even its survival for granted. He likened Lib Dems to cockroaches for their resilience.
Rolling out one of his favourite party conference phrases, Farron said: "We are a bit like cockroaches after a nuclear war, just a bit less smelly, we are made of sterner stuff".
He added: "The party is in a critical state. We may well be cockroach-ish, but we shouldn't take that for granted. One day someone will stand on us if we are not careful. We shouldn't assume our survival is guaranteed."
He regards the May county council elections as the acid test for the party. The Conservatives are defending the vast majority of the county council seats.
Clegg was astounded by the Conservatives' campaign tactics in Eastleigh, and believes Cameron faces a dilemma on whether to shift right to win Ukip votes, or try to stick with his promise to stand on the common ground.
But polling released by Lord Ashcroft, the former Tory deputy chairman, highlighted the electoral challenge facing the Lib Dems. The poll found that only 29% of those who voted for the party in 2010 – 5% of the electorate – would do so again tomorrow.
Ashcroft said: "After the Eastleigh byelection, Lib Dem activists will be relieved to think that, despite the polls, strong local government and an invincible leaflet-dropping network will see most of their incumbent MPs safely back to Westminster. But that is not the whole story. Localness matters, but a general election decides who walks up Downing Street.
"Clegg must have something to say about the Liberal Democrats and government. He must define his party's purpose."
The prime minster answered critics, who say that the recent downgrading of Britain's credit rating highlights the failure of the government's economic policy, by saying the decision by Moody's showed the need to tackle the nation's debt. Cameron said: "If we don't deal with it, interest rates will rise, homes will be repossessed and businesses will go bust and more and more taxpayers' money will be spent just paying off the interest on our debts.
"Even just a 1% rise in mortgage interest rates would cost the average family £1,000 in extra debt service payments. So there's not some choice between dealing with our debts and planning for growth."
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image: © Guillaume Paumier