Formal budget negotiation meetings between the Treasury and spending departments have not yet started, though Treasury ministers meet their colleagues regularly on a range of issues, he said.
Speaking at an event organised by the Institute of Economic Affairs (IEA) this morning, Tory MP Kwasi Kwarteng floated the idea of tax breaks for new business start-ups.
He said: "If you look at what is happening in America they are actually cutting spending... in a very hands-on, engaged way.
"They do what it takes, to use an American expression. Unfortunately we have not seen massive spending reductions in Britain."
The Spelthorne MP went on: "We are still borrowing £120bn. We are not in a fit state to be spending money in this way.
"We have got to address this. If we do not, we will have another government which will probably not address it and we will end up being a basket case.
"I am quite happy to say that publicly. This is a big, big problem. And unless we actually can man up and deal with it, I think we have got big problems ahead of us.
"We will either try to inflate our way out of it, which will cause absolute devastation, or I cannot really see any way out."
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