Acknowledging the move would result in “pain” in the short term, Mr Osborne rejected adopting a tax-cutting model to encourage growth.

Mr Osborne endorsed the views of Bank of England Governor Mervyn King that in the next parliament there would have to be a “really significant reduction” in the deficit.

During the last day of Commons debate on the Queen’s Speech, independent MP Andrew Pelling (Croydon Central) asked whether the Tories would “go for growth” by adopting a “Reaganomic” policy of lower taxes.

Mr Osborne said: “I actually am not a believer in Reaganomics. I am a fiscal conservative, as is the leader of my party.

“I think the best comment on this that I have read recently came from Richard Lambert, the CBI director general.

“He said this: ‘History tells us that these fiscal deficits are really difficult nettles to grasp but if you grasp them in a clear and bold way then the pain lasts for a shorter period than if you simply and limply grab hold of them.”’

Mr Osborne said he agreed that with Mr Lambert that “two full parliaments” would be too long a period.

Chancellor Alistair Darling asked: “Do I take it, then, it is your policy to eliminate the deficit in one parliament?”

Mr Osborne said: “My view is the view shared exactly by Mervyn King.”

Mr King told the Treasury Select Committee “there has to be in the next parliament a really significant reduction in the deficit”, Mr Osborne said.

The Chancellor said: “I think the amount of borrowing has to be reduced by half but what I am concerned about is that we don’t get ourselves into a situation where we seriously damage the economy by removing support in a way that would damage businesses and enterprise.”

Mr Osborne told him: “If your concern is about seriously damaging the British economy I wish you had had that concern a couple of years ago.”

Mr Darling, he said, had not endorsed Mr King’s comments “so we have someone in charge of monetary policy and someone in charge of fiscal policy but we have no idea whether those two people agree with each other”.

Meanwhile, Mr Osborne welcomed the Walker review’s proposals to reveal the number of bankers being paid more than £1 million.

“Everyone wants to see the boards of banks do their jobs better and more fully understand the risks they are running.

“We don’t want to see a repeat of what happened at the Royal Bank of Scotland where an all-powerful chief executive went unchallenged, unchallenged by his own board, unchallenged by Government regulators and a Government that instead chose to knight him for services to banking.

“I have spoken to David Walker this week and we support his plans to shake-up the bank boards and improve their risk controls.

“We also support his proposals to make those firms disclose the number of people on high salaries in those banks.

“But what happened to all that talk from the Government that they were going to disclose people’s names as well?”

Mr Walker had said the idea, from Treasury Financial Services Secretary Lord Myners, was “not supported by a shred of evidence”.

Mr Osborne said: “When it comes to the Government and the banks, the public are entitled to ask why do the Government talk tough, make promises and then fail to deliver”.

He said the new Financial Services Bill would “do nothing fundamental” to alter the tri-partite regulation system that “failed Britain so spectacularly” because Prime Minister Gordon Brown had been the architect of that regime.

“He doesn’t want to admit he got it wrong,” Mr Osborne said.