The Chancellor has ruled out an increase in public spending and unfunded tax cuts, warning: "You can't borrow your way out of debt."
George Osborne addressed the Conservative Party conference in Manchester and said the deficit reduction policy would not change.
"Borrowing too much is the cause of Britain's problems, not the solution," he said.
"We would be risking our nation's credit rating for a few billion pounds more, when that amount is dwarfed by the scale and power of the daily flows of money in the international bond markets, swirling around ready to pick off the next country.
"Conference, we will not take that risk. We are in a debt crisis, it is not look a normal recovery. You can't borrow your way out of debt."
He added: "I'm a believer in tax cuts - permanent tax cuts paid for by sound public finances.
"Right now, temporary tax cuts or more spending are two sides of exactly the same coin, a coin that has to be borrowed - more debt that has to be paid off."
Turning to the UK economy, he said: "We have to get credit flowing in this economy...we need to inject more money into small business."
He called for a system of "credit easing" for those companies failing to make ends meet and pledged to be as tough as on tax evasion as benefit fraud, adding: "We are all in this together."
Mr Osborne also said council tax bills will be frozen for a second year - saving the average family £72.
But union bosses say the moves will fail to kick-start the economy.
Dave Prentis, from Unison, said: "The Tories are playing to the gallery.
"They have found millions by making public sector workers tighten their belts - workers who have had their pay frozen for two years and are being forced to pay more for a smaller pension.
"These workers are council taxpayers too."
Shadow Treasury minister Chris Leslie accused the Chancellor of "re-announcing" a commitment to freeze council tax that he first made three years ago.
"Out-of-touch ministers don't seem to understand that people are struggling with rising prices and energy bills now, but this policy means no help for another six months," he said.
"And it would mean just £72 for a typical household, which is a fraction of the extra £450 a year the Tory VAT rise alone is costing a couple with children."
The Chancellor also announced a £200m boost for science and £150m for mobile phone masts as a stimulus to growth.
He said these moves would be funded from "eliminating waste and inefficiency" across Whitehall departments.
Earlier Mr Osborne told Sky News the key to the Government's economic policy remains debt reduction: "We are able to take measures - like on council tax - that can provide help for families.
"But the biggest help I can provide families is to sort out the British economy and sort out the mess that this Government inherited and above all keep interest rates down.
"Other countries like Italy and Spain are facing rising interest rates, and just a 1% rise in interest rates would add £10bn to people's mortgage bills."
The council tax freeze - to be paid for using around £800m of unspent cash from Whitehall departments - will be unveiled in Mr Osborne's speech to Conservative Party conference later.
The Government cannot force councils to freeze bills, but last financial year it offered to make up the difference for those which limited spending rises to 2.5%.
As a result, all local authorities in England either held or reduced council tax charges.
Prime Minister David Cameron has already promised to "fire up the engines of the British economy" with proposals to boost house-building and help council tenants buy their homes.
As many as 200,000 extra homes and 400,000 jobs could be created under the twin-pronged strategy, he said.
The opening of the Conservative conference was marred by a TUC-organised mass protest against cuts, which saw around 30,000 people take to the streets.
Protesters snaking around the Manchester Central conference centre could be heard chanting: "David Cameron on your bike, we want a general strike."