Britain is heading for a “collapse of sterling” if Gordon Brown persists with trying to borrow his way out of trouble, George Osborne says in an interview with The Times today.

Risking accusations that he is talking down the pound, the Shadow Chancellor mounts a ferocious attack on the Prime Minister, accusing him of following a deliberate “scorched-earth policy” that would leave the economy in a mess for the Tories to inherit.

Mr Osborne, ignoring the convention that senior politicians do not predict runs on the pound, says that the country knows instinctively that no government can borrow its way out of debt. He claims that the weight of debt will stifle recovery and also create a big risk for sterling.

“Sterling has devalued rapidly against the euro and the dollar. We are in danger, if the Government is not careful, of having a proper sterling collapse, a run on the pound. The danger of a run on the pound . . . is that it pushes up long-term interest rates, which is a huge burden on the economy. The more you borrow as a government the more you have to sell that debt and the less attractive your currency seems.”

The Shadow Chancellor’s warning of dangers to the pound came as sterling remained under intense pressure on currency markets.

The pound yesterday slipped to a 13-year low against a basket of other currencies. The dollar rate fell to below $1.48 and the euro rate to €1.17, a record low, capping its biggest weekly fall against the single currency.

Mr Osborne, fighting back after recent criticism of his performance as Shadow Chancellor, and of his involvement in the Corfu yacht affair, makes plain that his role is not being diminished and that he will continue to mastermind his party’s general election strategy.

He insists that he will be instinctively opposed to any “unfunded tax cuts” to be unveiled by Alistair Darling in the PreBudget Report on Monday week. But, with Mr Brown having declared in advance that the stimulus to be announced in the PBR will be unfunded, he leaves open the door to allowing through such tax cuts, as many on the Right of his party are urging him to do. He says: “What we are in favour of is funded tax cuts. I’m in favour of real tax cuts not tax cons.” But he then adds: “I’m not going to prejudge the PreBudget Report. I’m going to wait and see what he has to say.”

Mr Osborne suggests that Mr Brown “doesn’t care” how much he borrows. “His view is he probably won’t win the next election. The Tories can clear this mess up after I’ve gone. That is deeply irresponsible. It’s a scorched-earth policy, which I think the history books will write up as a total disaster and which the public will see through between now and the election.”

Mr Osborne responds to the criticism that he is too remote from backbench Tory MPs by saying that his “door is completely open” to anyone who wants to talk to him. Asked whether he would move to another job he says: “David Cameron decides who is in the Shadow Cabinet and what jobs we do. But we are working very closely together on economic policy not just for now, but for the election to come.”

Meanwhile, Mr Brown hinted yesterday that he will raise tax credits for the low paid as part of measures to kick-start the ailing economy. He also made an implicit criticism of the Bank of England for not lowering interest rates more quickly and suggested further cuts were “essential”.

Addressing the Council of Foreign Relations in New York the Prime Minister said: “We need to make monetary policy work to better effect. There is scope, as the Governor of England has said, for further reductions [in interest rates]. It is an essential element of what we are doing.”

The British Chambers of Commerce also sounds a warning over the threat to the pound today. In its latest economic forecast, the BCC says that were markets to come to see likely sharp rises in public borrowing as reckless the pound “may plummet to dangerous new lows”.

Times Recommends

• Times Christmas appeal: Letter from the Editor
• Conferences — what a waste of money
• Schools supremo learns a painful lesson