Rachel Reeves: We will win battle to bring budget into balance

But it’s precisely because we on the centre left believe that active government along with good schools, hospitals and other public services can transform lives, and make our country fairer and more prosperous, that we must ensure we pass the test of fiscal credibility.

If we don’t get this right, it doesn’t matter what we say about anything else. Sound public finances will always be the indispensable platform for delivering better jobs, better services and a strong, growing economy.

What I want to demonstrate is that being trusted with the nation’s finances, and building a stronger, fairer Britain, are imperatives that are not only compatible; they are also inseparable.

For Labour, fiscal discipline is the absolute precondition for all that we want to achieve across every other area of policy. There are three key elements to our approach:

Targeted action to get the recovery back on track;

Tough decisions to control spending and fill the tax gap;

Reform to entrench fiscal sustainability.

On jobs and growth, our five point plan is a temporary and targeted stimulus to restore confidence, strengthen investment and raise employment – to get the growth we need to bring in the tax revenues and bring down the welfare bill. Some people have asked: how can your solution to the deficit be to borrow more? My answer is: it’s George Osborne that’s borrowing more – £158bn more than he said he would borrow.

But not borrowing to give a boost to businesses and people looking for work. Instead borrowing to fill the gap left by falling tax revenues, and the rising numbers of people out of work.

And because we can’t know now what state the economy or the public finances will be in at the time of the next election, we’ve been clear that we can’t make promises today about reversing cuts or tax rises – and we’ve warned that further tough choices will be needed to clear up Osborne’s mess.

That’s why Ed Miliband and Ed Balls have written to the Shadow Cabinet, and asked me to work with them, on first identifying where waste could be eliminated and substantial savings made; and second, how they would switch spending from lower to higher priority areas.

Labour’s willingness to take decisions based on the right priorities has already been demonstrated in the position we’ve taken on public sector pay.

When workers in the private sector are facing pay restraint, a one per cent average limit on annual increases is necessary to minimise public sector job losses. But we would freeze pay at the top to fund higher increases for those earning below £21,000 – meaning teaching assistants, care workers, and hospital porters would be hundreds of pounds better off under Labour.

Another choice we’ve said we’d make differently is on taxation and tuition fees. Under the Conservative-led government, banks are benefiting from a five per cent cut in corporation tax. Labour thinks that money would be better used bringing down the cap on tuition fees.

These are instructive examples of the care Labour would take, and the difference Labour could make, to ensure the heaviest burden of fiscal consolidation is borne by those with the broadest shoulders, not those already struggling to make ends meet.

And when resources are so constrained, we must also be absolutely ruthless in demanding maximum value for taxpayers’ money –- unlike this Government which seems to care so little about public services that it is shockingly casual and complacent about wasting scarce resources. We’ve uncovered extraordinary examples of questionable spending in Whitehall from £900 spent on cosmetics at the Ministry of Justice to £69,000 spent on music and piano stores by the Ministry of Defence.

We’ve seen a total failure to rein in excessive pay at the very top of the public sector – with serious questions being raised about the level of bonuses and the extent of Ministerially-sanctioned tax avoidance in Whitehall, quangos and other public sector bodies.

As we challenge the Government’s careless complacency, and prepare for the tough choices we would face as an incoming Labour Government, we will subject every line of expenditure to these tough tests:

Protecting the living standards of struggling families;

Prioritising employment, productivity and growth;

A ruthless insistence on value for money;

Ensuring that those who gained most in the good times cannot evade or avoid their responsibility to make a fair contribution.

All these individual decisions need to be taken within a clear fiscal framework. And so, as Ed Balls announced at the Labour Party Conference, we will be committing to new fiscal rules that will get our current budget back to balance.

Labour is ready to complete the job of deficit reduction in the next Parliament.