Balls tries to draw Lib Dems into Labour coalition

While conceding that Nick Clegg was unlikely to join such a walkout, Mr Balls insisted senior Lib Dems were seriously unhappy about policies on the economy, NHS and Europe.

“I could serve in a Cabinet with Chris Huhne or Vince Cable tomorrow,” he said in a newspaper interview.

Mr Balls, MP for Morley and Outwood in West Yorkshire, urged Labour supporters to “hold their nerve” amid poor opinion polls and criticism of leader Ed Miliband.

He refused to commit to Chancellor George Osborne’s plans for extra spending cuts after 2015, saying the Opposition would not be lured into an “austerity election”.

However, Mr Balls also had a tough message for Labour, admitting the party needed to convince the public it would keep a lid on state spending.

“In the next year, we have to show we have got the strength, character, toughness and focus to say there is no free lunch, some tough decisions will have to be made in a way that gets the deficit down. Everybody in the Labour Party is going to be a bit frustrated,” he said.

“The reality is after the financial crisis, people said ‘it happened on Labour’s watch. The deficit went up. Can we trust these people in future?’ That is an argument we have to win.”

Mr Balls signalled his desire to outflank the Government on welfare cuts by proposing tougher benefit sanctions for jobless people who do not try to find work.

And, inviting Lib Dems to form a coalition government with Labour, the Shadow Chancellor said: “I think it would be much better now and for the future of the country if they did.

“It would be in the national interest. I don’t think they should wait until 2015.

“I don’t think it’s possible for Nick Clegg to lead that move... But I have known many of the senior Lib Dems well enough over 20 years... they know this isn’t working.”