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– Shadow chancellor sticks to plan to halve deficit in four years – Signals balance of tax rises to spending cuts should be more like 50:50 – Calls on banks to share more of the burden

Alan Johnson, the shadow chancellor, today accused the coalition government of taking a “reckless gamble” with economic growth and jobs as he outlined Labour’s alternative to £83bn of proposed government cuts over the next four years.

With two days to go before the government unveils the long-awaited comprehensive spending review, Johnson urged the government to “think again” and take a more measured and less dogmatic approach to cutting spending.

“Speed does matter,” said Johnson, as he confirmed in the first piece of policy to emerge under Ed Miliband’s leadership that Labour is sticking to its plan to halve the deficit over the next four years to avoid endangering economic recovery.

However, he said he had looked again at the balance of tax and spending to achieve the reduction. The formula under his predecessor, Alistair Darling, suggested that 66% of the deficit reduction plan should be achieved by spending cuts, and 33% by tax rises.

In a sign that Johnson is thinking of a balance closer to 50:50, he said “targeted tax changes” were needed because economic growth had to come first – though he ruled out any further increases in personal taxation.

And he called on banks to be forced to share a greater part of the burden of reducing the deficit.

On the deep spending cuts expected this week, the shadow chancellor warned that, from Wednesday, the spending review would no longer be numbers on spreadsheets, but people’s jobs.

“We are constantly told that there is no alternative to the current economic strategy pursued by the government,” he said. “But there is another way, a balanced approach that gets the deficit down, but recognises that growth and jobs are not a sideshow to an economic strategy, they are what it is for. And that approach requires thinking again about the role that capital investment plays and prioritising it.

“Without growth, attempts to cut the deficit will be self-defeating. A rising dole queue means a bigger dole bill. And less tax coming in. The Tory plan, for all its Liberal Democrat cheerleaders, is a huge gamble with growth and jobs.”

Johnson urged a government rethink on the day that former Bank of England policymaker David Blanchflower warned that the UK economy is in “desperate danger” of slipping back into recession and the government’s planned spending cuts will make matters worse. His views are at odds with 35 business leaders, including Marks & Spencer chairman Sir Stuart Rose and BT boss Ian Livingston, who have written an open letter in today’s Daily Telegraph to express support for George Osborne’s cuts. They say there is “no reason to think” the chancellor’s plan to eliminate the structural deficit within four years will undermine the economic recovery.

Today, Johnson made the case for an alternative as he cited the government’s “newest quango” – the Office for Budget Responsibility – which has already warned that job losses due to be incurred as a result of the coalition plans will cost the taxpayer £700m in jobseeker’s allowance claims alone.

The shadow chancellor also cited a major accountancy firm, PriceWaterhouseCooper, forecasting that a million jobs will go as austerity takes its toll – half of them in the private sector.

Johnson then turned to Ireland, which slid back into recession last month. “They went through deep cuts and substantial tax rises – applauded by most of those who are endorsing the approach of our government. But it hasn’t worked. This government is going down the same road, which risks reduced confidence, stunted growth and fewer jobs.”

Johnson, who has been working closely with Miliband to define a clear alternative, said it was fundamentally unfair that cuts to child benefit should play a bigger role in reducing the deficit than the banks that did much to cause the economic crisis.

He also called for a big increase in capital spending on road building and construction – probably funded by a far higher levy on banks and action against bankers’ bonuses – to boost economic activity and create jobs, in a departure from Labour’s policy at the general election.

While insisting that action on the deficit had to be taken, Johnson pointed to the uncertain economic outlook in other major economies, including the US and Japan, to make the case that a “balanced” approach is needed that promotes growth while reducing spending.

“We will work with the government where it brings forward targeted tax rises that do not affect low- and middle-income families,” he said. “If they follow our advice and stick to halving the deficit by 2013-14, such tax changes would allow greater protection for public services.”

Labour would support the rise in capital gains tax in the emergency budget, said Johnson, adding that there was also a case for freezing the basic rate limit in 2013-14 as proposed. He rounded on the “inadequate” scale of the bank levy proposed by the government as he outlined radical plans that could see the state reap £7.5bn by the end of the parliament though a bonus tax alongside the existing levy.

“The government, which claims ‘fairness’, has put itself in the absurd position of saying that children should play a bigger role in getting the deficit down than the banks,” said Johnson.

“The banking sector is contributing £2.4bn, while child benefit freezes and cuts will raise substantially more. So families take the strain while bankers grab the bonuses. There is no justification for such an unfair sharing of the burden.”

He conceded that cuts needed to be made and reiterated Miliband’s promise that the opposition would support changes where they are “fair, proportionate and encourage work”, such as a review of the disability living allowance, reforms to incapacity benefit and technical changes to prevent accidental overpayments of tax credits.

But he signalled that on other fronts, such as child benefit and “arbitrary measures” on housing benefit, Labour would argue against the measures.

In a swipe at government claims that ministers were being forced to take drastic measures because Labour had overspent, Johnson said that bringing the world back from the bring of catastrophe following the 2008 economic crisis “is not the same as paying off a credit card bill”.

Johnson sought to puncture the claim that the coalition government was being forced to take drastic measures because of Labour’s irresponsible spending plans in government.

Far from saying the Labour government was spending too much before the credit crunch, the Conservatives had supported Labour’s plans “lock stock and barrel” until November 2008, long after the banks had collapsed, he said.

Labour’s strategy for rescuing the economy involved spending to support the economy while the private sector was weak, to ensure people stayed in jobs and in their homes, insisted Johnson. Economic policy Alan Johnson Spending review 2010 Tax and spending Public sector cuts Public services policy Public finance Labour Hélène Mulholland guardian.co.uk © Guardian News & Media Limited 2010 | Use of this content is subject to our Terms & Conditions | More Feeds

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