16/02/2016 16:33 GMT | Updated 16/02/2016 16:59 GMT

Labour Has A Fight To Win Back Economic Credibility, Says John McDonnell

Yui Mok/PA Wire
File photo dated 21/11/15 of shadow chancellor John McDonnell, who is considering plans that would mean employees could be granted the first right to buy a share of their company if it is floated on the stock exchange.

Labour has a "fight on its hands" to win back economic credibility , shadow chancellor John McDonnell has admitted.

In a speech to the London School of Economics on Tuesday evening, McDonnell said Labour needed to move "away from the image of a party which thinks only about how much it can spend, to a party that is focused on how we earn".

"We need to begin by underlining our commitment to bringing the government's day-to-day spending into balance. We know the importance of borrowing for investment, which lays the foundations for future economic prosperity," he said.

"Few things are more urgent than delivering the infrastructure our economy is crying out for, infrastructure which pays for itself by expanding economic activity and raising tax revenues.

McDonnell added: "Labour has a fight on our hands to win back economic credibility, but it's the most important fight in a generation."

In his speech, the shadow chancellor also called for a "complete rethink of not just how we spend money but how we earn it" with structural reforms of tax, investment and financial systems".

He said: "But still we need to look deeper at the fundamentals of our economy, how assets are owned and shared, how wealth is created and by whom.

"Moving away from the image of a party which thinks only about how much it can spend, to a party that is focused on how we earn."

McDonnell also accused George Osborne of imposing austerity measures as part of a "casino economy" that requires low state spending to free up money for future bailouts.

"Austerity is about cutting the public sector down to size, in case of further financial crises," he said.

"It is a profoundly conservative choice since it works to the benefit of the UK's vested interests. Finance must be allowed its position in the driving seat.

"Multinational corporations must be allowed free reign, virtually setting their own tax rates, just as Google have done. It means doing nothing about the problems and long-term weaknesses that led to the crisis of 2008. And it means leaving society dangerously exposed to the new challenges."