Labour's economic blueprint set out by shadow chancellor John McDonnell

A Labour government would balance Britain's books "fairly", avoiding the cuts to benefits and services resulting from Conservative austerity, shadow chancellor John McDonnell has said.

In his first major speech in the post, Mr McDonnell set the scene for tax hikes on the rich, saying that when a Labour government needs to raise money it will do so by "fairer, more progressive taxation" which does not impose a burden on middle and low-earners.

He promised an "aggressive" drive to force multinational corporations like Starbucks, Vodafone, Amazon and Google to pay "their fair share of taxes" and to cut "subsidies" enjoyed by business. And he said Labour would boost growth through an "active monetary policy" - effectively printing money to stimulate the economy.

Mr McDonnell's blueprint won a wary reaction from business, with the CBI warning that an active monetary policy could fuel inflation and drive up interest rates, while the British Chambers of Commerce said Labour "must not confuse supporting growth with state control over the economy".

And Vodafone said there was "no truth" in the shadow chancellor's claim it was dodging tax, insisting it has "always paid its taxes" and pointing to a £360 million bill in direct UK taxes for 2014/15, when its profits in the country amounted to just £41 million.

In his keynote address to the Labour annual conference in Brighton, the veteran left-winger accused Conservatives of making middle-earners and the poor bear the burden of eliminating Britain's deficit, while protecting the richest from the consequences of the economic crisis.

He said Labour would "halt Conservative tax cuts to the wealthy paid for by cuts to families' income", end the "brutal" treatment of disabled people subjected to fitness-to-work assessments and deliver a "real living wage", higher than the £7.20 "national living wage" offered by George Osborne.

"Austerity is not an economic necessity, it's a political choice," said Mr McDonnell.

"The leadership of the Conservative Party made a conscious decision six years ago that the very richest would be protected and it wouldn't be those who caused the economic crisis who would pay for it. Although they said they were One Nation Tories, they've demonstrated time and time again, they don't represent one nation, they represent the 1%."

Insisting that Labour would not be "deficit deniers" Mr McDonnell said: "I tell you straight from here on in Labour will always ensure that this country lives within its means. We will tackle the deficit."

But he added: "This is the dividing line between Labour and Conservative. Unlike them, we will not tackle the deficit on the backs of middle and low-earners and especially by attacking the poorest in our society.

"We will tackle the deficit fairly and we can do it."

He acknowledged that Labour "need to prove to the British people we can run the economy better than the rich elite that runs it now".

But he said the party's strategy would be based on growing the economy by strategically investing in key industries and sectors.

And he promised, to loud applause: "Labour's plan to balance the books will be aggressive.

"We will force people like Starbucks, Vodafone, Amazon and Google and all the others to pay their fair share of taxes."

He went on: "There will be cuts to tackle the deficit but our cuts will not be the number of police officers on our streets or nurses in our hospitals or teachers in our classrooms.

"They will be cuts to the corporate welfare system. There will be cuts to subsidies paid to companies that take the money and fail to provide the jobs."

If Labour inherits a deficit in 2020, it will pay it down "at a speed that does not put into jeopardy sustainable economic growth", he promised.

Mr McDonnell said Labour would launch a wholesale review of its economic policies, guided by an advisory panel featuring a number of internationally renowned economists.

Labour will review the nation's major economic institutions, including the Treasury, Bank of England and HM Revenue and Customs, to ensure they are "fit for purpose", he said. Former civil service head Lord Kerslake will lead the review of Treasury operations.

While the Bank will retain its independence, Labour will look at extending its mandate to require it to target employment, growth and earnings as well as inflation.

Mr McDonnell urged Labour moderates who have refused to serve under new leader Jeremy Corbyn to "come back and help us succeed".

He acknowledged that fierce debates over Labour's future direction lie ahead, but insisted that these should not be interpreted as splits in the party.

"We are in an era of new politics," said the shadow chancellor. "People will be encouraged to express their views in constructive debate.

"Don't mistake debate for division. Don't mistake democracy for disunity."

Responding for the Conservatives, Treasury minister David Gauke said: "Labour's tax rises would hurt hard-working people, threatening every family's security.

"And as (Bank of England governor) Mark Carney has said, Labour's policy to end the Bank of England's independence and print money would drive up the cost of living.

"That's why Labour are a serious risk to Britain's economic security."

But unions welcomed Mr McDonnell's speech, which was hailed as "inspirational and historic" by Public and Commercial Services union general secretary Mark Serwotka, while Unison general secretary Dave Prentis said it provided "hope for the future".