Despite the loudly acclaimed return of UK GDP to pre-crash levels last week, most people remain worse off under the coalition after the biggest real-terms fall in wages for more than a century, he said.
And he claimed Conservatives were planning "another tax cut for millionaires" if they win next year's general election, after Mr Cameron's policy guru Oliver Letwin was recorded suggesting that a discussion on flat-rate taxes "will no doubt open up" when the public finances improve. A flat rate for income tax could force the 20p basic rate paid by millions of ordinary workers as high as 31p, he warned.
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Speaking in Bedford, where Harold Macmillan famously declared that "most of our people have never had it so good", Mr Balls said that the recovery produced by Mr Cameron was far from the boom which Britain enjoyed under the earlier Conservative PM.
"Living standards are still squeezed and people are worried and insecure about the future.
"That old Harold Macmillan line - 'you've never had it so good' - may have resonated in post-war Britain when he first used it here in Bedford as prime minister back in 1957. But nearly 60 years on, every time in Prime Minister's Questions that David Cameron tries to tell the British people that they've never had it so good, I fear it just prompts disbelief that he can be so out of touch."
Mr Balls cited figures produced by the independent House of Commons Library showing that by the time of the general election, average earnings after inflation will have seen the biggest drop of any parliament since 1874-1880.
With average earnings having fallen by £1,600 in real terms since 2010, the current parliament will be the first since the 1920s when real earnings will be lower at the end than they were at the beginning, he said.
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The return to pre-crash growth levels came two years after Mr Osborne had promised and three years after the US reached the same point, while GDP per head will not return to 2007 levels for another three years after a "lost decade for living standards", said Mr Balls.
"While David Cameron and George Osborne complacently claim the economy is now fixed, the truth is most people are worse off under the Tories," he said.
"From a Conservative-led Government that promised to make working people better off back in 2010, this is a dismal record of failure."
And he warned: "Already today, even before living standards have stopped falling, this Government's failure to get more houses built means there is now a real risk that interest rates will rise prematurely to rein in an unbalanced housing market."
Setting out what he termed "the choice on the economy" at next year's election, Mr Balls said that Mr Letwin had "let the cat out of the bag" on Tory plans for a further cut to the top rate of tax.
"He's advocating the old right-wing idea of a flat tax if the Tories win the election," he said. "That means lower taxes for the richest and higher taxes for everyone else."
Calculations by the independent Institute for Fiscal Studies suggest that, to be revenue-neutral, a flat-rate income tax would have to be set at 31p, imposing a "huge increase" on the 24 million people on low and middle incomes currently paying 20p while saving large amounts for those earning over £150,000 who pay the 45p top rate, he said.
The Conservatives have denied any plans for a flat-rate tax. A party spokesman said: "There will be no flat tax. We oppose it. Full stop."
And Treasury minister Priti Patel said Labour plans would mean an additional £17 billion in spending, and they had only found £105 million to pay for them.
"It's just more of the same from Labour. Labour spent and borrowed their way through the good times and left us with the biggest deficit in our peacetime history," she said.
"The real choice Britain will face next May is between a long-term economic plan that is supporting hard-working taxpayers, or a Labour Party that hasn't learned its lesson and would add more debt than future generations can ever pay."
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