Shadow chancellor John McDonnell has admitted Labour has "a long way to go" to regain public trust on the economy, as he unveiled a new "fiscal credibility rule" which will guide future policies on taxation and spending.
The rule would bar a future Labour government from borrowing to pay.for day-to-day spending and would require it to ensure that the national debt falls as a percentage of GDP over the course of each Parliament.
But it leaves open the option of borrowing to pay for investment in infrastructure like roads, railways, broadband and food defences, which sparked Conservative claims that a Labour administration would plunge the country into billions of pounds more debt.
The shadow chancellor said Labour would reserve the right to suspend its rule in times of crisis when interest rates are so low that they cannot be cut further to provide stimulus to the economy.
Launching the new rule in a speech in central London, Mr McDonnell said that Chancellor George Osborne's economic recovery since the crash of 2008 was "built on sand" and promised Labour would offer "a radical break with the past" on economic policy.
"We must now rewrite the rules on how our economy operates. The old rules have failed," he said, citing growing inequality and a failure to provide the funding for infrastructure projects announced by the Government.
In an attempt to cast off Labour's reputation for high spending and high borrowing, Mr McDonnell pledged that all future spending commitments will by "judged by how they fit with our fiscal credibility rule".
The Office for Budget Responsibility would be properly resourced to police the rule, and would report directly to Parliament rather than to the Treasury, he said.
Mr McDonnell said: "Labour faces its most important fight for a generation and it is about regaining the public's trust on the public finances.
"We have a long way to go before we can regain that trust we lost after the global financial crisis of 2008 which happened on Labour's watch. There is no silver bullet.
"The first stage of that is to lay out our framework for overall fiscal policy, to show that we can be trusted, that we take seriously our responsibility as stewards of the nation's finances."
Mr McDonnell - who took no questions after delivering his speech - acknowledged that Labour had relied too heavily on the Private Finance Initiative and tax revenues from a booming financial sector to fund investment during its time in power from 1997-2010.
"The old rules meant relying too much on tax revenues from financial services, and too much on expensive funding schemes like PFI," he said.
"We didn't do enough to clamp down on tax avoiders.
"We should show how we can account for every penny in tax revenue raised, and every penny spent.
"There is nothing left-wing about ever-increasing government debts, or borrowing to cover day-to-day."
But, in a possible sign that he does not want to write off New Labour's record altogether, he paid tribute to Lord Mandelson for his intervention to prop up the automotive industry following the crash.
Speaking five days ahead of Mr Osborne's Budget, Mr McDonnell denounced the Chancellor's economic rule to run a surplus every year "in normal times", which he said was "designed solely with the Tory leadership contest in mind".
He said: "George Osbonre will be presenting his Budget next week. It is an opportunity to turn things round. Instead, we can expect more of the same from the Chancellor - more wheezes, more short-term political fixes."
Accusing the Chancellor of "sacrificing the bold, necessary action we need for the sake of his political career", Mr McDonnell called on Mr Osborne to deliver a Budget that is "about fairness and about the future."