Britain can do better. We must build on the British qualities of inventiveness, creativity and adaptability. New Labour's objective is to improve living standards for the many, not just the few. Business can and must succeed in raising productivity. This requires a combination of a skilled and educated workforce with investment in the latest technological innovations, as the route to higher wages and employment.

An explicit objective of a Labour government will be to raise the trend rate of growth by strengthening our wealth-creating base. We will nurture investment in industry, skills, infrastructure and new technologies. And we will attack long-term unemployment, especially among young people. Our goal will be educational and employment opportunities for all.

Economic stability is the essential platform for sustained growth. In a global economy the route to growth is stability not inflation. The priority must be stable, low-inflation conditions for long-term growth. The root causes of inflation and low growth are the same - an economic and industrial base that remains weak. Government cannot solve all economic problems or end the economic cycle. But by spending wisely and taxing fairly, government can help tackle the problems. Our goals are low inflation, rising living standards and high and stable levels of employment.

Spending and tax: new Labour's approach

The myth that the solution to every problem is increased spending has been comprehensively dispelled under the Conservatives. Spending has risen. But more spending has brought neither greater fairness nor less poverty. Quite the reverse - our society is more divided than it has been for generations. The level of public spending is no longer the best measure of the effectiveness of government action in the public interest. It is what money is actually spent on that counts more than how much money is spent.

The national debt has doubled under John Major. The public finances remain weak. A new Labour government will give immediate high priority to seeing how public money can be better used.

New Labour will be wise spenders, not big spenders. We will work in partnership with the private sector to achieve our goals. We will ask about public spending the first question that a manager in any company would ask - can existing resources be used more effectively to meet our priorities? And because efficiency and value for money are central, ministers will be required to save before they spend.

Save to invest is our approach, not tax and spend.

The increase in taxes under the Conservatives is the most dramatic evidence of economic failure. Since 1992 the typical family has paid more than £2,000 in extra taxes - the biggest tax hike in peacetime history, breaking every promise made by John Major at the last election. The tragedy is that those hardest hit are least able to pay. That is why we strongly opposed the imposition of VAT on fuel: it was Labour that stopped the government from increasing VAT on fuel to 17.5 per cent.

Taxation is not neutral in the way it raises revenue. How and what governments tax sends clear signals about the economic activities they believe should be encouraged or discouraged, and the values they wish to entrench in society. Just as, for example, work should be encouraged through the tax system, environmental pollution should be discouraged.

New Labour will establish a new trust on tax with the British people. The promises we make we will keep. The principles that will underpin our tax policy are clear:

New Labour is not about high taxes on ordinary families. It is about social justice and a fair deal.

New Labour therefore makes the following economic pledges.

Fair taxes

There will be no return to the penal tax rates that existed under both Labour and Conservative governments in the 1970s.

To encourage work and reward effort, we are pledged not to raise the basic or top rates of income tax throughout the next Parliament.

Our long-term objective is a lower starting rate of income tax of ten pence in the pound. Reducing the high marginal rates at the bottom end of the earning scale - often 70 or 80 per cent - is not only fair but desirable to encourage employment.

This goal will benefit the many, not the few. It is in sharp contrast to the Tory goal of abolishing capital gains and inheritance tax, at least half the benefit of which will go to the richest 5,000 families in the country.

We will cut VAT on fuel to five per cent, the lowest level allowed.

We renew our pledge not to extend VAT to food, children's clothes, books and newspapers and public transport fares.

We will also examine the interaction of the tax and benefits systems so that they can be streamlined and modernised, so as to fulfil our objectives of promoting work incentives, reducing poverty and welfare dependency, and strengthening community and family life.

No risks with inflation

We will match the current target for low and stable inflation of 2.5 per cent or less. We will reform the Bank of England to ensure that decision-making on monetary policy is more effective, open, accountable and free from short-term political manipulation.

Strict rules for government borrowing

We will enforce the 'golden rule' of public spending - over the economic cycle, we will only borrow to invest and not to fund current expenditure.

We will ensure that - over the economic cycle - public debt as a proportion of national income is at a stable and prudent level.

Stick to planned public spending allocations for the first two years of office

Our decisions have not been taken lightly. They are a recognition of Conservative mismanagement of the public finances. For the next two years Labour will work within the departmental ceilings for spending already announced. We will resist unreasonable demands on the public purse, including any unreasonable public sector pay demands.

Switch spending from economic failure to investment

We will conduct a central spending review and departmental reviews to assess how to use resources better, while rooting out waste and inefficiency in public spending.

Labour priorities in public spending are different from Tory priorities.

Tax reform to promote saving and investment

We will introduce a new individual savings account and extend the principle of TESSAs and PEPs to promote long-term saving. We will review the corporate and capital gains tax regimes to see how the tax system can promote greater long-term investment.

Labour's welfare-to-work Budget

We will introduce a Budget within two months after the election to begin the task of equipping the British economy and reforming the welfare state to get young people and the long-term unemployed back to work. This welfare-to-work programme will be funded by a windfall levy on the excess profits of the privatised utilities, introduced in this Budget after we have consulted the regulators.