The Chancellor has challenged Jeremy Corbyn to "bring it on" as he accused the Labour leader of backing Marxist policies which would take the country back to the 1970s.
In his Conservative Party conference speech, Philip Hammond insisted the Tories were ready to take on Labour.
And putting himself at odds with the party's hardline Brexiteers he insisted Britain's economic future will remain "closely linked with the EU" following Brexit, ensuring it does not reduce trade with the European Union.
In a more concrete policy proposal, he reaffirmed his party's commitment to the so-called northern powerhouse project, with a promise of a £400 million boost.
Jeremy Corbyn's Labour were in his sights for much of the speech however, with the Chancellor telling delegates: "I think we owe it to the next generation to show that Corbyn's Marxist policies will inevitably lead us back to where Britain was in the late 1970s."
He said Labour had been taken hostage by "a clique of hard-left extremist infiltrators" who "despise Britain's values".
"They say politics is about the clash of ideas, so we say to Corbyn: bring it on," he added.
On the EU Hammond put forward a different view to senior Tories who have urged Theresa May to be ready to take the UK out without a divorce deal, as he stressed the need for "careful and cautious" negotiation of Britain's withdrawal.
The speech exposed his differences with Foreign Secretary Boris Johnson, who has trumpeted the importance of a clean break.
The chancellor acknowledged Brexit negotiations had created "uncertainty" and slowed business investment and economic growth.
The announcement of extra money for the Northern Powerhouse follows accusations from figures including Greater Manchester mayor Andy Burnham that the project has fallen off the Government's agenda since the departure of its originator George Osborne.
The Chancellor told the conference the new money brings total transport investment in the north to £13 billion by 2020 and will "future-proof" the region's rail network.
The cash will ensure that the infrastructure is in place to link up future northern and Midlands rail developments with HS2 and to permit future services between Liverpool and Leeds to go via Manchester Piccadilly station.