Labour and Tories clash on the economy as Javid brands McDonnell's £150bn pledge a 'fantasy'

Labour has promised to invest £150bn in public services if it wins the general election, but Chancellor Sajid Javid has branded the plans "fantasy economics".

Both Labour and the Tories used the second day of the election campaign to lay out their plans for the economy, with shadow chancellor John McDonnell vowing to "shift the centre of political gravity" away from London if his party wins.

But the Conservatives also pledged to bring fiscal change to the UK if it remains in power, with Mr Javid claiming he can usher in a "new economic era".

He said he will increase borrowing to pay for new infrastructure as he heralded new fiscal rules which he claims will help rein in debt and borrowing.

In a speech in Manchester, Mr Javid said the election would be close between Labour and the Conservatives and the party could not "take anything for granted".

  • ITV News Political Editor Robert Peston gives his view on the spending pledges

He announced three new fiscal rules to "control borrowing, to control debt, and to control debt interest" - describing them as "new rules for a new economic era".

Mr McDonnell, who made his first campaign speech in his hometown of Liverpool, told activists of his plans for "social transformation fund" of billions for schools, hospitals, care homes and council housing over a five year period.

At the same time he promised to break up the Treasury, devolving some of its powers to the North in a shift in the “centre of political gravity” away from London.

Treasury ministerial meetings will no longer take place solely in the capital and ministers will have an office in the North as well as Whitehall, he pledged.

“Our aim as a Labour government is to achieve what past Labour governments have aspired to,” he said.

“An irreversible shift in the balance of power and wealth in favour of working people.

“That means change, means investment on a scale never seen before in this country, and certainly never seen before in the North and outside of London and the South East.”

In an interview with ITV News Political Correspondent Romilly Week, Mr McDonnell defended Labour's borrowing plans after the Institute for Fiscal Study (IFS) questioned their feasibility.

Labour are expected to propose borrowing an additional £100bn, on top of a £250bn they committed to spending at the last general election, over the course of a decade to pay for infrastructure, including projects to reduce carbon emissions.

The party said it will only increase taxation on the top five per cent of earners and the infrastructure will be paid for through borrowing.

He said: “The emergency that we’re facing is also our social fabric has been under-invested for 10 years, so we’re facing a housing crisis, our hospitals are again in very difficult circumstances.”

“That whole infrastructure that we need, we need to invest in now because it is an emergency. The funding we’re putting forward matches the scale of investment that we need.”

During his speech to supporters in Manchester, Mr Javid confirmed the Conservative Party would borrow money to "level up" the UK economy.

But he said the rules he plans to introduce mean the economy will be less at risk.

The first rule, he said, "will be to have a balanced current budget. What we spend cannot exceed what we bring in.

"Now, while we must retain spending if we want growth to continue and get stronger in the future, then we need to invest in it. Taking the opportunity offered by those historically low borrowing rates."

The second rule, Mr Javid said, would "ensure that we can invest more, but we will continue to live within our means".

He said: "Investment in long-term projects like road and rail will not exceed 3% of GDP.

"Now compared to the long-term average of 1.8%, that represents a huge step change in what we currently invest. It means billions of pounds more to spend and the infrastructure revolution that this country needs."

On the third rule, he said: "If borrowing costs rise significantly in the future, and what we're paying to service debt starts to exceed historical averages, we would reassess how much we would be willing to borrow for capital projects.

"This extra safeguard ensures that we will spend the money and manage the costs responsibly."

Mr Javid also took aim at Labour's "fantasy economics", warning a Corbyn government would "ruin your finances, raise your taxes and saddle the next generation with debt".

He added: "John McDonnell likes to claim that Labour won't raise taxes for anyone earning less than £80,000, but its just not true. He cannot be trusted.

"It's easy to poke fun at Comrade Corbyn and his fantasy economics, but this will be a close election. We cannot take anything for granted.

"We won't let Labour off the hook like last time."

But Mr McDonnell said after "nearly a decade of harsh, brutal and unnecessary austerity cuts on our community" voters would not be taken for "fools" at the "sudden gushing with election stunt offers of spending more".

He said the public faced a "historic" choice at this election.

He said it is a "once-in-a-generation chance to get back on track, remake this country, transform everyone's lives for the better".

The clash on the economy - likely to be one of the key battlegrounds of the general election campaign - takes place amid a disrupting few days for both parties.

Labour's deputy leader Tom Watson announced he would not seek re-election, while the Conservatives had to deal with the resignation of Welsh Secretary Alun Cairns over allegations he knew a former aide deliberately "sabotaged" a rape trial.

And in a further blow to Labour, former minister Iain Austin urged the public to back Boris Johnson over Jeremy Corbyn, claiming the Labour leader is "completely unfit to lead our country".

Shadow chancellor Mr McDonnell claimed the ex-Labour MP was now "employed by the Tories".

"He's now employed by the Tories: what else do you expect him to do in an election campaign where you're employed by the Tories, you speak on behalf of the Tories. That's what this was about this morning."

In other events on Thursday:

  • Boris Johnson will be in Scotland, where the Tories will be trying to hold onto seat they won in 2017.

  • The Liberal Democrats, Plaid Cymru and the Greens will announce details of a pact not to stand against each some seats, thought to number between 60 and 70.

  • Jeremy Corbyn will unveil Labour’s campaign bus, featuring the slogan “It’s time for real change”.

Calling Peston: The ITV News Election Podcast - listen and subscribe here

In a daily podcast, Calling Peston brings you up to speed with everything you need to know about the 2019 General Election, with a new episode released every weekday afternoon at 5pm.

ITV News Political Reporters Daniel Hewitt and Shehab Khan chat through the day's developments - and call Political Editor Robert Peston to get his take on it all.

We also take you behind the scenes of life reporting on the election campaign trail, hearing from our reporters on the road across the country.

You can listen and subscribe to Calling Peston wherever you get your podcasts, including Apple Podcasts, Spotify and Google Podcasts - or listen to the latest episode below.