In a keynote speech on the economy in Bedford, the Labour leader Ed Miliband made an audacious bid to outflank David Cameron on the economy by calling for the 10p rate of income tax to be brought back.
The Labour leader insisted reintroducing the band - controversially scrapped by Gordon Brown - would make society fairer. He said the move could be funded by a new "mansion tax" on homes worth more than £2 million.
Tory backbenchers have been campaigning for the 10p rate to be brought back in next month's Budget, and taking questions in the House Mr Cameron appeared to hint he was open to the idea.
Speaking in Bedford - where Tory premier Harold Macmillan delivered his famous "You've never had it so good" line in 1957 - Mr Miliband said: "A One Nation Labour Budget next month would lay the foundations for a recovery made by the many, not just a few at the top.
"Let me tell you about one crucial choice we would make, which is different from this Government.
"We would tax houses worth over £2 million. And we would use the money to cut taxes for working people.
"We would put right a mistake made by Gordon Brown and the last Labour government.
"We would use the money raised by a mansion tax to reintroduce a lower 10p starting rate of tax, with the size of the band depending on the amount raised.
"This would benefit 25 million basic rate taxpayers - moving Labour on from the past and putting Labour where it should always have been - on the side of working people."
A Labour source said the mansion tax - long a favourite policy of Liberal Democrats - was expected to raise £2 billion a year. That would fund a 10p rate on up to £1,000 of taxable income.
Some 25 million basic rate payers would be up to £100 better off as a result, the source said.
The party is committed to the £10,000 personal allowance threshold due to be in place by 2010. It is not clear how much administering the new 10p band would cost.
Mr Miliband said the policy demonstrated Labour's "priority to do everything we can to make a difference to people's living standards".
He added: "When you play your part, when you make your contribution to the economy, you will be rewarded ... Britain's economic success will be built by the many, not just by a few at the top."
He insisted that as a "responsible opposition" the party would set out tax and spending commitments at the next general election.
"However this is a clear signal about the priority we attach to a fairer tax system and the living standards of working people.
"We would also be making different choices between the most powerful in our society and ordinary working people."
A No 10 spokesman said the speech was "a stunning admission of economic incompetence" from Mr Miliband and Mr Balls that their decision in government to scrap the 10p tax rate had hurt millions of working families.
"People will never trust Labour again," the spokesman said.
"The low-income working people who lost out the most from Labour's 10p tax hike now pay no tax at all thanks to this Government's record increases in the tax-free personal allowance. Losers under Labour have become winners thanks to our tax changes.
"Now Labour's new homes tax would mean government snoopers in every home to revalue your house for council tax, meaning council tax rises for millions."
Mr Miliband's proposals won a warm welcome from unions.
TUC general secretary Frances O'Grady said: "Today's speech acknowledges just how tough it is out there for millions of ordinary people who have seen their living standards plummet. Fairer wages and taxes will play a crucial role in building a stronger economic future for the UK.
Unite general secretary Len McCluskey said: "The restoration of the 10p tax rate is an important and welcome step towards building a fairer and more equal society. We believe Ed can go even further by announcing an extra £1 on the minimum wage, as president Obama has called for across the Atlantic."
Labour's tax plan was dismissed by Prime Minister David Cameron.
"My prediction is that they won't have thought it through or costed it properly and we'll discover over the course of the day all sorts of problems and issues with a policy that looks like it's been cobbled together overnight," he said.
However Lib Dem Business Secretary Vince Cable - who has long championed the idea of a mansion tax - welcomed "Labour's change of heart".
"It is good that they have seen sense," he said.