My speech today is about the deficit.

Its place in our priorities.

How a Labour government would deal with it.

And how we would do so consistent with our values.

Eight days ago in the Autumn Statement, it became clear what the Tory plan for the country is.

They promised to clear the deficit in this Parliament and they have failed.

Now they say they want to run a big surplus by the end of the next Parliament.

And their plan is to return spending on public services to a share last seen in the 1930s: a time before there was a National Health Service and when young people left school at 14.

There is only one 35 per cent strategy in British politics today: the Tory plan for cutting back the state to that share of national income.

They have been exposed by the Autumn Statement for who they really are.

Not compassionate Conservatives at all.

But extreme, ideological and committed to a dramatic shrinking of the state, whatever the consequences.

They are doing it not because they have to do it but because they want to do it.

That is not our programme.

That will never be our programme.

And I do not believe it is the programme the British people want.

But the British people do want to know our approach.

And today I want to set it out.

We start from believing that this country needs a long-term plan to make the country work for working people again, not just for a privileged few at the top.

Now, some people have argued the deficit simply doesn’t matter to that mission and should not be our concern.

That’s wrong.

It matters.

Because unless there is a strategy for dealing with the deficit, it will be harmful to our economic stability.

And it is working people who will end up paying the price in the economic instability that is created.

Dealing with our debts is also necessary for funding our public services.

Higher debt interests payment squeeze out money for those services and for investment in the long-term potential of our country.

So there is no path to growth and prosperity for working people which does not tackle the deficit.

But what we need is a balanced approach, which deals with our debts, but does so sensibly.

Today, I want to lay out the principles of our alternative.

Not a shadow Budget, but a sense of how we will approach these issues in government.

This is the central contrast between our approach and the Conservatives’:

We will deal with our debts but we will never return to the 1930s.

We won’t take risks with our public finances but we won’t take risks either with our public services, our National Health Service.

Our tough and balanced approach will balance the books through an economy based on high wages and high skills, common sense spending reductions and fair choices on tax.

Their unbalanced approach of 1930s public spending and unfunded tax cuts will put at risk our National Health Service, undermine our economic future and threaten working families.

Today I want to lay out the five principles which underpin my approach, principles which learn from the experience of the last five years and indeed our time in government.

Our first principle is that we will set a credible and sensible goal for dealing with our debts.

This starts with getting the national debt falling as a proportion of national income as soon as possible within the next Parliament.

This is essential if we are to prevent debt interest payments mounting up.

And we will also have a surplus on the current budget so that revenues more than cover day to day spending, again as soon as possible in the next Parliament.

This draws the right distinction between current and capital spending.

Productive investment in our infrastructure should be seen differently from day to day spending because it often has a greater economic return.

Indeed, the history of our country has been a failure to invest in our infrastructure and our economic foundations, which are so important for competitiveness, growth and tax revenues.

Our rule is right for two reasons.

Because it targets the right aim and it does not set an arbitrary date.

There is a lesson from this Parliament about the huge uncertainty there is around deficit reduction.

The easy thing is for politicians to claim great certainty when there is not.

The right thing to do is to set a clear objective with a realistic destination – balancing the books and the debt falling as soon as possible in the next Parliament – and this is what we have done.

Nothing does more to undermine credibility than setting an objective and failing to meet it.

So this is our destination for fiscal policy in the next Parliament.

The Tory destination is different.

By setting an objective of an overall surplus, they are driving their scale of spending reductions.

The second principle is that a successful deficit reduction strategy depends upon reform of our economy.

That is the biggest lesson of the failures of this government.

For some time, I have heard people claim that our economic argument around the cost of living crisis has been missing the main economic challenge, of tackling the deficit.

But the facts are now in: it turns out that tackling the cost of living crisis is in fact essential for tackling the deficit.

This has become crystal clear since 2010.

For the first three years of the Parliament, we saw little or no growth in the economy.

And as a result the government spectacularly failed in their deficit reduction strategy.

Now, finally, growth has resumed, but what became clear in the Autumn Statement is that the character of growth is such that they are still failing.

Two thirds of people moving into work are paid less than the living wage.

That is bad for families.

But it has also totally undermined the government’s deficit plan.

Last week, the Office of Budget Responsibility confirmed that income tax and national insurance receipts are £43 billion a year lower than forecast in 2010.

Sixty percent of the drop in tax receipts in the last year is because of weaker wage growth.

And it is set to get worse as wage growth has been revised down until 2017.

And we see the failure in social security too.

This is the government of the bedroom tax and the strivers’ tax.

But yet they are failing to meet their promises on social security spending.

Not because they are generous.

But because of their failing economic strategy.

Welfare spending is higher than expected because of economic and social failure.

Exactly the same pattern as we saw under the Tories in the 1980s.

This time, higher tax credit bills and higher housing benefit bills subsidising a low wage economy.

They attack the sick and disabled, the low paid and the poor and still raise the bills of sickness, low pay and poverty.

That is why it must be a principle of deficit reduction that we have a different economic strategy building a higher wage, higher skill economy, not the low wage, low skill economy we have.

Putting our young people back to work will improve tax revenues and cut the social security bill.

Raising the minimum wage will do the same.

So will dealing with the scandal of zero-hours contracts and ensuring people have more regular hours.

And reforming the banks, transforming vocational education, a revolution in apprenticeships, helping nurture the businesses of tomorrow: all are part of building the economy we need to both deliver for working people and pay down the deficit.

This is the modern agenda for both successful businesses and social justice.

And there is a lesson for Labour here.

The last Labour government increased spending year on year, using the proceeds of economic growth to make our country fairer.

That option will not be available to us.

And nor would it deal with the root causes of an economy that does not work for working people.

Higher spending is not the answer to the long-term economic crisis that we have identified.

Unless we fundamentally reshape our economy, we will only ever be able to compensate people for unfairness and inequality.

That is why our agenda for creating social justice is about big reform not big spending.

And because the Tories do not have this plan they cannot meet their deficit reduction objectives.

Our third principle is that Britain needs common sense spending reductions, not slash and burn.

And we have already set out ways in which we can save money.

An end to the winter fuel allowance for the wealthiest pensioners.

Capping child benefit rises at 1 per cent a year in 2016/17 as part of meeting a welfare cap.

Abolishing police commissioner elections and merging police procurement services to save money.

Selling off unwanted government assets.

And our zero-based review of every pound spent by government will be coming forward with reports for savings across Whitehall and the public sector between now and the election.

Of course, the reality is that much of the detailed work about spending reductions can only take place when we have the full resources of government at our disposal.

But I want to be clear about what the backdrop will be for a Labour government.

We have said previously we will raise extra resources for our NHS and protect our commitments to international development.

And our manifesto will also spell out a very limited number of other areas which will have spending protected.

Outside those areas and departments, we’ve already said that for the first year of the next government most departmental budgets will fall.

But it won’t just be for the first year.

Outside protected areas, for other departments, there will be cuts in spending.

And we should plan on it being for every year until the current budget is in balance.

And yesterday, as our zero-based review continues, Ed Balls wrote to our shadow cabinet colleagues spelling this out.

But this cannot be simply about chipping away at departmental budgets.

We must take the opportunity to do what no government has properly done: reshape public services so that they deliver better for people, doing more for social justice with less.

Here we should take inspiration from what Labour local government has been able to do and give them the chance to do more.

We will devolve unprecedented levels of spending from Whitehall to local people over a whole range of areas, including transport, skills and back to work programmes.

Local government leaders rightly want control over these budgets.

They know those budgets will be smaller than what is spent at the moment.

But they know they will make better decisions because they are local decisions that suit local needs.

And just as we need to spend money better by giving power to local people, so too by breaking down the old bureaucracies.

For example, our agenda for whole person care, integrating physical health, mental health and social care, is the way to afford world-class 21st century health care when we face such difficult times.

Helping people stay out of hospital and get the care they need at home.

And there must be a new emphasis on prevention: from tackling childhood obesity and better public health to GP access.

This is a clear message from Labour that we are planning for a world of falling budgets but we will change the way government works so that we can better deliver on our values.

And, as I said, reforms like this are what Labour in local government has done over these past years.

Labour councils all round the country have shown even in very tough times that they can still improve services.

And today the report of our zero-based review into local government is showing how we can make further savings of £500 million.

These changes are necessary to balance the books.

The Tory 35 per cent strategy is not.

Their strategy would mean overall cuts of an unprecedented scale.

The equivalent of more than the whole budget for schools.

Or three times more than the entire budget for social care.

Or nearly half of the budget for our NHS.

I want the British people to know what this really means: it is a recipe for the disintegration of our public services.

And, also, for a permanent cost of living crisis because we won’t be investing in the skills, infrastructure and education we need for good quality jobs.

We already know from this Parliament what that means: a low wage, low skill economy, falling tax revenues and higher social security bills.

So we know what the result will be: the Tories might be able to deliver the cuts they have promised, but they won’t be able to cut the deficit as they promised.

Our fourth principle is that we should ensure that those with the broadest shoulders bear the greatest burden so that we can meet our mission of a country that works for working people.

This government famously claimed that we were all in it together.

The reality has been completely the opposite.

This year, they have asked families with children to contribute five times more to deficit reduction than the banks.

And now for the future, theirs is the only deficit reduction plan in history which seems to involve asking the wealthy to pay nothing more.

Indeed they have refused to deny that they would cut the 45p top rate of tax for the highest earners still further.

We will make different choices.

So we will levy a Mansion Tax on the most expensive homes over £2 million and clamp down on tax avoidance to help fund the NHS.

We will have a tax on bankers’ bonuses to help fund a programme to put young people back to work.

We will close boardroom tax loopholes to abolish the bedroom tax.

We will not go ahead with a further cut in Corporation tax so we can instead cut business rates for small firms.

And we will reverse the millionaires’ tax cut and ensure that those with incomes over £150,000 pay the 50p tax rate to contribute to deficit reduction.

And we will also need to do a lot more to tackle one of the biggest scandals in our country: tax avoidance by some multinational firms.

This is what I mean by fairer, different choices so we can build a fairer, more equal country.

Some of the wealthiest in our society, who often have the loudest voices, will vociferously complain about some of these measures, including the Mansion Tax.

But it is right and fair for the country.

In these hard times, we are determined to do everything we can to protect everyday taxpayers from bearing an increased burden and to do all we can to protect public services.

And those who have done best, under this government and indeed under the last, must pay their fair share.

We want successful entrepreneurs and those who do well to be rewarded.

But we must pull together as a society not drift apart and we cannot do that if deficit reduction is simply on the backs of everyday people.

Our fifth principle is that this party will only make new commitments that are credible, costed and funded, not unfunded promises.

I understand why some people want us to make manifesto proposals funded by additional borrowing.

But while there is a deficit to be cleared it would be wrong to do that.

This is an essential test of credibility.

I said earlier there was huge uncertainty about the deficit because of economic circumstances and on the basis of recent experience.

That makes it all the more important that parties do not spray around unfunded commitments they cannot keep.

It is why we will only make commitments in our manifesto that are properly funded.

Not commitments that depend on extra borrowing.

That’s why we’ve explained how we will pay for every policy that we’ve put forward: costed, credible and funded.

And what a contrast with our opponents: the Conservative Party has pledged to make tax cuts when they have absolutely no idea how they will fund them.

Tax cuts that will cost over £7 billion a year at the end of the Parliament.

And even more, £16 billion a year, if they happen earlier in the Parliament.

The Tories cannot say how they would fund their tax cuts skewed to help the wealthiest.

This is not responsible and not right.

And the British people should be in no doubt what the Tory promise means: they will pay the price for tax cuts one way or another.

They will pay the price in higher VAT or even bigger cuts to public services.

And it says it all about the Tories’ priorities and ours.

Their priority is unfunded tax cuts.

My priority is to save our National Health Service.

So these are the principles of deficit reduction a Labour government will follow:

Balancing the current budget and debt falling, not destroying productive investment.

An economic strategy to bring the deficit down, not drive it up.

Sensible reductions in spending, not slash and burn of our public services.

The wealthiest bearing the biggest burden, not everyday people.

And fully funded commitments, without additional borrowing, not unfunded tax cuts that put our NHS at risk.

So I can announce our first pledge of the general election campaign:

We will build a strong economic foundation and balance the books.

We will cut the deficit every year while securing the future of the NHS.

And none of our manifesto commitments will require additional borrowing.

These are my clear commitments to the British people.

This is now a fight for the soul of our country.

It is a fight about who we want to be.

And how we want to live together.

The Tory vision is clear: a country that works only for the wealthy few, with public spending back to 1930s levels and unfunded tax cuts put before the NHS.

My vision is different: a country and an economy that works for everyday people, a balanced plan to clear the deficit and secure the future of our NHS.

That is the choice I will now go out and fight for.

That is the choice the country faces.