Peter Mandelson has offered his support for a new initiative by Ed Miliband to recalibrate Britain’s industrial policy to focus attention beyond “a handful of people at the top” to all sections of the economy, including low-paid workers.

The former business secretary makes his intervention in a Guardian article on the eve of a speech by the Labour leader in the West Midlands which is inspired by Barack Obama’s campaign to grow the economy “from the middle out, not from the top down”.

Miliband will make clear that an effective industrial policy will only work if it focuses on boosting productivity – and rewarding hard work – at all levels of the economy. He will say that a future Labour government would offer tax breaks to employers who adopt the living wage and it would raise the minimum wage closer to average earnings – £8 an hour – by 2020.

In his Guardian article, Mandelson writes of the Labour document to be unveiled by Miliband: “The Plan for Britain’s Prosperity that Labour is publishing shows that these two elements are part of a bigger whole, the aim of which is not only to ensure a fairer distribution of wealth, but significantly to expand the productive potential of the British economy.”

The intervention by Mandelson will be warmly welcomed by Miliband whose allies were upset recently when the former cabinet ministers Alan Milburn and Lord Hutton of Furness were highly critical of his approach to the NHS. Supporters of Tony Blair have voiced concerns that Miliband has wrongly responded to the financial crash by taking the party to the left.

Mandelson’s article attacks the coalition for having sucked demand out of the economy by accelerating the pace of fiscal consolidation, only to see that slow down as the economy faltered. He writes: “The coalition opted...for faster, deeper cuts in public spending and in investment than were wise and did not send a balancing message about fairness that limited tax increases on those with the broadest shoulders would have done.



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“These measures not only held back the recovery by excessively reducing demand, but severely damaged public services on which towns and neighbourhoods depend, and weakened the economy’s infrastructure. Despite the current signs of improvement, Britain’s longer term growth prospects are not as good as they should be.”

The intervention by Mandelson is significant because he won widespread praise for crafting an industrial strategy during his period as business secretary between 2008-10 which he dubbed in his 2008 Hugo Young Lecture as “industrial activism”. Mandelson helped to support key sections of industry without resorting to a 1970s-style corporatist approach lampooned as “picking winners”.

Miliband will declare on Monday that his new strategy is a direct challenge to the Tories who, he claims, are only interested in helping those at the top. He will say: “There is a choice of two plans at this election. A failing plan under which we would carrying on as we are with a government claiming the economy is a success when it only works for a handful of people at the top. Or a new plan, a better plan, that says this economy must succeed for working families if Britain as a whole is going to succeed.

“Our plan is based on the idea that it is only when Britain’s working families succeed that Britain succeeds. Not the old idea that it is only from the top down that wealth flows. And it is only our plan that recognises that every person in every sector of the economy is a wealth creator. That means we need a plan which nurtures the talents of every young person, supports every business, allows every family to share prosperity and expects each and every one of us to contribute.”

The Labour leader is drawing directly on the thinking of Obama. In his campaign for re-election, the US president spoke of the need “to ensure we have an American economy that works for everyone, we need to grow it from the middle out, not from the top down”.

Ed Balls, the shadow chancellor, announced that he would focus tax cuts on small businesses as part of the plan. He told the Andrew Marr Show on BBC1: “We’re setting out a prosperity plan about how we make sure not by just concentrating on a few wealthy individuals but on everybody – all small firms, all working people – we get the skills we need. I want a lower tax burden for small businesses than now and under the Tories in the future, a British investment bank, getting the apprentices we need.”