This is the pivotal period in which the battle of ideas over the future of our economy will be lost or won. All the evidence of the failure of austerity has been exposed, and the neoliberals are fighting for their ideological survival. The terrain they have chosen is over state intervention in the economy; they deploy media outriders using trite journalistic tactics to sow fears over the costs of state investment. Since I became shadow chancellor my aim has been to raise the level of economic debate and challenge the hegemony of this egregious ideology.

The budget gives us the opportunity to confront and overrun the bogus economic arguments that have dominated political and economic policymaking for so long. The official figures released alongside the budget this year were utterly damning, a litany of failure not only for this government but for the entire economic philosophy it lives and will die by.

There lurks a belief that government borrowing is akin to burning money

UK growth is now the lowest in the G7, and we have the worst set of official forecasts in the Office for Budget Responsibility’s history. Productivity growth is the worst since Napoleon was retreating from Russia, wage decline the worst since the invention of the steam engine. And clearing the government’s deficit, which Philip Hammond’s predecessor once reassured us would be done by 2015, is now pushed back to perhaps 2031.

The underlying problem is Britain’s productivity growth, which fell off a cliff around the time of the financial crisis and then – unlike in every other G7 major economy – never truly recovered. This matters, because for the last two centuries our economy has been able to grow and produce rising living standards on the back of improving productivity. So while advanced economies across the world have seen a slowdown in productivity since the crash, none has suffered as badly as Britain. And the OBR expects this to continue for the indefinite future.

Improved productivity comes from investment that delivers new equipment, new technology and new ideas that allow an economy to work more productively. But Britain, under Conservative-led governments, is a low investment economy. We have the lowest rate of investment in the G7. What little growth has happened has come through the creation of poorly paid, insecure jobs. Our economy has exploited cheap labour rather than invest in capital.

The primary responsibility for this switch lies with those governments. Under George Osborne, investment by government fell by £18bn. Research spending was cut by £1bn. At precisely the moment the government could have been rebuilding the economy and delivering the stable, long-term investment needed to lay the foundations for future productivity growth, it was slashing essential spending. When Labour returns to government, it will begin to repair that damage by investing £250bn over a decade in transport, communications, housing and research. This will bring us from languishing at the bottom of OECD tables for investment to around the average level of investment of our competitors.

The Tories and much of the media have been attacking our proposals using bogus economic arguments. By focusing on the cost of government borrowing (currently close to an all-time low, thanks to tiny interest rates) rather than the enormous social and financial returns on investing that money, the right creates a narrative that investment costs society rather than benefits it.

Lurking behind this is an assumption that a government cannot invest productively – the belief that government borrowing is akin to burning money. This is nonsense used to support the economic approach that has led our country to this pass. Very clearly, government investment can and should be used to support economic growth, as the OECD and others recommend – as indeed this Tory government, in some small way, is coming to recognise, committing a small amount of borrowing for investment. The meaningful question is whether that investment is wise, given the costs – rather than presuming that only costs exist.

Not all borrowing is good. After missing so many deficit targets, the Conservatives are spending billions on interest payments because austerity has failed to get wages growing and tax receipts increasing. Unlike Labour, they borrow to pay for their failure rather than invest in the future. Our “fiscal credibility rule” commits us to borrowing only for investment, as well as reducing the debt burden over the course of a parliament.

Labour intends to take on, and win, the argument on investment. It is at the centre of our economic debate, and we stand ready to remove this failure of a government and build an economy that works for the many, not the few.

• John McDonnell is shadow chancellor