Labour's largest individual donor has delivered a stinging criticism of Ed Miliband's party for embracing the spending restraint advocated by the coalition, saying it will ensure the UK's economic performance remains "dismally poor" for years to come.

In a forthcoming pamphlet for the cross-party thinktank Civitas, "A Competitive Pound for a Stronger Economy", businessman John Mills warns that the UK faces years of Japan-style "economic torpor" due to the spending restraint accepted by the three main political parties.

Mills, an entrepreneur and economist who gave Labour £1.6m in shares earlier this year, calls for "radical rethinking" and an end to an approach that appears to tolerate low growth and high levels of joblessness.

"Even the Labour leadership is now talking about accepting most of the economic policy framework established by the coalition government," Mills writes.

"Almost everyone seems resigned to there being no alternative to years of low or nonexistent growth for the foreseeable future

"At the moment, what little increase in GDP there is in the UK barely keeps up with population growth. No wonder that living standards are stagnant, when they are not falling.

"As a result of this consensus that slow growth and high unemployment are inevitable, and that cutbacks and austerity are the only way ahead, we are in great danger that our economic performance is going to remain dismally poor for the foreseeable future."

Mills told the Observer that his criticism of the policy spending restraint endorsed by Labour would not mean he stopped donating to the party because his reasons for doing so were broader.

But his comments will alarm Miliband, who is already facing cuts in funding from the unions following his decision to force through changes in the way members are affiliated to Labour.

On Friday Lord Sainsbury, former chairman of the supermarket chain, who gave Labour more than £16m between 1997 and 2010, told the BBC's Newsnight programme that he was not planning to donate to Labour or any party before the 2015 election.

He said his posts as chancellor of Cambridge University and helping to run the Institute of Government meant it was better if he remained politically independent.

In his Civitas pamphlet, Mills appears to turn Miliband's party conference catchphrase that "Britain can do better than this" against the party leader.

"We may well be into at least a decade of no growth which would have been an almost unthinkable prospect during the boom period prior to 2008. Unfortunately, anaemic growth since 2008 and falling living standards have ground down optimism that we ought to do better than this – indeed much better if we were bold enough."

Mills is chairman of John Mills Ltd, a successful import-export and distribution company. He has been secretary of the Labour Euro-Safeguards Campaign since 1975 and the Labour Economic Policy Group since 1985.