Campaigners have warned that Britain is hurtling towards a new economic crisis, and call for a £50bn "Green New Deal" to create more sustainable growth and better-paid jobs and equip the country for a low-carbon future.

After two quarters of better-than-expected GDP growth and a batch of positive economic indicators – including rising house prices and upbeat business surveys – the coalition is hoping the summer economic bounce will turn into a longer-term recovery. But five years on from their first demands for a radical reworking of Britain's business model, the Green New Deal group, which includes Green party MP Caroline Lucas, economist Ann Pettifor and tax expert Richard Murphy, says the need for an alternative approach is greater than ever. In a report published on Monday, and seen by the Observer, it argues that recent growth has been based on unsustainable rises in consumer spending and house prices and could end in "the mother of all credit busts".

"Recovery is an interesting word to apply to an economy that is marked by rapidly rising personal debt, highly insecure and often low-paid work, and rising underlying carbon emissions. What we're calling a recovery is poor, divided, indebted and polluting," said Andrew Simms, chief analyst at thinktank Global Witness and an author of the report.

Central banks have poured cheap money into financial markets to drive down interest rates and prevent deflation and depression. But Green New Deal says this is a dangerous gamble: "Given the choice, they prefer to have the problem of asset prices going through the roof than the problem of deflation. If they are wrong and the bubble bursts before the recovery arrives, it will be the mother of all credit busts," it says.

Under an alternative plan in the Green New Deal report, the government would invest £50bn into expanding green technologies over five years, building low-cost housing, and employing a "carbon army" to insulate hundreds of thousands of homes and reduce energy use.

The authors say these measures would create more, and better-paid, jobs than the current debt-fuelled bounce, which Pettifor described as an "Alice in Wongaland" recovery. Lucas, who is the MP for Brighton Pavilion, said a grassroots workforce could be trained to lag Britain's chilly lofts "within weeks". "Ministers want to cut a nice big ribbon on a new nuclear power station – but this would be far more effective in getting our emissions down quickly," she said.

Real incomes have continued to fall over the past year, as above-target inflation has outpaced pay growth, in what the TUC has described as the greatest wage squeeze since the 1870s. Green New Deal argues that if more workers were paid a living wage it would help to create more sustainable consumer demand. Frances O'Grady, the general secretary of the TUC, which begins its annual congress in Bournemouth on Sunday, supported the Green New Deal initiative, saying: "The green economy already employs nearly a million people, in areas from electric-car manufacturing to wind-turbine installation. Implementing some of the ideas in this report could help these industries create more of the skilled and well-paid jobs we need if we are to build a sustainable recovery."

The authors suggest their pro-growth policies could be paid for by scrapping the controversial HS2 rail project; cracking down on tax evasion; and launching a fresh round of quantitative easing.

Instead of using electronically created money to buy government bonds from City investors, as the Bank of England has done with almost all of the £375bn-worth of QE it has undertaken since 2009, the proceeds this time would be used to invest in green projects, and pay off private finance initiative debts, freeing up public money to be spent elsewhere. The report argues that investing in affordable housing, in particular, would benefit those on lower incomes more than the better off. "It can mean that people have more disposable income after housing costs, which in turn boosts spending in the local and national economy," the report says.

The authors argue that a rapid boost in the supply of housing would also help to "dampen the housing bubble beginning to appear in response to government measures such as Help to Buy, which facilitates prospective homebuyers to find a deposit". The controversial Help to Buy scheme was the centrepiece of George Osborne's March budget, and has been questioned by a number of critics, from the former governor of the Bank of England, Lord King, to the International Monetary Fund, amid fears that it could create a new property boom.

Mark Carney, the Bank's new governor, has said he is "very alert personally" to the risk that a housing boom is emerging – and said he was ready to burst any bubble, by targeting mortgage lending.

Reforming the bailed-out banking system is another central proposal of the report, suggesting that Royal Bank of Scotland, which is majority-owned by the taxpayer, could be broken up into a series of regional lenders that would build relationships with local industries. "All the mechanisms which have been brought into play to encourage lending to the productive part of the economy don't seem to be working," says Simms.

Labour has promised to introduce a British Investment Bank, to boost lending to businesses; but it has eschewed much of the Green New Deal agenda over the past five years, focusing on an emergency VAT cut as the centrepiece of its policies to create a recovery.

Other members of Green New Deal include Charles Secrett, former director of Friends of the Earth; Jeremy Leggett, chairman of green energy firm Solarcentury; and Larry Elliott, economics editor of the Guardian.