The International Monetary Fund is not usually known for racy language and dramatic press releases. When IMF chiefs come to national capitals, diplomacy is normally the order of the day. So no one should be surprised that in London this week there was no public repeat of the IMF’s previous comments that George Osborne’s policies are “playing with fire”. But even with more diplomatic language, the IMF’s message was stark and uncompromising. And it echoed the warnings Labour has made over the past three years.

Having originally backed the chancellor’s fiscal plans, the IMF has now declared that they are a “drag on growth” and risk permanent damage to our economy. It warned that Britain is “a long way from a strong and sustainable recovery”, as confirmed by recent lacklustre growth figuresthat show we now have the slowest recovery for 100 years. And that is why the IMF followed through on what it has threatened to do for almost two years, by finally demanding “near-term support for the economy” with a £10bn boost to infrastructure investment.

In other words, against a backdrop of a flatlining economy and falling living standards, it called for a temporary rise in borrowing this year to kickstart the economy now and help to create jobs and growth for the future – just as Labour is urging right now as part of a more balanced plan that would get the deficit down in the medium term.

Of course there also need to be sensible spending cuts and tax rises to get the deficit down. But as this chancellor is finding to his cost, an unbalanced plan that chokes off the recovery and leads to rising long-term unemployment won’t get the deficit down. This failure on growth and jobs is why the government is now set to borrow £245bn more than it planned – not to invest in creating jobs for the future, but simply to pay for the costs of its economic failure.

With thousands of construction workers out of work and interest rates at record lows, there is a growing consensus that investing now in improving our infrastructure – affordable housing, transport, school buildings – would give an immediate boost to the economy, encourage more private sector investment, and give us a long-term return as we strengthen our economy for the future.

This is what Labour would be doing right now – alongside other reforms, including a compulsory jobs guarantee for the long-term unemployed to get people off benefit and into paid work. We need a proper British investment bank to increase lending to businesses, radical reform of our banks, and a decarbonisation target set now for 2030 that would give energy companies the certainty they need to invest in Britain.

The IMF has set down a clear challenge. The question is how the chancellor will respond. But the signs are not encouraging. Osborne didn’t stick around to listen to everything the IMF had to say at Wednesday’s press conference in the Treasury. And his aides had already told the newspapers a fortnight ago that, whatever the IMF said, he would ignore it and plough on regardless.

After nearly three years of flatlining, the message from ministers is that any growth is better than no growth at all. Of course that’s true. But slow growth is nowhere near good enough. It won’t make up the ground we have lost over the past few years as other countries have raced ahead. Nor will sluggish growth get long-term unemployment down, boost living standards, recoup lost business investment or generate the tax revenues we need to reduce the deficit. That is why the IMF said that if we do continue bumping along the bottom, we risk doing permanent damage to the economy.

Faced by a warning that a strong and sustained recovery is far from secure and that the risks are to the downside, a sensible and economically literate chancellor would heed the IMF’s advice. Instead I fear that Osborne will once again put his own political pride before the national economic interest. If he does, it will fall to the next Labour government to pick up the pieces.

Labour’s five steps to tackle tax avoidance

In tough times it’s more important than ever that everyone plays their part and pays their fair share of tax.

People and businesses who pay their fair share have been shocked by how little tax some companies seem to pay in Britain. Sometimes there are good reasons why, such as because they are investing in research and development. But all too often companies that pay low taxes in Britain are doing so because they can bend the rules to their advantage.

As Ed Miliband says in his interview with today’s Observer, businesses need to act in a responsible way, but the government sets the rules of the game, so they too have a responsibility to act. David Cameron and George Osborne are not just cutting taxes for millionaires, they are also doing far too little to tackle tax avoidance. And they are pushing through deep cuts to HMRC, which risk being a false economy if they make it even harder to enforce the law.

At the start of the year, we set down a challenge to the government: that they should end the era of tax secrecy. Some companies have not been paying their fair share of tax, hiding behind complex networks of companies and using tax havens to shift their profits out of tax. We said that the government needed to show leadership, bringing forward measures for the G8 that started with the requirement to publish a simple statement for the tax which companies pay in the UK.

But the government has failed to bring forward the changes which are needed to bring transparency. They have also failed to grasp the need to reform of the Corporate Tax system to close the loopholes which are being used by some companies.

This isn’t good enough. David Cameron must deliver real action at the G8 meeting next month, starting with Labour’s five steps to tackle tax avoidance:

i. Labour supports a form of country-by-country reporting. Agreed internationally it would mean large multinational companies should have to publish the key pieces of information which people need to properly assess the amount of tax they pay. This would cover their revenues, profits and taxes in each country that they operate. As well as meaning that multinational companies pay the right level of tax in the UK, this change would be a boost for developing countries. It would stop profits being stripped out from those countries, increasing their tax revenues and reducing their reliance on aid.

ii. Labour would extend the Disclosure of Tax Avoidance Schemes regime, which Labour introduced, to global transactions. The IF campaign have said this would be an effective way of tackling avoidance in developing countries.

iii. Labour would open up tax havens, with requirements to pass on information about money which is hidden behind front companies or trusts. Labour is backing the IF’s campaign’s calls for the UK to Launch a Convention on Tax Transparency at the G8 to deliver this.

iv. Labour will continue to challenge the government on the impact of their changes to Controlled Foreign Company Rules on the UK and developing countries. Labour has repeatedly tabled amendments in Parliament to introduce a proper assessment of the rules, which have been rejected by the government.

v. Labour also wants to see fundamental reform of the corporate tax system, because the shifting of profits and use of tax havens to avoid tax is also a symptom of a system which is failing to keep up with global economic developments.

That is why Labour is today publishing an update on its review into the full Corporation Tax system. The aim of Labour’s review is to develop a system which is robust and effective in the modern world; supports investment and job creation; deals effectively with the complexities of international business; is fair to all; and is transparent and can be better understood by the public.

Families and businesses who are paying their fair share want to see tax avoidance properly tackled. If David Cameron fails to deliver, then it will fall to the next Labour government to act.

Ed Balls MP is the shadow chancellor and Catherine McKinnell MP is the shadow exchequer secretary to the Treasury

A flatlining economy, falling living standards, declining business investment and almost a million young people out of work. With this backdrop, Britain deserved a Queen’s Speech focused on growth and jobs. But the Government has no answers and nothing to offer.

First, on our long-term infrastructure, not only has the Government invested billions less than the plans they inherited, but major projects are beset by dithering and delay. The decision on how to expand aviation capacity in the South-east has been kicked into the long grass and 80 per cent of government infrastructure projects haven’t even started construction.

This is why Ed Miliband and I have asked Sir John Armitt, the chairman of the Olympic Delivery Authority, to examine how our country can improve decision-making on long-term infrastructure. Rather than leaving it to the next Labour government to act, ministers should embrace Armitt’s recommendations, due later this year.

Second, on energy policy, uncertainty means vital investments are not being made. The Government should be legislating now for a decarbonisation target for 2030 to give a framework for those seeking to invest in renewable, nuclear, and clean gas and coal technology. But ministers have ducked the issue by saying they will wait until 2016 before even making a decision.

On banking reform, the Chancellor is rejecting the recommendations of the Parliamentary Commission he set up. And finally on welfare, we’ve had unfair choices and divisive rhetoric but nothing serious to tackle the underlying causes of the rising benefits bill.

To drive down the social and economic costs of long-term unemployment, we need a compulsory jobs guarantee – a paid job for every young person out of work for 12 months or more and every adult unemployed for over two years, which they would have to take up or lose benefits.

To tackle the housing shortage, create jobs and get the housing benefit bill down, we need a major programme of affordable house-building. This would mean a temporary rise in borrowing, as the IMF has been urging. But investing in infrastructure now, at low interest rates, would get our economy moving, give us a long-term return and help cut the deficit and benefits bill.

These are vital issues, but instead we have the bizarre spectacle of the Prime Minister, under pressure from Eurosceptic backbenchers, saying he is relaxed if ministers vote against his own Queen’s Speech. This coalition is a total shambles – offering more of the same, just at the time when the country is crying out for change.

DERMOT MURNAGHAN: Wednesday’s Queen’s Speech was criticised for being too thin so what was missing? Well a long term plan for jobs and growth according to Labour. In a moment I’ll speak to the Shadow Chancellor, Ed Balls, about all that… So we’ll say a very good morning then to the Shadow Chancellor, Mr Balls can we start first of all with this issue of Stephanie Bottrill and her suicide. It’s always difficult to know the precise circumstances of a tragedy like that but do you think it does illustrate the pressures that some people are facing because of this under-occupancy penalty?

ED BALLS: As you said, I don’t know the details of her case, it’s clearly a tragedy but I do know from my own constituents there are people having terrible trauma. If you are living in a home which has been adapted to deal with your blindness, your disability, if you have a bedroom which is there so that your child can come at the weekends because of a custody arrangement and you’re told you are either going to be a lot worse off or you’ve got to give up that special adaptation and access to your child, it puts people in the most terrible stress. Two third of people affected by the bedroom tax are disabled. Now I’m for tough welfare reform but not hitting the most vulnerable, the disabled, it’s not fair.

DM: So driving people to the edge of despair?

EB: There is no doubt this policy is driving people to the edge of despair in their many thousands across the country and I do think that David Cameron and George Osborne and Iain Duncan Smith should stand back from the rhetoric which is always a little bit nasty and a little bit divisive, and said what are we actually doing here? They are not going to save money with a bedroom tax, they are going to end up spending more on housing benefit moving people into private rented houses but in so doing they cause terrible stress, make people a lot worse off who are living on small amounts of money, it’s terrible.

DM: So if not this one, you mentioned it in your first answer there, which cuts do you support?

EB: I’m for tough welfare reform, I would like the government to say there should be a guarantee of a job for every young person at a year but if you don’t take it we’ll cut your benefits and for adults at two years, we are not going to have long term unemployment, we’ll get work but if you don’t take it, unless you get people into work we won’t get the benefit bill down and it’s up by tens of billions since George Osborne became Chancellor because he’s failed on jobs. We’re not going to get housing benefit bills down unless we build more homes and deal with the housing crisis. Yes, to a benefits cap, we support that but in the right way across the country with some differentiation but if you don’t build the homes – and that’s the problem with the Queen’s Speech as you were saying, short term, long term, it’s just more of the same but it’s more of the same which is actually failing to get growth moving, spending down, the deficit down. It’s not working.

DM: Okay so short term, you are absolutely explicit about this, this is from Peter Hain last week, a former colleague of yours ‘we cannot afford to be equivocal about our economic policy: yes, we will borrow more in the short term’. You are now saying that as Labour?

EB: Dermot, I’ve been on your programme many times over three years and have said exactly that, the government is cutting too far, too fast. Their attempt to have fast borrowing reductions was going to backfire and right now, they should have done it two years ago, action now which would be more borrowing this year to cut VAT, build homes, to get the economy moving would actually be the way to get the deficit down. I’ve been told for three years that I was wrong and what’s happened? The economy is flatlining and the government is borrowing £245 billion more.

DM: The first question is, will you be specific how much more you would borrow? Say about, what is it, £120 billion borrowing for the last year, how much more than that would Labour be borrowing now? The VAT cut is at least 12 billion, how much beyond that?

EB: The reason why these discussions are always difficult is because I can’t write a Budget for two years ahead. If George Osborne had done what I’d said two years ago in my view the deficit would be lower today, not higher. We would have a VAT cut for one year that would cost £12 billion, on top of that I would do some more housing and infrastructure investment. We’ve said £4.5 billion from the 4G money could allow you to do 100,000 homes, £2.5 billion. It’s not clear what George Osborne has done with that money because borrowing seems to be high anyway. I think 100,000 more homes, a guaranteed job for young people, get the economy moving, cut VAT temporarily, bring forward some other infrastructure. As I said in my article today in the Independent on Sunday, they’re failing on infrastructure short and long term, they’re failing on welfare reform – they’re not even managing to deliver an energy policy which brings in new investment and new jobs, bank reform – the Chancellor is rejecting the recommendations of his own parliamentary committee. It’s chaos.

DM: Just to stay on the economy, the public would be justified in asking then, given that policy that you’re putting forward, is it an economic law, Mr Balls, that government spending always leads to more growth?

EB: No, because if you spend money badly …

DM: So it’s a gamble?

EB: No, it’s not a gamble but the International Monetary Fund from Washington who are not normally seen of as spendthrift or irresponsible are in Britain at the moment speaking to the Chancellor, saying to him look, your plan is not working. They said if growth undershoots, you should slow the pace of deficit reduction, have a temporary tax cut or some more infrastructure …

DM: But you are hoping that if a Labour government comes into power and it spends more money that there will be growth, that is your hope, it’s not a guarantee?

EB: Look, of course it’s not a guarantee because it depends on whether you do it well or badly. A Labour government coming in would have to be very tough on deficit reduction. All my colleagues know we can’t make spending commitments or irresponsible promises. The tax rises – we can’t promise to reverse any of those tax rises or spending cuts but I think the clear law for the last three years is if you think faster tax rises and bigger spending cuts makes the economy stronger, we have had a weaker economy than pretty much any major industrial country. Even in the eurozone we’ve had a weaker economy. What’s gone wrong? They believe there is a law, faster spending cuts would lead to more growth. That has been disproved entirely, that’s the law that has been broken.

DM: There is a lot of revisionism going on here on the state of the economy over the past few years, it now looks not only like not a triple dip, that didn’t transpire, maybe not even a double dip, which leaves one dip which of course was the Labour recession.

EB: Goodness gracious, Dermot, in the last three years the economy has flatlined for three years. There’s a debate about whether last year in one quarter growth was zero or minus point one. To be quite honest zero is absolutely terrible and disastrous. I’ve been on your programme many times and said I don’t predict a double dip, I don’t want a double dip, I don’t want a flatlining economy, what I want is growth, investment in jobs to boost living standards and get the deficit down and that the government has absolutely not delivered in the last three years. We’ve done worse than America, worse than Germany, it’s terrible.

DM: Okay, government delivery, they say they are, this government, or this Conservative led government says it is going to deliver us a referendum eventually on Europe. What is the Labour position as you watch the turmoil, as it has been described in some quarters, going on in the Conservative party at the moment about this amendment to the Queen’s Speech? What would Labour do and would Labour guarantee a referendum in its manifesto?

EB: Our response is disbelief, disbelief. How can you regret the thing missing from the Queen’s Speech being an EU referendum when what was actually missing was action on growth, jobs, investment in the economy? That’s what we regret. The idea that now the priority for Britain – when the rest of the world is looking at us, we are trying to get our economy moving, we need to say we’re open for business and get people to invest here – the idea now that we decide the priority is to legislate for a referendum on an uncertain prospect, on an uncertain timetable, nobody knows what it is actually about – I think the rest of the world would say ‘my gosh, they’ve lost their marbles’. Then you sort of think the Conservative Party feels as though it’s lost its marbles at the moment. David Cameron has entirely lost control not just of his back benchers but it seems from Michael Gove today on the BBC, he has lost control of his front bench too.

DM: What, saying that he would vote for the amendment?

EB: How can you have a member of your Cabinet on the television today saying he would vote to leave the European Union, I presume if he could to vote for this amendment, when the Prime Minister says he would like to vote to stay in the European Union and what’s he going to do? He’s going to sit on the fence on an amendment to question the integrity of his own Queen’s Speech. He is supposed to be the Prime Minister, he is supposed to be leading the country.

DM: But moving it forward, not now, do you want Labour to go into the next general election without offering a referendum, without offering the British people a choice of either renegotiation or in/out of the European Union? That would not be there?

EB: Look, I think we have to acknowledge the deep concerns in the country, which is not just a UKIP vote but in the Labour Party and the Conservative Party as well, about the direction the European Union is taking and the direction our economy is taking at the moment and if we give the appearance in some sort of elitist way, we’re burying our head in the sand, we’re just going to ignore those things, people would say they are as out of touch as David Cameron. That’s why we must be the party for reform in Europe, for change in Europe and I think we should stay in the European Union.

DM: But this is about giving the British people a choice, would Labour offer that at some point? The Conservatives are saying by 2017 you will have a choice, what is Labour saying?

EB: We are clear first of all if there is any proposal to change the powers between Britain and the European Union which would take powers away from Britain we would support a referendum …

DM: We know about that, we know about that. What about a renegotiation?

EB: I think the first issue is getting the reform we need in the eurozone and the European Union more widely, budget reform, CAP reform. I don’t think it’s sensible, it’s not wise, it’s not balanced and it’s not statesmanlike for political parties, for their short term political advantage, to start making claims about referendums when we don’t even know where we are going to be.

DM: So a commitment to a referendum will not be in the party’s manifesto?

EB: I think it’s the wrong thing to do now. I don’t think we should set our face against consulting the British people, I don’t think we should say anything which gives the impression that we don’t understand their concerns but I think if we were to start answering your question by saying well maybe in two years’ time we play the same destabilising, political, tactical, short term game which is actually making David Cameron look like he’s not really fit to be Prime Minister at the moment.

DM: Okay, Shadow Chancellor, thank you very much indeed. Ed Balls there.