David Cameron attacks Labour over debt-ridden economy

The economy has taken the wrong route and is weakened by an overgrown public sector and unsustainable levels of debt, David Cameron will say today. As the government prepares the deepest spending cuts since the 1970s, the prime minister will launch a full on assault on Labour's handling of the economy and insist ministers are united in transforming the economy. In his first major speech since taking office, Cameron will say in Yorkshire: "We have become indebted on an unprecedented scale. Our huge public debt is the clearest manifestation of our economic mistakes – the glaring warning sign overhead telling us we have taken the wrong route. We have been sleepwalking our way to an economy that is unsustainable, unstable, unfair and, frankly, uninspiring." The Tories trod with care on the economy during the general election campaign after their warnings last autumn of an age of austerity alarmed voters. Strategists also thought Cameron made a rare mistake when he gave the impression that the north-east of England and Northern Ireland would suffer swingeing cuts because the public sector dominates their local economies. He had in fact said that a Tory government would make such regions less dependent on the public sector by boosting the private sector. Cameron will return to this theme today when he lambasts Labour for allowing the public sector to become bloated. "Our economy has … become far too dependent on the public sector, with over half of all jobs created in the last 10 years associated in some way with public spending." The prime minister insists it is possible to turn round the economy as the coalition tackles the record £156bn fiscal deficit and encourages growth in the private sector. George Osborne, the chancellor, outlined £6bn of cuts this year, allowing a start to be made to reducing the fiscal deficit this year. Cameron said: "We have set out a series of clear, transparent benchmarks for our economy, from ensuring macroeconomic stability to creating more balanced growth, getting Britain working and ensuring our whole country shares in rising prosperity." The prime minister's speech comes as the first major fault line in the coalition opens up over plans to meet the Lib Dem demand to increase the rate of capital gains tax (CGT) from 18% to closer to the level of income tax. David Davis, the former Tory leadership contender, yesterday joined a campaign by the former cabinet minister John Redwood to push the government to endorse the findings of a commission to simplify CGT. Redwood says that gains of one year should be taxed at the same level as income at the rate of 40%, or even 50% on a short term basis. Longer term gains should be taxed at lower rates on a sliding scale: two year gains at 30%, three year gains at 20%, four year gains at 10%, and no tax on gains after five years. Cameron told the Today programme that he would listen to the critics. But Vince Cable, the business secretary, said: "It is a key part of the coalition agreement that we change the tax system to make it fairer. One of the key elements … is that we deal with capital gains on the same basis as earned income." Sir Menzies Campbell, the former Lib Dem leader, highlighted unease in his party when he said he would rebel against the coalition agreement that Lib Dem MPs can abstain in any vote to increase university tuition fees. Campbell, the chancellor of St Andrews University who has signed a National Union of Students pledge to vote against an increase, told BBC2's Daily Politics: "I have never voted against my party in the past. But this is an issue of some importance and I would find it very difficult not to reflect that pledge in my vote."