Former Labour minister Lord Myners has criticised former colleagues' "flawed thinking" on the economy and called for a crackdown on spending "waste".
The ex-City minister said there was "nothing progressive" about a government that had ran up huge debt that would impact on later generations.
He had witnessed "considerable waste in public expenditure", which could be reduced, he told the House of Lords.
The government said it was "the latest blow to Labour's economic argument".
Lord Myners, who was made a working peer and drafted into the Labour government in 2008, told the Lords: "I found it very frustrating to sit in meetings with some of my fellow ministers talking about creating jobs in the green economy, creating jobs in biotechnology.
"The government can't create jobs. The government can create the environment which is conducive to the creation of jobs, but it cannot create jobs and we mislead ourselves if we believe it can."
He added: "There is nothing progressive about a government that consistently spends more than it can raise in taxation and certainly nothing progressive that endows generations to come with the liabilities incurred with respect to the current generation."
Lord Myners said considerable spending cuts were needed to lower the public debt, but "considerable waste in public expenditure" should also be tackled.
"I have seen that in my own experience as a government minister and I hope that the government will pursue with vigilance its search for waste and search for efficiencies without cuts which are injurious to the provision of public service."
Current City minister Mark Hoban said his predecessor had "let the cat out of the bag and admitted what we have been arguing all along".
Mr Hoban said: "This is yet another shocking indictment of the previous government's record and the legacy it has left behind that we are now having to deal with.
"This is just the latest blow to Labour's economic argument."
Labour argues against cuts in spending this financial year, suggesting it could jeopardise the fragile economic recovery.
It argues that, while in government, had it not used public spending to support the economy during the recession, the country would have been at risk of falling into a depression.