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Ed Miliband unveils 'predistribution' plan to fix economy

media captionLabour leader Ed Milband: "If they really wanted to make a difference to housing, they would tax bankers' bonuses and use some of the money to build new houses"

A Labour government would attempt to cut the welfare bill by ensuring poorer workers are paid better, Ed Miliband has said.

Instead of redistributing wealth through the tax and benefit system, there should be more "predistribution", the Labour leader said in a speech.

That meant better vocational training in schools - but also a change in attitude from business.

He called for more "responsible" firms that focused on the long-term.

In a speech in the City of London, Mr Miliband said as big a shift in thinking on the economy was needed now as had happened after World War II and in the late 1970s and it could take longer than a Parliament to achieve.

It would also require a major change in philosophy from the Labour Party.

"The redistribution of the last Labour government relied on revenue, at least in part, which the next Labour government will not enjoy," said Mr Miliband.

"The option of simply increasing tax credits, for example, in the way we did before will not be open to us. Of course, redistribution will always remain necessary and I continue to believe that, but we have learned we have got to do more.

"And fiscal circumstances will make it harder not easier."

'Higher wage economy'

What was needed, he said, was more "predistribution" - a phrase he has borrowed from an American academic.

"Predistribution is about saying, 'We cannot allow ourselves to be stuck with permanently being a low-wage economy and hope that through taxes and benefits we can make up the shortfall.'

"It's not just, nor does it enable us to pay our way in the world.

"Our aim must be to transform our economy so it is a much higher skill, much higher wage economy.

"Think about somebody working in a call centre, a supermarket, or in an old peoples' home.

"Redistribution offers a top-up to their wages. Predistribution seeks to go further - higher skills with higher wages."

Mr Miliband said the Labour Party was working with schools, universities and business to come up with new ideas to boost skills training for the 50% of young people who did not go on to higher education, but who still deserved the chance to build a career.

He also revealed he was in contact with Business Secretary Vince Cable, via text message, and was keen to work with the Lib Dems to change the government's economic direction.

Asked about how he could work with a party that spurned Labour in favour of a coalition with the Conservatives, he said: "They made a tragic mistake, but I welcome all people who recant."

The Labour leader was sharing a platform with shadow chancellor Ed Balls, who repeated his offer of cross-party talks on a "mansion tax" - the Lib Dem proposal to slap a levy on high-value properties.

But Mr Balls derided the government's latest plan to kick-start the British economy, by loosening planning regulations.

He told reporters: "It is a mouse when we need a lion to roar. We have got to get this economy moving.

"They should not be changing the planning rules on conservatories. They should have a cut in VAT of 5% done immediately, for 12 months."

He also called for "another bank bonus tax" to fund 25,000 new low-cost homes.