Britain has developed an economy that is "dangerously dependent" on too many low skilled jobs, a Labour politician warned today.
Setting out an "activist approach" to business and enterprise policy, shadow secretary of state for business, innovation and skills, John Denham said Government needed to do more to create the conditions for private sector growth.
Mr Denham told delegates at the IPPR (Institute for Public Policy Research) North, Rebalancing the Economy conference in Newcastle that governments should act as the "enablers and shapers" of growth.
He said: "We cannot in future put more and more weight on the state redistributing through taxes to compensate for the need to create good quality jobs in well run companies offering fair rewards.
"If labour markets create more and more lower skill jobs at the bottom, and reduce the size and security of the middle, compensating families through redistribution becomes an ever more expensive and impossible exercise in running up the down escalator.
"If poor corporate governance and weak investor action allows unjustified rewards at the top, state action alone cannot force the gap.
"In future, Government must do much more to create the conditions for private sector growth, using all the tools at its disposal."
Mr Denham said the economy needed both world players and innovating SMEs, operating across diverse business sectors and competing within fair markets.
In a swipe at the Coalition's strategy, he questioned the idea that deficit reduction should be the only aim of economic policy, claiming the Government was cutting "too far and too fast - hitting families and costing jobs".
Mr Denham said supporting free markets meant understanding the impact of Government action and fostering the "right type of markets".
He said: "Government cannot substitute their own activity for the growth that must come through the numerous decisions of private sector entrepreneurs and businesses. Nor can or should Governments try to pick and foster individual companies for protected and special treatment.
"But they can and should act as enablers and shapers as the condition for that growth."
Government, he said, had a role to play in creating market certainty, effective competition policy, procurement and regulation.
He said: "Government policies determine to a significant extent the size and shape of key domestic markets, the sectors which attract investment, the opportunities to ensure that research is exploited within the UK economy to develop successful companies with new products which can achieve world markets.
"Government policies can shape the balance between short term pursuit of profits and the long term growth on which greater profits and greater tax income can be based."
Public investment, he said, would play an important role in regional development, but stressed the need to create regional institutions to support private sector growth.
A sectoral strategy was also "essential" to support key sectors in which Britain needed to compete globally, he added.