Chancellor John Healey vows to take control of UK's finances

Speaking at the Labour Party conference, Healey said the government was focused on bringing about a "new age of industrialisation". He confirmed fresh funding for shipbuilding and manufacturing, including a £6bn plan to build three new floating docks on the Clyde in Scotland, and more support for apprenticeships.

But the former defence minister - who was made chancellor by new prime minister Andy Burnham in the summer - warned delegates that the money Labour had to spend in the 1990s "is simply not there now". Instead, he said the current levels of government borrowing were "an assault on our common sense, they are an affront to our values".

"That is why the prime minister and I are in lockstep, that we will meet the fiscal rules, that we will maintain control of Britain’s finances." He added that the government's plans would be "built on a rock of fiscal discipline".

Healey is due to present his first Budget on 28 October against a backdrop of soaring government debt, sluggish economic growth and mounting inflationary pressures, including higher energy prices, due to war in the Middle East.

He is also under pressure to cut soaring government spending and told the conference that reducing the welfare bill was "more than an economic must - it’s a moral duty. The best thing we can offer a young person is not a benefit payment, it’s a first job with training and wage."

Kathleen Brooks, research director at XTB, said: "Healey is being pulled in two directions. He has a mountain to climb to persuade Labour Party members that this Budget should show spending restraint, yet he also knows that the market backdrop will not allow more spending or borrowing, especially if it is to fund welfare.

"In the past month, gilt yields have reached multi-decade highs, which will act as a brake on this Budget’s ambitions. While this has been a global phenomenon, the chancellor appears to understand that he needs to face fiscal realities."

Rain Newton-Smith, chief executive of the Confederation of British Industry, said: "The chancellor’s speech set out a strong vision for how a politics of hope can translate into stronger business confidence and, ultimately, higher living standards.

"His commitment to fiscal discipline and recognition that it is a pre-condition for sustainable growth should provide reassurance to markets that the government is prepared to take difficult decisions to secure stable public finances."