John McDonnell: a repeat of 2008 financial crash could be imminent

The shadow chancellor said that not enough had changed in the City since before the economic crisis and the same institutions were "set to fail again".

In a wide-ranging speech on the economy, Mr McDonnell set out Labour plans for a "kitemark" scheme for good businesses which offer the living wage and pay taxes "fairly and transparently".

Speaking in the City of London, Mr McDonnell called for reform of the banking sector, breaking up the "failing monopolies" and creating a system of German-style regional and local banks.

Since 2008, he said, "nothing substantive has changed".

"The same failed institutions we had before the crash I believe are all set to fail again."

The concentration of banking in a small number of high street lenders was part of the problem, starving small businesses of credit, he added.

Labour will "look at ways to break up these failing monopolies and promote alternative sources of finance".

That could include a German-style system of regional and local banks "properly managed with a public service mandate".

In a warning to the City about the financial sector's public image, he said: "In terms of bankers' bonuses, we have supported the Government to a certain extent in terms of actually trying to tackle that issue and trying to ensure that we don't go back to some of the problems that we had before.

"I have to say that some of that is beginning to re-emerge and I just caution people within the financial sector that never again should they want to endure the opprobrium they had after 2008.

"There needs to be care about how they arrive at levels of pay and bonuses themselves."

Setting out his Good Business kitemark plan, Mr McDonnell said: "Tax dodgers are wriggling out of making their fair contribution that the rest of us make, the underpayers ducking their responsibility to their own employees by failing to pay a wage anyone can live on.

"It's an attitude that is fine for some, but the decent businesses who make the effort lose out themselves.

"We've allowed a small minority to duck their responsibilities to society, undercutting wages and undermining the public purse.

"The rest of us lose out from the actions of a few. We think decent businesses should be recognised.

"So Labour would introduce a Good Business kitemark scheme. Those businesses who pay their taxes transparently and properly, and who pay their employees at least the living wage, deserve proper public recognition.

"It'll be open to any business that wants to apply. We'll make sure that the strivers are properly and publicly recognised."

Mr McDonnell, who was criticised for his response to George Osborne's Autumn Statement after throwing a copy of Chairman Mao's Little Red Book at the Chancellor, joked: "Someone said to me why did you throw the Little Red Book and I said 'well, Das Kapital is so heavy and it's a number of volumes'."

He repeated his attack on Mr Osborne's plans for continued cuts in order to reach a budget surplus. "There is no credible economic case for austerity and there never has been," he said.

He hit out at the "extraordinary pace" of asset sales, saying the privatisations were not a "long-term economic plan" but a "series of short-term political manoeuvres".

Promising schemes such as the Business Growth Service had been "sacrificed on the altar of austerity".

Mr McDonnell said: "We need to break with the past to meet the challenge of the future. This short-term way of thinking, sometimes called neoliberalism, has had its day.

"Short-termism means all of us lose out. It means skills shortages, poor infrastructure, it means failure to invest in science and technology.

"It means a seriously imbalanced economy both domestically and in relation to the rest of the world.

"Our current account deficit and the dependency it creates on short-term financing, with all of the risks it entails, should be treated as a particular concern today."