Liberal Democrat leader Nick Clegg said the last 20 years had been characterised by a neglect of the manufacturing sector and with putting “all the eggs in one basket” in the South East.

Speaking at the British Chambers of Commerce convention in Birmingham, the MP for Sheffield Hallam said there had been too much fascination with the City of London and the multinational sector.

Mr Clegg outlined the principles he believed were necessary to underpin the new economy as the country emerged from this “economic storm”. He said the future banking system needed to look “utterly different” to the present model.

“I think it needs to be based on a fundamental choice that needs to be presented to the banking sector,” he said. “You can no longer take unnecessary risks with people’s money, you will be regulated like a hawk and you will be saved when things go bad. Or you can make the big returns, gamble on the markets.

“That’s fine but if you do that you can’t play with other people’s money in a way that poses a systemic risk to the economy. When things go wrong you will be left to fail.”

He also said that people needed to end the belief that the top-down centralised Whitehall state has the answers. “If Whitehall budgets were the answer then we would be the most prosperous economy on the planet,” he said.

Bottom-up innovation was necessary and Birmingham set a good example for this. He called the government’s growth figures “unbelievable” and “total fiction” but at the same time said the Conservatives were talking about cuts in “spine-chilling” terms without indicating where those cuts would fall.

The Lib Dems were conducting an assessment of spending on defence, ambitions to increase university admissions and pension entitlements for people in public sector.

“We need to ask these big questions if we are going to avoid ‘salami slicing’ our way in cutting budgets,” he said.

Mr Clegg thought Gordon Brown deserved praise for steering the recent G20 summit away from protectionism and “beggar-thy-neighbour” policies.