The U.K.'s Labour party, the main opposition party in Britain, plans to hike taxes levied on banks to pay for more free childcare in a move it hopes will help it win a general election in the country in 2015.
Ed Balls, the man who could be the U.K.'s finance minister if Labour wins the next election, told CNBC that although the economy was growing, for most working families things were getting worse.
"People want an economy that works for all and not just a few...They want a government that is on their side," Ed Balls told CNBC Europe's "Squawk Box" on Monday.
Speaking from the Labour party's annual party conference in Brighton, Balls launched a stinging critique of the spending cuts introduced by the ruling Conservative-Liberal Democrat coalition government. As part of his economic plan to help working families, Balls said he would increase the bank levy rate to pay for an increase in free childcare from 15 hours to 25 hours a week.
"I want our banks reformed to play a proper role in our economy. I'm not a bank basher but I do think they should pay more tax," Balls said while the party's shadow business secretary told CNBC the move would give the party around Â£800 million to use offsetting childcare costs.
"The tax take from the financial services sector is Â£2.7 billion lower than it was in 2010....and all we ask is that the financial services sector does a little bit more for our real economy at home," Chuka Umanna told CNBC.
The Labour party has promised an independent audit of its new spending pledges to show it could be trusted to run the economy. But as economic data improves, Labour could face an uphill struggle to convince voters.
Britain's economy grew 0.7 percent in the second quarter of the year, house prices are rising, consumer confidence is improving and the manufacturing sector is expanding. After high profile criticism from the International Monetary Fund (IMF) of tough austerity to get the country out of a recession, the U.K.'s current treasury chief George Osborne cheered the figures last week and said the economy was "turning a corner."
(Read more: UK recovery goes from strength to strength )
Balls disagreed, saying millions of families were still worse off under the coalition. "We said three years ago that he would choke off recovery and he did...The reality is that it's not working. This is not a recovery which is strong or secure strong," Balls said. "George Osborne has a lot of thinking to do."
If the recovery continues, however, it threatens Labour's chances of regaining the power it lost in 2010. That defeat was largely the result of accusations that it had mismanaged the U.K. economy, voter ambivalence over then-leader Gordon Brown and the aftermath of the unpopular Iraq war.
A recovering economy is likely then to take some of the firepower out of arguments made Balls that the government's stubborn adherence to austerity policies is doing long-term damage to the economy.
"The improvement in the economy over the last few months is very helpful to the government and the Chancellor [George Osborne, the U.K.'s finance minister) in particular. It certainly makes it harder to lay into Osborne's austerity policy and it is significant that the Labour party is now focusing its attacks more on wealth distribution," Howard Archer, chief U.K. and European economist at IHS Global Insight, said.
(Read more: UK's Osborne will have to sacrifice some sacred cows )
Criticized for a lack of alternative economic policies and uncertain about the party's leader Ed Miliband, U.K. voters appear to be weary with Labour too, particularly in light of the data that showed Osborne's policies could be working.
A YouGov poll on Thursday showed that for the first time in 18 months, and despite unpopular policies, the Conservative party had pulled level with Labour in opinion polls which gave both parties 36 percent of the vote.
"Labour has seen a double digit lead disappear in weeks. Its summer of discontent could turn into an autumn of despair," YouGov President Peter Kellner told the U.K.'s Sun newspaper which published the survey.
(Read more: UK housing recovery spurs 'bubble' warnings )
"A few quarters of positive statistics are not the same thing as an economy fit for the long term, and we cannot be lulled into a false sense of security. Yes, we are on the right track, but politicians cannot allow themselves to become distracted with other priorities," British Chambers of Commerce Director General, John Longworth, said.
IHS' Archer said Labour faced an uphill battle in the approach to 2015 elections, though a lot could happen between now and then and renewed economic setbacks could not be ruled out, he said.
"Whereas a few months ago it looked highly likely that the economy would be a problem for the government in the 2015 election, it is currently looking increasingly possible that it could be supportive to their re-election prospects."
"There is still the view that Labour have not got a clearly defined economic policy at the moment - this is something they really have to work on and get across," Archer added.
- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt
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