Rachel Reeves has been urged to take radical action to rescue growth and “reset” the economy by Sir Tony Blair’s think tank just days before she is due to deliver her Spring Statement. It warns that if growth is not restored then the Government “will have to resort to costly tax rises or spending cuts towards the end of this parliament”.

The Tony Blair Institute for Global Change calls on the Labour Government to “take the brakes off” the economy. It warns of the impact of Labour’s higher taxes on employment and “energy strategy that prioritises speed in reaching net zero over affordability”.

Such policies are blamed for adding “friction to the UK economy at precisely the moment it needs to become more agile”.

The intervention from the triple election winning former PM comes as Labour reels at the loss of the Gorton and Denton by-election to the Greens and follows the Bank of England downgrading its growth forecast for this year from a meagre 1.2% to just 0.9%.

The TBI argues Britain suffers not just from “weak productivity” but a “declining capacity to adjust”, claiming the country “risks falling further behind in the next phase of global competition”.It calls for a “reset in favour of reigniting growth and dynamism” and says this “must serve as the government’s north star”.

Tom Smith, the TBI’s director of economic policy, said: “Reigniting growth is the defining challenge facing the UK. Too often, growth is treated as one objective among many, rather than the engine of rising living standards and national renewal. A reset in favour of dynamism is needed.”

Pressing for a raft of reforms to make it easier for businesses to “hire, invest and grow”, he said the restoration of dynamism is “the difference between an economy fit only for the past, and one that can thrive in tomorrow’s world”.

Fred de Fossard, director of strategy at the Prosperity Institute, called for a repeal of the turbo-charging of workers’ rights spearheaded by former deputy prime minister Angela Rayner, warning that in the hospitality sector “lower wage jobs have been destroyed by new regulations”.

He said: “The labour market has ground to a halt and construction has been suffocated by a failed planning system and high energy costs.”

Shadow Chancellor Sir Mel Stride said: “When even Tony Blair’s Institute is warning that Britain has lost its economic dynamism, it’s clear the Chancellor has run out of road. Labour keep talking up green shoots, but people can feel the truth in their pockets.”

The Federation of Small Business has warned companies are facing “unparalleled cost pressures, including business rates bills, energy standing charges and employment costs”. It claims more than a third (35%) of small firms are “planning to close or contract over the coming year”.

A Government spokesperson said: “We are delivering a stronger, more secure economy: easing the cost of living, bringing down national debt and unlocking growth and investment right across the country. Through backing AI, speeding up planning decisions, investing in innovation and skills, and attracting top global talent, we will continue to ensure the UK can lead in the industries of the future.”

Callum Price of the Institute of Economic Affairs said: “The TBI are right – the economy won’t grow with the handbrake on.”He called on Labour to “reduce the damage they have done” and “repeal the Employment Rights Act, pause the minimum wage hikes, and double down on planning reforms to get Britain growing again”.