Livingstone says the party is paying price for compromise

Ken Livingstone called on Tony Blair to respond urgently to complaints from pensioners and fuel protesters yesterday. He accused the Government of being "timid" on everything from tackling poverty to joining the euro.

Ken Livingstone called on Tony Blair to respond urgently to complaints from pensioners and fuel protesters yesterday. He accused the Government of being "timid" on everything from tackling poverty to joining the euro.

In a speech at The Independent's fringe meeting on Labour's Second Term, the Mayor of London warned that the Prime Minister was in danger of undermining the party's chances of winning another big majority because of his failure to be more radical.

In a robust and wide-ranging speech, Mr Livingstone was cheered by delegates when he called for the "public execution" of Chris Woodhead, the chief inspector of schools, and compared William Hague's immigration policies to those of Jörg Haider, the far-right Austrian policitian.

Mr Livingstone spoke as Chris Smith, the Secretary of State for Culture, Media and Sport, became the latest cabinet minister to suggest that he should be readmitted to the Labour Party before his five- year expulsion period was over.

When asked at a fringe meeting if the Brent East MP should come back, Mr Smith said: "In due course, probably, yes. But this is someone who has campaigned against a Labour Party candidate, and that's not something which should be dismissed lightly." Mo Mowlam has already called for Mr Livingstone's readmission.

Mr Livingstone also won a round of applause when he suggested that Labour's selection contest for mayor resembled President Milosevic's attempted "ballot rigging" in the current Yugoslav elections.

Mr Livingstone said that Labour's "lunatic commitment" at the last general election to stick to Tory spending limits for the first two years meant that real change had been put on hold for millions of voters.

Instead of improving rail services, hospitals and schools, the Government had overseen one of the tightest spending squeezes since the war and was now paying the price in the opinion polls, he said.

Worse still, Gordon Brown's decision to grant the Bank of England independence meant that interest rates had been kept too high, with the resultant loss of 250,000 manufacturing jobs since 1997.

"We promised New Labour, New Britain. People's hopes were raised, but there hasn't been anything of the kind. It's been cautious Labour, and that is a tragedy given the size of our majority," Mr Livingstone said.

The former GLC leader said that recent petrol protests proved that the public had tired of the Government's policy of pushing up indirect taxes such as fuel duty while keeping income tax down. Labour should have been more honest and told voters it would raise income tax instead, he said.

"The eruption of anger over fuel shows that we have got the balance between direct and indirect taxation wrong. By jacking up taxes like fuel duty, we have pushed people over the pain threshold. Fuel duty is like the poll tax. It hits rich and poor alike and we shouldn't be doing that."

Mr Livingstone was scathing about Mr Blair's failure to come out in favour of the euro and called on the party to drop its commitment to a referendum and instead join immediately after winning the next election.

"The choice for Britain is between Europe or America. It is not a question of whether we should be in or out of Europe, but a simple question of the euro or the dollar," he said.

"Do we want the American model of the state with all its rapacious implications, or do we want the European model with a welfare state and a belief in community?"

Mr Livingstone also criticised the Chancellor's failure to offer universal increases in pensions and said Labour's grey vote would suffer.