Tory MP Sajid Javid has told MPs he was "astounded" that Labour had described Chancellor George Osborne as "economically illiterate".
As MPs continued a Labour-led debate on the economy on 22 June 2011, one year on from the government's first Budget, Mr Javid said that shadow chancellor Ed Balls was in the Treasury "when the previous government announced that they had abolished boom and bust".
He also noted that Mr Balls had "proposed an unfunded cut in VAT costing £13bn a year and £50bn over the course of the next four years".
The MP for Bromsgrove and former banker declared that the UK is "stranded" because of its reliance on the judgment of the bond markets.
There is "no choice but to deal with the deficit", he said, criticising Labour for its "belief that one can keep spending without any consequences".
"Like Alice," he continued, Labour "lives in Wonderland".
But veteran Labour MP Geoffrey Robinson argued that there was "no evidence" to support the government's belief that public spending cuts will be accompanied by rising growth and falling unemployment.
"Much as I would like it to work, it will not work. It never has worked in history. It is not working in Greece or in Ireland," he said.
He urged ministers to press the Bank of England to deliver another round of quantitative easing, and to ensure that the money is "put to productive ends" this time instead of boosting bank profits.
Mr Robinson concluded: "Will the government change course? No. Will their policy work? No. Are there alternatives? Yes.
"I understand why they do not want to touch VAT, but they could at least get the governor of the Bank of England to do quantitative easing of a large scale."
At the end of the debate, MP rejected Labour's motion calling on the government to "adopt a more balanced deficit plan" and cut VAT to 17.5% to stimulate the economy by 305 votes to 208, a government majority of 97.