Chancellor George Osborne is "a menace to the future of the economy", crossbench peer Lord Skidelsky has claimed.
During a debate on the Spending Review, Lord Skidelsky, an economic historian and biographer of John Maynard Keynes, warned that the chancellor's economic policies risked leaving the UK "doomed to years of interminable recession".
He urged ministers to set up a national investment bank, and "capitalise and mandate [it] to spend x billion pounds a year on investment projects".
He added: "Candidates for such investment would be infrastructure projects, like the high-speed rail link, road-building and repairs, house construction by local authorities or projects to do with carbon emissions in housing.
"Lending by the investment bank does not affect the deficit so it does not spoil Mr Osborne's austerity story."
Lord Skidelsky said the aim was to "unblock the channel of spending when orthodox fiscal and monetary policy is for one reason or another disabled".
Tory former Treasury minister Lord Stewartby said: "There is a tendency to be pessimistic about our economic performance and potential."
Lord Stewartby continued: "Two or three quarters of positive GDP figures don't guarantee a strong recovery; but they are more likely to point to an improvement than a deterioration.
"There is still a long way to go and I am sure the government must hold its nerve in implementing the plans set out in the spending review in the face of the criticisms and challenges that will certainly follow.
"I believe it has the commitment and determination to do so and the 'double-dippers' may be disappointed. I have moved in the last few months from being moderately pessimistic to being moderately optimistic."
Watch part one and two of the debate