DAVID Cameron came under fire last night for attempting to rebrand the UK Government's deficit-reduction programme as one not of austerity but of "efficiency".

Relaunching the two-year-old Coalition on a factory floor in Essex, the Prime Minister yesterday stressed how Britain's economy was in a far worse state "than anyone thought" but made clear there would be no let-up in his determination to cut the national debt and rebalance the books.

Nick Clegg, accompanying him, responded to last week's local election drubbing for the Liberal Democrats and the Conservatives by insisting their partnership had to "redouble its efforts to govern for the whole country".

Yet he courted controversy in the way he explained how Britain's economic model was broken and that there needed to be a rebalancing away from finance towards manufacturing.

The Deputy Prime Minister said: "There is a particular dilemma in those parts of the country, which are particularly located in Scotland, Wales and Northern England, where for the last 10, 15, 20 years they have been reliant – some would say over-reliant – on subsidies from governments in Whitehall. Those subsidies, in turn, were funded by explosive growth in the City of London."

He said banks were allowed to get away with blue murder because they generated "huge pots of tax revenue and that tax revenue was transported up the M1 through public subsidy to other parts of the country".

He added: "Whoever was in government now would have to face this really difficult challenge of what you do to rebuild those economies that have become lop-sided.

"That's why I believe so passionately in us investing more in manufacturing because that disproportionately helps those parts of the economy in the north of England and elsewhere."

The setting for the event to mark the second anniversary of the Lib-Con Coalition was deliberately chosen – the shopfloor of CNH Tractors in Basildon.

It placed the emphasis on manufacturing and was a world away from the Rose Garden in Downing Street, where two years ago Mr Cameron and Mr Clegg launched their partnership with jokes and good-humoured banter.

In a surprise move, the Deputy Prime Minister aligned the Coalition with the anti-austerity programme of Francois Hollande, the President-Elect of France.

"President Hollande has made it very clear he wants to place more emphasis on growth. I don't think anyone would disagree with someone saying they want to grow their economy. That's exactly what we are about," declared Mr Clegg.

Later, Mr Cameron suggested there was not really any difference in the Socialist leader's way of reducing France's deficit compared to the Coalition's attempt to cut the United Kingdom's.

Asked about how Europe was turning its back on austerity, the Prime Minister replied: "Let's deal with this issue of what you call austerity, what I might call efficiency – dealing with our budget deficit and getting growth at the same time. We need to do both of those things."

Mr Cameron added: "If you look at what President Hollande is suggesting for France, his programme for getting rid of his budget deficit is pretty much on a pathway with ours."

Last night, Chris Leslie, the shadow treasury minister, dismissed the Prime Minister's remarks on austerity and efficiency, asking: "How out of touch can David Cameron get?

"While he claimed before the election he would just cut waste, his so-called efficiencies actually mean deep cuts to frontline services like police officers, slashing tax credits for working families and raising taxes on pensioners."

He added: "David Cameron's failed policies have pushed Britain into recession and this will mean more borrowing and long-term damage to our economy. There's nothing efficient about that."

It also became clear during the Q&A session that the issue of House of Lords reform now looks doomed.

While Mr Clegg said governments could do more than one thing, Mr Cameron noted how Lords reform was not his top priority but was "a perfectly sensible reform for Parliament to consider".