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Labour renewed its attack on the coalition government's spending cuts package, as former City minister Lord Myners argued the speed and scale of cuts were dangerous and unnecessary.
Speaking during a debate on the spending review in the upper chamber, Lord Myners said: "There was no risk of national bankruptcy in May. There was no talk in the Bank of England or the Treasury about 'national bankruptcy'."
"This is a complete figment of imagination and 'convenient truth', which is now peddled by the government," said Lord Myners.
Lord Myners joined the Labour government in 2008 to in the battle to stop the collapse of the banking system.
Speaking for the Opposition, he said: "It is the decision of this government to make cuts of this scale, to make cuts at this speed, and with the burden bearing upon the poorest and most vulnerable in our society."
Treasury commercial secretary Lord Sassoon, beginning the debate, referred to the government's aims of "growth, fairness and reform".
The Conservative minister said the CSR represented a "clear plan to tackle the nation's deficit and demonstrates the government's commitment to investment in growth, in jobs and to the future of the British economy".
But he recognised that, to tackle the largest deficit in recent history, it had involved "some of the most difficult decisions any modern government has had to make".
He told peers: "We need to take control of our country's finances and put them back on a sustainable path."
Without that, the UK's priorities would have been "controlled by the demands of our debtors".
The minister said: "Restoring credibility to our finances is most fundamental to our recovery, to our jobs and to the growth of our economy."
Liberal Democrat Treasury spokesman in the last Parliament, Lord Newby provided general support to the spending review programme.
Lord Newby said the current immigration cap, which is separate from the review, was "highly damaging and must change soon".
He added: "We must also create the conditions that help companies to grow."
Last week's announcement on transport infratstructure projects, he said, would "only deal with part of the need".
And he said the establishment of the green investment bank is also a "welcome development but it needs to attract "significantly more capital" if it is really to bring infrastructure up to speed.
Former Conservative chancellor Lord Lamont welcomed the action taken by the government in the spending review, describing it as a "bold set of announcements".
He told peers there were "risks" but there were also risks in not cutting the deficit.
"I think after a decade of recklessness, the chancellor and the current coalition have laid the foundations for a decade in which we could earn our prosperity in the future rather than borrowing it."
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