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Politics can often be a battle over blurred ideas but yesterday was a genuinely defining moment - the day when the two main parties nailed their colours irretrievably to the mast. In doing so they set the course for the next general election.
Either Gordon Brown or David Cameron has made the right judgment, for it will not be possible to argue that both men made the correct political and economic calls in this dramatic autumn of 2008. At one level both parties have reverted to type, echoing the more divisive policies of the 1970s: Labour taxing the rich to help pay its way out of the crisis, and the Tories accusing them of profligate spending and excessive borrowing.
"Stability has gone out of the window, prudence is dead, Labour has done it again. Massive borrowing, rising unemployment tax giveaways for Christmas paid by tax rises for life, giving with one hand taking with another. Everything we've come to expect from this prime minister ... like the gambler that can't give up, he thinks he can borrow his way out of debt," was George Osborne's withering verdict.
But Lord Mandelson, the new business secretary, declared that the package would put "money in people's hands".
Many have predicted the end of New Labour and the pre-budget report may well have been the project's last rites. It means that more than ever this coming election, still most likely in 2010, will be a referendum on Brown - the degree to which he is responsible for the scale of the British economic downturn of 2009, whether he took the right steps in the autumn of 2008 to avert the catastrophe, and was honest about the price, and whether in the process he grappled his way to a post-Blairite ideology, symbolised by yesterday's watershed promise to raise taxes on the elite.
The electorate's assessment so far has been highly favourable to Brown and Alistair Darling. Yesterday's BBC Daily Politics poll gave them a 19-point lead over Cameron and Osborne in economic competence. Cameron can only check this political momentum if he can get back on to arguments he has so far lost, on responsibility for this crisis.
With a near religious monotony, Brown and Darling chant that "this is a crisis made in America", not Downing Street. Cameron challenges them incessantly on this point, as he did in yesterday's CBI speech. "To argue this all comes from America is nonsense. Britain enters this recession with the largest budget deficit in the developed world. This is not America's fault," he said. But so far his charge has fallen on closed ears.
By the middle of 2010 it will be possible to tell whether Labour's temporary £20bn fiscal stimulus was the right call, or instead a reckless addition to already historically high borrowing figures.
Inevitably Brown is arguing that if he had not acted, the coming recession of 2009 would have been ever deeper and longer. At the CBI yesterday Brown was portraying himself as the activist government, in contrast to the almost callous do-nothing policy of the Tories: "Simply letting the recession run its course, to say there is no alternative, is not an option. We have seen in previous recessions how a failure to take action at the start of the downturn has increased both the length and depth of the recession. That was the mistake made in the recessions of the 80s and 90s, the mistake made by the Japanese and the mistake made in the Asian crisis. To fail to act now would not only be a failure of the economic policy, but a failure of leadership."
By contrast Cameron argued that Britain simply cannot afford more borrowing. He was helped by yesterday's shocking borrowing figures - £78bn this year and £118bn next year, 8% of GDP. Osborne insists Britain will pay a price in higher taxes to come, what the shadow chancellor described as "a precision- guided missile at the heart of the recovery".
The Tories also claim that reduced borrowing is dependent on wildly optimistic growth projections, higher than the Bank of England's and those of independent forecasters. The Treasury is predicting that Britain is already halfway through the recession, and that growth will be back to 2% by 2010. The Tories claim such a forecast is unrealistic.
The Tories also worry that Labour may have misjudged the effect of cutting VAT. Faced by the certainty of tax rises set out from 2010 onwards for most middle-income earners, consumers will save rather than going on a Christmas spending spree.
The electorate will not have long to wait before making judgments on which party has got it right. If there are no green shoots of recovery in terms of growth by the second half of 2009, the Treasury will have made a horrific miscalculation, and Brown will have some explaining to do on the election trail. If unemployment is heading for 3 million, or interest rates are higher than before, the Treasury's credibility will also be questioned.
And finally there is the politics of tax and spend, the issue on which every election since the 70s has turned. It has been an article of New Labour faith - and a cause of great conflict between Blair, the pollster Philip Gould, Peter Mandelson and Brown - that Labour loses elections when it fails to reassure the aspirational middle classes and threatens to raise income tax. Raise any other tax - national insurance, VAT, green taxes, pension taxes - but do not touch income tax.
Brown, with Mandelson now nestling in his cabinet, broke that taboo yesterday by saying he will raise taxes and national insurance on those earning over £150,000, the richest 1% of the population.
Labour's polling shows that resentment of the City bonus culture has cleared a path to make the rich bear the brunt of the tax rises announced yesterday. It will also do wonders for the soul of the Labour party, which has been tortured by the way in which Tony Blair insisted Labour was not concerned by the gap between the rich and poor. It is unquestionably Brown's biggest gamble, and a historic shift in contemporary politics. But as Brown intoned yesterday: "Extraordinary times require extraordinary actions."
- Pre-budget report
- Economic policy
- Tax and spending
- Alistair Darling
- George Osborne
- David Cameron
- Gordon Brown
- Labour
- Conservatives
- Tax
- Economics
- Recession
- Credit crunch
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