Steve Richards: At last – Brown is forced to be bold

It's taken a recession for Brown to be candid about what it takes to make a fairer society

Suddenly the dividing lines in British politics are vividly clear. They could easily become more blurred again, but for now voters cannot complain about a lack of choice as the next election moves into view.

In his pre-Budget report yesterday, Alistair Darling introduced the most overtly progressive package of measures since the Government came to power in 1997. Low earners and pensioners are the main beneficiaries. Nearly all of us will pay for it later, but the wealthy will pay more. In the meantime the Government's objective to abolish child poverty remains in place while so many other policies and previously held assumptions are scrapped.

It has taken a recession for Gordon Brown and Darling to be more candid about what it takes to achieve a fairer society. The collapse in the financial markets seems to have given them the confidence to tip toe away more openly from the Reagan/Thatcher orthodoxies that cast a fearful spell over new Labour for more than a decade.

But I would be very surprised if Darling's package marks the end of New Labour and its instinct to calculate politically, working out obsessively and defensively where it will be placed in the emerging divide with the Conservatives. It would have been surprising if the architects of yesterday's package had behaved in such a fashion. As well as Brown and Darling, both cautious politicians, other contributors included Peter Mandelson and Ed Balls, hardly known as reckless risk takers with the electorate. These are people who want to win the next election and not to lose it in a blaze of principled glory.

Instead this is in some ways a characteristically new Labour response to an economic crisis even though it so obviously marks a break with the past. Indeed, Darling hit upon several new third ways towards a supposedly calmer economic climate. The Chancellor is going on a spending spree, but not for very long. He will put up income tax, but not yet. VAT will come down, but you better be quick as this is temporary.

In other words the political battle ground is subtler than it seems. Both Labour and the Conservatives are committed to achieving economic stability in what was previously known with convenient imprecision as the medium term. Yesterday, Darling spelt out that as far as he is concerned the medium term is in 2015.

The immediate debate is over which party has the best policies to get us there. It is not a return to the old debates about "tax and spend" or indeed a counter-intuitive reversal of the old debate with Labour cutting taxes and Conservatives opposing them. It is over which party can be trusted to bring about a more stable economy as soon as possible.

Brown has calculated that there is widespread support for a fiscal stimulus now, that people are not daft and know it will have to be paid for later. He plans to go into the next election arguing that those on high income should pay more and that there should be spending cuts from "efficiency savings". There is no longer any pretence that such huge levels of borrowing can be paid for out of economic growth in the future, although in a very new Labour twist the Government has a get-out clause.

Darling said he would "review the tax-raising proposals" in the light of the economic situation nearer the time. The outcome of that review will be interesting if Labour is still behind in the opinion polls at the time. Like Harold Wilson, a wily predecessor, Brown likes to keep his options open.

In the meantime the shadow Chancellor, George Osborne, clings to his proposal to set up an independent body to monitor their spending and borrowing levels if they win the next election. This hints at a new discipline, and gives him some space to attack the Government's soaring borrowing levels, but hinting and setting up independent bodies are easier than coming up with precise examples of where spending will be cut. Osborne was in vivacious and witty form in the Commons yesterday. He always is. I do not know why his Tory detractors were so pleasantly surprised. But Cameron and Osborne will have to put forward some precise spending reductions before the election and some tax increases as well in order to be credible in a campaign. I doubt if it will be enough to hide behind such an independent "tax-and-spend" body in the run up to the election.

When will that campaign take place? There were few clues in yesterday's pre-Budget report. Some of the tax increases come into effect in 2010 or later. VAT will go up again in 2009. The timing of the election will be determined by other factors, not least the mighty opinion polls. If Labour enjoys a sustained lead in the polls next year, I suspect Brown will go for it, but this is a package for the long haul and by no means the end of the matter. The year after seems more likely to me. There will be many more twists and turns in the coming months, let alone into 2010, the deadline for the next election. But Brown has not changed as a tactician. He made a political judgement in 1997 that he had to win the trust of voters before he could invest in public services and in the end he got the space to put up public spending. Now he makes a judgement that in order to regain the lost respect of the electorate, the economy must be kick started by government spending and tax cuts that will be paid back later.

For reasons of political prudence he calculates that the most cautious route is to take risks over borrowing. I do not believe he had any alternative. A few minutes after Darling delivered his statement Barack Obama announced that his first priority would be a major fiscal stimulus early next year. They will be happening everywhere.

But will voters blame Brown when the prospect of tax rises loom at the next election? He has calculated that fairness and a sense that an economic recovery is in sight will do the trick, but he does not know for sure. There might not even be the prospect of an economic recovery by then in which case he is doomed.

Events such as yesterday give the misleading impression of a government that can confidently pull the levers and determine outcomes. In terms of the next election and the economy Brown and Darling contemplate the future with their fingers crossed.