Steve Richards: Is Darling about to offer a third way?

The Government wants to prove it can cut without impairing public services
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The collapse of the Government's mini-bounce in popularity is easily traced. At the end of last year the Chancellor, Alistair Darling, delivered his pre-Budget report. The polls on the following weekend showed that the Conservatives had accelerated into a formidable lead once more. Ministers had hoped that the cut in VAT and a series of other initiatives would buttress their tentative rise in popularity. Instead voters took note of the dismal state of the economy and turned away.

Tomorrow Darling will announce that his bleak assessment then was on the optimistic side. The figures and the revised forecasts will be grim and will almost certainly overwhelm the subsequent coverage as they have dominated the build-up to the Budget.

At least this time the Chancellor has got the bad news in first. Yesterday's newspapers were full of stories about the scale of borrowing and the losses incurred as a result of the banking crisis. Apparently Darling is ready to cut public spending in response, or "bureaucracy" as the euphemism goes. In December when the Government prepared to unveil the pre-Budget report, it was so excited by the "bounce" in the opinion polls that there was no advance preparation for the gloomy figures. Gordon Brown and Darling wanted to smother voters with good news while announcing suddenly that taxes would rise after the election in order to pay for it.

Although Darling will try to sound upbeat about the medium-term future, he is evidently more determined than before to explain how we will get there, which is why headlines in recent days have focussed on spending cuts. Suddenly the political divide is not as straightforward as it was. Labour's fiscal expansionism versus Tory spending cuts becomes a more subtle split with Darling seeking to stress that he will cut too, while also finding room for an investment package with a green tinge, a Budget for growth as Peter Mandelson has put it, but a Budget with cuts as well: another convoluted third way, perhaps.

The political manoeuvring is stark even if it will be without Gordon Brown's old conjuring tricks, devices that would rebound disastrously on the conjurers in the current climate. The Government hopes to prove that it can cut back without adversely impacting on services while alleging that the Conservatives' axe will have more brutal consequences. The Shadow Chancellor, George Osborne, has already laid down his marker by describing the Budget as the "day of reckoning" when the state of the economy is laid bare.

Osborne has not been too specific about the cuts he is contemplating beyond a general claim that he will attack public spending rather than contemplate further tax rises, although he has not ruled them out either. So far, in terms of the political narrative, the strategic decisions taken by the Tory leadership are vindicated. The scale of the private and public debt is the main theme and the Conservatives stand by, mopping their innocent brows, ready to clear up the mess.

Irrespective of the positioning around what is the last significant Budget before the election the broader picture is depressingly clear. Before the credit crunch, the squeeze on public spending was tight. Whoever wins the next election it will now be much tighter. Some commentators seem quite excited by this, seeking more precise and bigger cuts than those being contemplated by any of the parties. Yet the potential damage of big cuts is rarely addressed.

There was a depressing juxtaposition on yesterday's Today programme. First up was a report on a train trip around Britain by the Rail Minister, Lord Adonis. Unusually for a Transport minister Adonis is passionate about transport. On his journey he discovered some positive aspects about the railways, but also some real problems in relation to congestion, the cost of some tickets,the squalor of some stations and the merely functional facilities of trains. If he had taken the same trip in the mid-1990s he would have experienced much worse. The investment since then has to some extent paid off although far too much of it was wasted on consultants, lawyers and the rest.

But Britain is on the cusp. The main parties are committed to high-speed trains. The current government also plans to invest in more carriages to address congestion issues. These limited measures – taken for granted in the rest of Europe – will be scrapped if the old orthodoxy is revived and public spending is seen as a waste and cuts as worthy. Immediately after the Adonis report the headline was repeated about Darling's pledge to cut public spending.

Instead of the old orthodoxy there needs to be a much more open debate about public spending, what is spent, how it is spent, where there is waste and why there is waste. Some of this should be the subject of intense political debate. Does Britain need to supposedly "punch above its weight" by renewing Trident? Are ID cards a spending priority? Do we need to build so many prisons? Is the private sector more efficient in delivering public services? The message from London's departing transport supremo, Tim O'Toole, is that taxpayers will save cash if the remnants of the Public Private partnership for the Underground are scrapped and the whole enterprise becomes publicly owned.

But an equally important focus must be on a cultural shift. While Tony Blair was never off our screens in the build-up to the war in Iraq, public spending decisions are taken in the dark. To take one of thousands of examples, it is still not entirely clear how GPs secured such a lucrative deal after the big NHS spending increase was announced in 2003. Most cabinet ministers knew nothing about it, let alone the rest of us.

Osborne has proposed that a website is established so voters can follow how their money is being spent. That would be one way in which accountability becomes a little more robust. Another would be to make senior civil servants more accountable for delivery rather than pretend that a minister in a department for around five minutes is responsible for everything that happens.

In the next few years there will be no largesse from the centre. That does not have to mean Britain returns to the public squalor that was one of its distinctive features in recent decades.