This may be a very good moment for Mr Brown to move on from the Treasury

Despite all his intellectual ability, Mr Brown seems unable to think creatively: he is storing up difficulties for his successors

Gordon Brown has enjoyed himself over the past couple of weeks. He has been doing what he is best at: giving his colleagues an intellectual bludgeoning while demonstrating his mastery of the Treasury brief. At these moments, Mr Brown seems to relax and rise above the jealousies that have often strained his relations with Mr Blair; not, however, because he has become resigned to a subordinate role. On the contrary, the Chancellor is more at ease with himself because he believes that a Comprehensive Spending Review gives him the chance to show everyone who is the Government's real boss. Alternately dazzled and pummelled, in awe alike of his bravura and his force of argument, quite a few of his colleagues would agree.

They are too easily impressed. It may be good theatre; it is bad government. Mr Brown might be in charge, but the Blair administration is still adrift. For Comprehensive Spending Review, read comprehensive intellectual failure, for its flaws are fundamental.

Any spending review ought to rest upon two principles. The first is that the government should not spend more than the nation can afford; the second, that it should only spend when it can deliver value for money. Mr Brown is ignoring both of those rules.

His spending increases were based upon economic growth assumptions that were well into the danger zone beyond optimism when he first made them. With changed global economic conditions, they have now moved into the Enron balance sheet zone, yet the Chancellor is still acting upon them. This can have only one consequence. Public spending will rise as a proportion of national income, thus forcing up taxes and transferring resources from the wealth-creating sectors of the economy to the less productive ones. This will jeopardise the long-term growth rate and with it so much else.

As Keith Joseph used to argue, any politician who can increase the long-term growth rate by even half a per cent has earned prosperity's gratitude. The reverse applies to a Chancellor who reduces it. When the British economy is growing at around 2.5 per cent, the competing claims of personal living standards, public expenditure and fiscal restraint can all be adjusted. But once the growth rate falls below 2 per cent, everything becomes much harder. Mr Brown is storing up such difficulties for his successors, and not only that. There will be little to show for it.

If the spending increases would transform Britain's health and education, it could be argued that public spending at, say, 42.5 per cent of GDP was a price worth paying. But there is no reason to believe that Mr Brown's expenditure plans will lead to any significant improvements; indeed, the evidence is all the other way.

In the first three months of this year, public spending rose at an annual rate of 11 per cent, horrifyingly high. But the increase in real terms – output and services – was only 4.2 per cent. That implies a public sector inflation rate of 6.8 per cent. This is not only four times the national figure. It is substantially higher than last year's public-sector inflation rate of 4.9 per cent, which was already unacceptable and unsustainable.

This means that public spending increases are becoming a productivity-free zone. The Chancellor may insist that his cabinet colleagues crack down on waste in their departments. Yet all this is mere verbiage. The government machines react in the same way that any organisation would if it were promised a substantial increase in funding. It loses concentration. So the money trickles away into wages and administration costs. No one worries; everyone assumes that there will be more new money next year. This is not just a question of tax and spend, which might be justified. It is tax and waste, which cannot.

Not only that; there is every reason to query the value of some of these supposed increases in output. In practice, higher output from a defective system can often mean a higher level of defective output, as many ministers are well aware.

From the outset, Mr Blair was surrounded by advisers who had little emotional commitment to the traditional statist methods of providing health and education and who were prepared to consider radical alternatives. At moments, the PM himself appeared to be a closet radical. He certainly had no Old Labour illusions about comprehensive education. Long before Estelle Morris, he was not prepared to let his children go within bargepole length of the comprehensives in Islington.

In those early days, it seemed that his reforms might extend beyond a lifeboat service for his own family. Those expectations have been disappointed, which is partly the Chancellor's fault. Mr Blair is an instinctive reformer who lacks the intellectual self-confidence to follow those instincts. Mr Brown has no problems with intellectual self-confidence, but he is not a reformer; he is merely an interferer.

The Chancellor's budgets are masterpieces of regulation and complexity; so are his spending reviews. He cannot bear the idea of allowing people the freedom to exercise choice and use resources as they see fit. It is as if he wants to sit in every classroom and every small business, instructing the professionals how to do their job. The Chancellor has managed to persuade the PM that this Government can meddle its way to better public services; it has merely ended up in a muddle.

Yet in education at least there is a clear alternative; to allow competition, consumer pressure and market mechanisms to exercise their beneficence and improve standards in British schools, just as they have in British supermarkets. Free all schools from state control and fund education through a voucher scheme, which could be weighted in favour of disadvantaged children. There would be many administrative complications to be resolved, and there might be some short-term disruption, though mostly in schools that ought to be disrupted, but within a few years, the era of bargepoles and bog standards would be over.

Health is harder. Though there is obviously something deeply wrong with the way we organise health in this country, no one has yet come up with a solution. But there is one obvious short-term remedy. If you find that you are using a leaky bucket, stop pouring more water into it. There is no point in throwing money at a failing system. Instead, the Government should be identifying the causes of failure; the money will then be available to put them right.

There will be none of that in Mr Brown's spending review. Despite all his intellectual ability, he seems unable to think creatively. Instead of the two principles – prudent spending levels and value for money – that should govern his actions, he seems to have two mottoes: "If it fails, try it again'' and "when in doubt, spend more money". Mr Brown will shortly become the longest-serving Labour Chancellor of the Exchequer, an impressive achievement. But it may be time for him to move on.