It has been clear for some time that an economic era in Britain came to an end with the most destructive financial implosion since the Wall Street crash and the onset of the most severe recession since 1945. But this week's Budget from the Chancellor Alistair Darling confirmed that a political era for this country has, just as assuredly, reached an emphatic conclusion.
The shocking deterioration in tax revenues announced by Mr Darling means that the sterile political squabble of the past decade – Tory "cuts" vs Labour "investment" – will now fall silent. Both parties would need to constrain public spending in the medium term. The only alternative would be to risk destroying the very solvency of the Government.
Other party political totems have fallen too. The defining pledge of New Labour – to leave marginal tax rates for high earners untouched – has gone up in smoke thanks to the new 50p band for those earning more than £150,000.
And the sobering projections in the Budget have heaped more earth on the grave of that Conservative mantra of "sharing the proceeds of growth" between public service spending and tax cuts. As the miserable GDP figures suggested yesterday, there is likely to be little growth to speak of in the coming year. And the direction of most taxes will be up, not down, regardless of which party is in power after the next election.
At the moment, that is likely to be the Conservatives. The economic credibility of Labour looks as shot as that of the Tories after Black Wednesday in 1992. And the 50p income tax levy smacks of desperate populism, especially in the light of the modest sums it would raise. Yet the Conservatives do not resemble New Labour in the years running up to the 1997 election. They are not cruising to electoral victory. They do not have a clear programme. The economic backdrop is not benign. And the recent boost the Liberal Democrats have experienced in the opinion polls suggests Nick Clegg may yet end up with some say in the composition of the next administration.
In some ways, the Conservatives seem as stunned by the sudden collapse of the economy and the hollowing out of the public finances as the Government. Mr Cameron talks of the need for public spending cuts, but has been unspecific about where the axe will fall. Yesterday he identified ID cards, tax credits and quangos as possible targets. But if he is serious about bringing the deficit under control, there will need to be far more substantial savings.
There are fundamental questions that all our political leaders – at least those with serious designs on power – need to answer. What services do we want the state to provide? And what can Britain, as a nation reliant on the confidence of international investors, afford?
Just as crucially, we need a vision of what industries will provide Britain's economic prosperity in the coming years. In recent years the financial services sector has accounted for some 30 per cent of corporate profits. The fall in tax receipts from the banking industry is one of the central reasons for the catastrophic deterioration of Britain's public finances.
Mr Darling was right about one thing in his Budget speech: Britain cannot cut its way out of recession. Economic growth is the only route to a healthy recovery. But where will that growth come from now that the unsustainable expansion of the banking sector has come to an end?
This week's Budget confirmed that Britain's old political and economic world has passed. But its replacement is still struggling to be born.
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