The stakes are high, for this is a pivotal moment in the life of the Government

One of the Chancellor's better-remembered predecessors, Nigel Lawson, described the public-sector borrowing requirement as the small difference between two very large numbers. He found to his cost just how quickly the two very large numbers concerned, total public spending and total tax revenues, can veer away from the path assigned to them by the Treasury and put a political career on the road to perdition.

In Mr Brown's case, the big numbers are his April Budget predictions of total managed expenditure for this year of £418bn and his estimate of total tax receipts of £407bn. The "small" number was, thus, some £11bn. Yesterday, Mr Brown announced that that "small number" will, in fact, turn out to be a rather larger one, and, at £20bn, almost double his original estimate. A similarly large increase in borrowing is being planned for the next few years.

But we need not feel too much sympathy for the Chancellor. Mr Brown's fundamental miscalculation, and one that has been the nemesis of many a chancellor, came as a result of believing his own propaganda about the prospects for the economy. This was uncharacteristic; for most of his chancellorship, Mr Brown has erred on the side of extreme caution, or at least on the side of expertly managing expectations downwards. Conscious that nothing impresses the House of Commons and the City more than "unexpected" good news, Mr Brown seemed to take enormous pleasure in announcing at the dispatch box that, thanks to his prudent management of the nation's finances, he could afford to be just a little more munificent than previously planned.

That was then – but the world has changed. The new, Mark II Gordon Brown is a man who has moved from his first political task, of establishing the economic credibility of his party, and on to a second: donning the mantle of Bevan and saving the National Health Service. Nothing, certainly not bending a few Treasury guesstimates, will deflect him from that goal – especially since it is so intimately linked to his own ambitions for the premiership.

In order to make his ambitious public-spending plans seem affordable, Mr Brown had to push his assumptions about the capacity of the economy to the most optimistic end of the scale, with fingers crossed that things would turn out fine. As he should have had the courage to admit, they are not turning out fine. The stealth taxes have been rumbled, and there is no appetite for increased income tax; the only alternative is to borrow.

That said, however, Mr Brown's luck and judgement have hardly run out. The Mark I Gordon Brown bequeathed his successor a large amount of headroom for bad years, which is now being so enthusiastically used up.

There is also something to be said for maintaining public spending in current economic conditions and when other parts of the economy, such as business investment and exports, are so sluggish. As Mr Brown tacitly acknowledged, an overheated housing market and low interest rates cannot fuel consumer spending for ever. Business investment and confidence are at a low, and not helped by the Government's failure to offer any hope that it is serious about joining the euro, which could offer exporters and inward investment a much-needed boost.

Mr Brown was also right to remind us about the faltering growth in world trade, although he was convincing no one when he tried to use that fact as an excuse for his botched forecasts. It has also to be said that, with the glaring exception of the housing market, there is little danger of increased public borrowing provoking inflation or pushing interest rates up to dangerously high levels.

The real problem for Mr Brown is that he still appears too bullish about the British and the world economies. If our economy stumbles even further, or if it fails to recover quickly, his recourse to borrowing becomes unsustainable. Then he would be faced with the dilemma that so many of his predecessors have faced; to raise taxes (too near the next election for comfort) or to rein in those spending plans. Either would demolish the Chancellor's reputation and make the Government appear incompetent. Incredible as it may seem today, that is the one thing that might push voters into the arms of the opposition parties.

Such disillusionment on the part of the electorate would be even more pronounced if the tidal wave of money flowing into the public services fails to make much impact on the delivery of the quality services the public expects and ministers have promised. That in turn makes it even more important that the Government faces down the current mood of industrial militancy in the public sector and comes to a settlement with the firefighters in which increased pay is linked to modernisation and raised productivity. That would establish a very important principle for all public-sector pay awards.

This is a pivotal moment in the life of the Blair government. If New Labour loses its reputation for economic competence and fails to improve our schools, hospitals and transport systems, then all that will be left at the end of its time in office will be some small wars won, and a faint whiff of spin. The stakes couldn't be higher.