Those who failed to fix the roof while the sun was shining are not best advised [by the Tories] to allow the house to flood

Darling's cut in VAT is a flimsy base for national recovery - but at least the government is being bold

What is remarkable about the debate over how the government should respond to the economic crisis is that so many commentators write and talk as though nothing has changed. It is, we are told, government debt, not bank debt, that should make us tremble. The government, we hear, is to blame for failing to anticipate the crisis, not the bankers and City traders who are largely responsible for the mess here and in the US. Most astonishing, the threat of paying a few more thousand in tax, we are assured, will drive people on £150,000 a year (many of them in the discredited financial services industry) out of the country, causing unimaginable national detriment.

To what happy haven such people would flee as the world tumbles into depression and banks either fold or seek the comforting arms of the state is unclear. Nor is it clear, given their dislike of taxation, how these people think the state should finance bank bailouts. But detachment from reality is widespread. A Times columnist was assured by "one senior Labour figure" (presumably not an ally of Gordon Brown) that "£150,000 . . . isn't a lot in Reading".

Perhaps he or she has a limited knowledge of Reading.

Does even Alistair Darling understand how the assumptions of the past three decades should now be jettisoned? The big question raised by his pre-Budget report is not, as the Tories seem to think, about whether he should have stimulated the economy at all, but whether he has done enough. His stimulus will amount to little over 1 per cent of national income, not the 2 per cent many economists thought the minimum necessary, still less the 4 per cent that the US, already heavily in debt, has deployed. People on low and middle incomes will get a bit of extra help, not the big boost that would direct money at those most likely to spend. Just £3bn will go to capital projects (most likely to create employment), nearly all from bringing forward existing plans, not from starting new programmes in, for example, social housing or low-carbon technology. The break from new Labour's dogma that headline tax rates should never be raised is welcome, as Steve Richards writes on page 14. But having inevitably been branded an old Labour sinner, Mr Darling should have got more out of it.

From 2011, high earners (£150,000 a year upwards) will pay 46.5 per cent in tax and National Insurance, not the 50 per cent tax rate that was seriously debated during new Labour's first and second terms. Action to close tax loopholes - which, according to the Institute for Fiscal Studies, will stop the government getting extra revenue - is lacking.

In other words, new Labour is a bit less new, but still triangulating.

Of the £20bn rescue package, £12.5bn goes to the VAT cut. VAT is a regressive tax. The supposed advantage is that, unlike tax rebates or changes in income tax rates, allowances and credits, it helps the very poor who don't pay income tax. Unfortunately, of the items that dominate poor people's budgets, food and children's clothing are zero-rated, while tax on energy, alcohol and tobacco won't fall. In the event, the well off may benefit from the cut in VAT, as they may be encouraged to buy big ticket items. But as part of a bigger package, the temporary reduction in VAT would be unobjectionable.

As the major element in Mr Darling's package, it seems a flimsy base for national recovery. The benefit is too thinly spread, the effect on retail prices too slight: already there is mass discounting on the high street. A straightforward tax rebate of £500 or more, for those paying only the standard rate, plus a significant uprating of benefits (or one-off payments on the lines of those to pensioners) would have been more effective.

As for the Tories, they have little to offer beyond cynicism. They have no alternative recovery programme. Those who failed to fix the roof while the sun was shining - to use that tired cliché - are not best advised, when the storm arrives, to allow the house to flood and the inhabitants to drown. The Tory charge is that, by increasing borrowing during the boom, Labour has left insufficient room for borrowing now. And it is true some of the money for the NHS and schools - which avoided an irreversible decline in public services - should have been raised from higher taxation. But Britain still has lower government debt than most other developed countries. Sterling has not crashed; on the contrary, the pound rose against the dollar after the PBR. Investors, distrustful of bonds issued by private firms, are ready to buy government debt. If the cost of insurance against Britain doing an Iceland (defaulting on its debts) is rising, that is mainly because of fears about more bust banks.

A deep and prolonged recession, with recovery hampered by an outsized public sector deficit, is unlikely, but not impossible. An inadequate fiscal stimulus, however, only makes it more likely. Mr Darling has rightly faced down the Tory Jeremiahs, but he may not have done enough.

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