When Alistair Darling rose in the Commons on Wednesday 24 March to deliver his third Budget as Chancellor, the last before the general election (and perhaps the last of the whole New Labour period), he knew that he was engaging in little more than empty theatre. This, he had said beforehand, would be a "workmanlike" Budget, and so it was, on the whole, even if the scrapping of stamp duty for first-time buyers on properties under £250,000 was a nice trick to irritate the Tories, who first proposed it. What the Labour government feared more than anything else was the kind of condemnatory headlines that followed the 2009 Budget, after which the Tories' poll lead rose from 10 to 18 per cent.

Mr Darling has been instrumental in orchestrating the response to the financial crisis and the subsequent worldwide economic downturn - the worst, as he predicted it would be in the summer of 2008, for at least 60 years. At all times, he has conducted himself with dignity, restraint and honesty. Yet this was, as the former Conservative chancellor Norman Lamont said, very much a "phoney" Budget, an exercise in damage limitation as well as being a restatement of the emergency measures taken by Labour since autumn 2008: the recapitalisation of the banks, fiscal and monetary stimulus, and so on. He reasserted a belief that government can make a difference against the small-state free-marketeers.

As the last grand parliamentary set piece of this Labour government, it served as a kind of elaborate pause before the storm to come. Deep cuts in public spending will be announced before the end of the year, whichever party wins on 6 May. David Cameron has confirmed that a Conservative government would hold an emergency Budget within 50 days of coming to power. No matter how fragile the recovery might be, the Conservatives' cuts would be immediate and punitive, with dire consequences.

If Labour won, a comprehensive spending review would be held in the autumn. Measures would be taken to halve the projected deficit (estimated at £167bn, 11.8 per cent of GDP) within four years through tax rises, spending cuts and economic growth. We will soon be living in a very different country; the winds of change will be bitter and prolonged.

An anxiety for Labour must now be the Q1 output figures that are due to be released on 23 April - just 13 days before the election. These could well show that the economy contracted during the first quarter of this year, a trend seen in other EU countries. The threat of a double-dip recession, as our economics columnist, Professor David Blanchflower, writes on page 16, remains real. Is it possible that the recovery has been so fragile because the stimulus was not as vigorous as it could or should have been?

Premature fiscal tightening must be resisted, strongly. The aim, as Mr Darling said during his Budget presentation, should be to bring down borrowing, but "without damaging front-line services" or risking sharp rises in unemployment. And he was right to say that fiscal and monetary stimulus helped to avert a disaster and even more job losses.

The challenge for the next government is to create a more balanced economy, one less dependent on the financial sector. This remains a social-democratic moment, and one that Labour must not squander. A depression has been averted; now we must think our way towards a more stable model for combining redistribution with growth.