The consensus among commentators, encapsulated by Ernst and Young, is grim. The country cannot afford to carry on acting like a teenager with its first Barclaycard, and the Chancellor must either increase taxes or reduce spending. In other words, Gordon should get on with filling in that hole.

But what if Gordon were to disregard that advice? What if he were to look around the gloomy cavern that the commentators fear may become his tomb and carry on digging? What if, instead of raising taxes so that he could plug the hole, he actually cut them? Rather than placing himself even deeper in trouble, the Chancellor could just dig his way to the light at the end of the tunnel.

The notion that the answer to excess is letting rip would seem to defy common sense. But there are times in life when the counter-intuitive strategy works. Call it the Atkins approach: get thin by eating fat. There is a great deal to be said for the Atkins attitude to life, making a corrective measure a pleasure. And it applies particularly strongly to economics. Faced with the grim news of deteriorating public finances, the Chancellor should cheer us all up by cutting our taxes.

There are always good reasons to reduce taxation. The Government can never spend our money as efficiently as we can ourselves. But there are particularly good reasons to cut taxes when the country is in the position we find ourselves in now, with sluggish growth delivering less wealth for everyone. For cutting taxes, especially from the level we now labour under, will shift the balance of the economy in the right direction. Tax cuts will encourage growth in the real economy, the productive private sector, while helping to bring about the taming over time of a bloated and unproductive public sector.

The case for lower taxation as the route to growth should have been won in the Eighties, when Ronald Reagan and Margaret Thatcher proved that letting individuals keep more of their earnings was the single most effective boost you could give a nation’s economy. But their achievement, and the memories of that decade, are still politically contested. Which is why a recent study of economic performance in the Nineties conducted by the economist Graham Leach for the free market, but non-party, pressure group Reform is so useful.

Leach’s work demonstrates that countries that keep the amount of national wealth they take in tax low have grown far and away the fastest. Nations such as Ireland, which cut its tax take from 34 per cent of GDP to 30 per cent in the Nineties grew much faster than those, such as Australia, Canada or New Zealand, that kept their tax take above 30 per cent of GDP. Those countries such as Britain, whose tax burden crept up from 35 per cent to 38 per cent of GDP, experienced even lower growth over the decade. Leach’s work covers a variety of nations, which have all had different governments, but on one point there is no room to differ: lower taxes promote higher growth.

Which means, of course, that higher taxes stifle growth. As we are discovering in Britain. The Chancellor has been steadily increasing taxes since he came into office, while our big competitors are cutting taxes. So far, Gordon has raised them by the equivalent of 7p on the basic rate of income tax, and his plans already in place will make that a 13p increase. The consequences for the economy are dire: these increases will reduce the growth that we might otherwise have expected by between 0.3 per cent and 0.5 per cent a year. Over ten years, and who would bet against Gordon racking up ten years in Downing Street, whatever the number he is living at, Treasury policy will ensure that growth is 6 per cent less than it would otherwise be.

If, instead of raising taxes at every opportunity, the Chancellor were cutting them, then he would be presiding over a faster-growing economy, equipped to deliver higher yields to the Treasury. The productive part of the economy could, Chris Tarrant-like, hand the Chancellor a handsome cheque to clear all his debts. But if we were really smart we would tell Gordon that we did not want to give him that. Because there is a secondary, and under-appreciated benefit, to keeping the Chancellor begging for it. Maintaining a budget in deficit while taxes stay low forces the Government to think about long-term measures to tame the State.

As the Nobel economics laureate Gary S. Becker pointed out this month in The Wall Street Journal, it was the deficits maintained by Reagan that not only powered America’s growth in the Nineties but also helped to maintain it, by forcing the Clinton Administration to cut back on government spending that wasted public money. The administration that reduces taxes cuts the economic cloth from which future governments must make their coat. And the reforms that Clinton was compelled to enact, on welfare and related federal programmes, kept the US economy healthy.

The US is, of course, running another deficit now: a consequence of George W. Bush’s decision to meet a downturn in growth with a cut in taxation. But, while commentators fret about the level of debt, the US economy is experiencing just what we need here: growth expected to hit between 3.8 per cent and 4 per cent. The US economy is getting fit by letting rip. Shouldn’t we?

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