It wasn’t chance that David Cameron chose to challenge Gordon Brown about the economy yesterday. Mr Cameron does not do anything on a whim. The message of the polls and focus groups is that the Government is very vulnerable on the economy as the credit crunch bites. Most problems are in the financial and property sectors, but there is a sense of limbo, of waiting for a nasty bump.

Yesterday’s exchanges were, however, only partial truths, and need to be supplemented by the less partisan testimony given to the Treasury Select Committee two hours earlier by Mervyn King, the Governor of the Bank of England. The Conservatives argue that the Government failed to prepare for a slowdown by increasing public spending and running a lax fiscal policy, which does not permit any relaxation now.

Mr Cameron said the Treasury’s Red Book showed taxes going up in the Budget, on petrol, buying a car, on shopping, while Mr Brown maintained: “We are injecting more money into the economy this year.” He pointed to the 2p cut in the basic rate of income tax to 20p, forgetting to mention the abolition of the 10p starting rate from next month.

Both party leaders are correct. It all depends on which taxes and timing. Indirect taxes have risen, while, overall, taxes are being reduced marginally in the coming financial year as a result of the Budget decisions. And taking account of decisions announced in the 2007 Budget and the PreBudget Report, taxes will fall by £1.8 billion in 2008-09, helping to push up borrowing. Taxes overall will rise in later years, though not enough to bring public finances back on track, in the view of most economists.

Moreover, as the Financial Services Authority admitted yesterday, the Northern Rock affair exposed serious shortcomings in the tripartite system of regulation set up in 1997-98.

Mr Brown argued that Britain’s problems were of a different kind and scale from those in the US or Germany. So far that is correct, and the main emphasis has been on providing liquidity to restore confidence and to protect depositors, while ensuring, as Mr King emphasised, that the risks relating to losses on lending remain with banks.

The other key issue is the housing market. Nick Clegg, the Liberal Democrat leader, argued that the position is similar to that at the start of the 1990 housing crash, with orders to repossess properties now at more than 95,000, just below the earlier level, while house prices are falling.

Mr Brown was correct that, in some key respects, the economy is better placed than before. Inflation, interest rates and unemployment are much lower than in 1990. But no amount of robustness in defence will be sufficient if, and when, the slowdown bites. There may not be mass redundancies as seen in the early 1980s or 1990s, but living standards could be squeezed.

As Richard Lambert, of the CBI, has cautioned, the slowdown may be prolonged. There may be no contraction, but recovery may be delayed until later in 2009. It is likely not only to be a hard slog for Mr Brown, but also a long, drawn out one before he can think about an election.

Times Recommends

• It’s the beginning of the affair
• Afghanistan: still a price worth paying
• Heroes of the downtrodden