Alistair Darling is trying to buy Labour out of unpopularity, but at a big long-term cost to financial credibility. The Brown Government is doing exactly what its predecessors did when they hit political trouble – throw money at a problem, as both Heath and Wilson did in the 1970s.

Yesterday’s mini-Budget shows just how rattled the Government has become. The timing reflects the urgency of the need to stabilise morale and the remote hope of saving the Crewe & Nantwich by-election a week tomorrow. The £2.7 billion cost is the price of rescuing Gordon Brown from his self-inflicted mistake in abolishing the 10p rate of income tax and his refusal for a long time to recognise the seriousness of the problem.

The package is far larger than was being considered last month. Mr Darling has gone for the simple option, raising the personal tax allowance. This ensures that 4.2 million of the original losers will be fully compensated, or better, while the losses of the remaining 1.1 million will be at least halved.

Mr Darling’s statement succeeded in its immediate goal: Labour MPs cheered; Frank Field apologised for criticising Mr Brown; and public sector union leaders competed to praise the move (in itself enough reason to be wary). So harmony returns, but for how long? And at what cost? Mr Darling said the announcement was not only to help the 10p losers but was also “a family tax cut” for those on middle incomes, the main beneficiaries, at a time when oil and food prices have been rising. But such changes were temporary, for this financial year only. It was right, he said, to finance the costs through higher public borrowing, “ensuring that we do not take money out of the economy at this time”.

This boost to borrowing comes on top of an increase caused by the credit crunch, which is cutting tax receipts. So it is not just a matter of allowing borrowing to rise in line with cyclical forces to help the economy. The Chancellor is making the totals even higher.

Mr Darling sought to offer reassurance that decisions in this autumn’s Pre-Budget Report would be “consistent with fiscal rules”. But, in the same breath, he said that “for future years our aim is to continue the same level of support for those on lower incomes”. This will presumably be via tax credits, but the rise in personal allowances cannot be reversed.

So the Treasury will have to raise a very large amount next year. This means either higher taxes or lower spending since higher borrowing cannot be continued. The public finances are not in a healthy state after the sharp rise in public spending since 2000. The Institute for Fiscal Studies estimates that an £8 billion adjustment will have to be made at some stage. Now, with the economy slowing, is the wrong time. But a painful corrective package cannot be put off for ever.

The danger is that unpopularity makes the Government less fiscally responsible so as to appease disgruntled supporters. So much for prudence and the Iron Chancellor.

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