At last, Gordon Brown has admitted that Britain is heading for a recession. He had no choice after Mervyn King’s candour on Tuesday. This is much more than a linguistic point. The end of the pretence that a recession was merely a possibility opens the way for a serious debate about what can be done.

It is no longer about preventing a recession but about how far its impact can be mitigated. The Government’s strategy is a combination of going with the flow and producing ameliorative measures. Yesterday, this involved proposals to improve the cash flow of small businesses by ensuring faster payments, and new guidance to judges to hold up housing repossessions unless other options have first been fully examined. These may soften the impact on hard-hit groups, but are unlikely to alter the course of the recession.

Ministers are not really going to spend our way out of recession: any attempt to bring forward capital spending will probably have little effect because of time lags in rearranging complex projects. More important will be how fast, and far, the Bank of England can cut interest rates.

Rather, the Government is accepting, even relishing, a very sharp rise in borrowing, from an estimated £43 billion this year to well over £60 billion, caused mainly by a big shortfall in tax receipts resulting from the slowdown.

How far is this rise in borrowing cyclical, and therefore reversible when the economy recovers, and how far is it permanent? The Tories say that annual borrowing became too high in the good years, while the Government maintains that overall debt is low by international standards. Both sides are correct.

The Government has some leeway to borrow more during the recession, but that puts pressure on Alistair Darling to produce a plan to restore the public finances to health when recovery comes. This will involve higher taxes or much slower spending growth. Hence, the next big test of credibility for the Government will be the Pre-Budget Report in a few weeks.

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