Alistair Darling gave himself maximum room for manoeuvre last night for his Pre-Budget Report in mid-November. The Mais Lecture is a Panglossian exercise in making the best of where we are now. It should have been subtitled a study in ambiguity.

The monetary and fiscal framework is defended as correct but should be applied more flexibly. Hence, the Bank of England’s goal of price stability remains right, but with discretion over timing, to support the Government’s “wider economic objectives”. So while the Chancellor is not overriding the Bank’s independence, the desire for lower interest rates is obvious.

Mr Darling accepts the inevitable. “To increase borrowing in a downturn is sensible and to apply the fiscal rules in a rigid manner today would be perverse.” No one disagrees. A big rise in borrowing is unavoidable because of the big fall in tax receipts, and increased spending on unemployment benefits.

Mr Darling’s lecture, however, glosses over the real debate: should the Government announce further tax and spending measures to boost the economy above what is happening anyway? Or should the main emphasis be on cutting interest rates?

These differences are now emerging in Tory criticisms (by George Osborne) and in exchanges yesterday at a fascinating seminar of peers organised by the Lord Speaker. Lord Skidelsky, biographer of John Maynard Keynes, emphasised the case for a fiscal stimulus since low interest rates might not be enough to start a recovery, while Lord Lawson of Blaby, the former Chancellor, disagreed, arguing that a fiscal boost would come too late to help.

There is a further debate between extra spending or tax cuts (most peers favoured the latter as quicker acting, given the time lags in building capital projects). Mr Darling talks of maintaining wider public spending and bringing forward planned spending commitment, such as on housing. But it is unclear whether this goes beyond rephasing existing plans or increasing spending totals. The difference is crucial. Mr Darling’s argument is inconsistent. He claims that there is “a foundation of sustainable public finances”, which permits a boost to the economy, but also promises that the Government will take the decisions necessary to “return borrowing and debt to a sustainable level”, once the shocks are over.

Mr Darling fails to admit that higher borrowing is not just because of the recession but reflects excess spending growth in the good times. So, he argues, while the public finances are strong (and debt levels are low by international standards), he also has to promise that the PreBudget Report will contain plans to demonstrate a commitment to sound public finances.

But we can be sure that the pain, in the form of higher taxes and slower spending growth, will come after the next election.

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