Gordon Brown’s taunts about Tory spending cuts sound hollow now. His own Government is planning savings as large as those he accuses the Tories of proposing. The Treasury’s spending squeeze represents a much bigger challenge to the Conservatives’ economic strategy than the rise in taxes on the higher paid. Monday’s statement has both stolen the Tory clothes on spending and narrowed the Opposition’s options.

The Tories last week proposed a slower growth in spending than Labour. But now the Government has cut its own spending projections, to only 1.1 per cent a year from 2011. This compares with the previous assumption of 1.8 per cent, and more than 5 per cent annually for much of this decade.

This amounts to £37 billion in cuts: more than Labour claimed in its 2005 election posters about the Tories. As the Institute for Fiscal Studies noted yesterday, these plans would reduce the share of public spending in national income by 2.5 points over three years as the tax burden rises by 1.4 points. So while in 2012-13 the Treasury expects to raise £4 billion from higher taxes, the squeeze should produce £19 billion.

It is not only the numbers; the means also matter. The Government aims to achieve lower spending growth partly through exactly the type of efficiency savings that the Tories have advocated. An extra £5 billion a year is being assumed for 2010-11 through such savings. The PreBudget Report itself contains a long section covering administrative and procurement savings and asset sales.

Darling's £1 trillion debt gamble

Alistair Darling stored up big tax rises for the better-paid and huge public spending curbs in his fight against recession. Watch video

• Need to know: Pre-Budget Report

• Shot in the arm for economy may prove a shot in the dark

• Parties reveal their battle lines for the next election

Life on Recession Road

The people of Marlow Road in Maidenhead, London give their verdicts on the economy

Related Links

• Hospitals, police, nurseries and roads face cuts

There is always room to find further savings: the Tories are proposing scrapping ID cards, regional development agencies etc. But the overall scope for cutting further fat is limited by the extent of this squeeze.

Will it be possible to achieve the scale of savings envisaged by the Government, let alone by the Tories, without affecting frontline public services? After all, in 2005 Labour claimed that savings of £35 billion could be found only by “cutting deep” into such services, including schools, hospitals and the police. Leaving aside the propaganda, the Tories will have to consider whether the State/taxpayer should transfer financing of some services to individuals, as already happens with elderly care and tuition fees.

Britain seems condemned to experience a public finance crisis every generation: in the mid1970s, the early 1990s and, again, now. Paradoxically, the more the Tories protest about the fiscal mess, the more they show how grim their prospects are likely to be in government. It is not a choice between higher taxes and a spending squeeze, but how far both will have to go.

Times Recommends

• Copenhagen will fail – and quite right too
• They’re still wriggling to avoid the flak on Iraq
• Rule the waves? Not any more we don’t