The biggest worry for ministers now is what to do when, not if, a big-name manufacturing or services company goes bust. In the 1970s the answer would have been vast taxpayer subsidies, almost regardless of the company’s prospects, as we saw with car companies such as BL, British Shipbuilders or the Meriden motorcycle cooperative. That will not happen now. The word “bailout” is banished in Whitehall.

Defining what Lord Mandelson called a “more active industrial policy” last night is now a top priority after yesterday’s Queen’s Speech. To the surprise of some ministers, and the continued raised eyebrow disapproval of the Treasury, the weekly meetings of the National Economic Council have not been a talking shop but are the main forum where the recession is considered. It is more down to earth than the formal structure of weekly Cabinet meetings. It is also partly the venue: the sombre subterranean Cobra room for emergencies rather than the Downing Street Cabinet room.

Apart from the council, which Gordon Brown chairs, his preferred method of operation is via endless telephone calls. So sofa government has been replaced by telephone government, with similarly little formal procedure or papers.

The discussions tacitly assume that no Government can do much to alter the length or the depth of the recession. All it can do is to mitigate some of the impact. At a propaganda level, this comes down to Mr Brown’s partisan claims about government action versus opposition inaction.

In practice, this has meant, first, the bank rescue package of mid-October. Secondly, there have been government initiatives, reinforced yesterday, to reduce the scale of housing repossessions by state help with mortgage payments, and to encourage the banks to maintain lending to small and medium-sized companies. The banking problem is still the trickiest, given the banks’ desire to rebuild their financial positions.

Ministers are trying to persuade them to adopt a more flexible attitude in not being hostile to whole sectors, such as leisure or automotive suppliers. The Government’s preference is still for talk, and encouragement, not further threats. So Mervyn King’s reference last week to further nationalisation did not go down well in Whitehall.

The next problem is nonfinancial companies, as has already happened in America with the pleas by the big auto makers for government aid. The collapse of Woolworths is a foretaste of what is expected in the new year. The Government is not going to save Woolies. In his Hugo Young lecture last night – and how the former Guardian columnist would have relished Lord M’s return – the Business Secretary rejected “the failed interventionism of previous Labour governments”. As a free trader, he is not about to embrace protectionist subsidies for failing companies. Rather, it is about making the best of globalisation, pushing further in the direction of specialisation.

He accepts that the current crisis will produce what he called “a consolidated financial services sector”; a retail sector accounting for “a smaller share of the economy”; and a slower growth of public service employment.

But that does not mean a hands-off approach. Lord Mandelson argued: “Markets will not necessarily produce all the conditions that maximise our potential to prosper and compete in a global economy.” He is, however, strongly sceptical about picking winners or political patronage of individual companies.

What Lord Mandelson envisages is more of a sectoral approach, looking at areas with growth potential such as supplying low-carbon technology. The Government, he believes, needs to coordinate better in backing new technology, skills, regulation and export promotion. Implicit is the view, also accepted by the CBI, that the Government has too complacently assumed over the past decade that financial services will be enough to see Britain through.

Yet, in the end, it will come down to individual companies. Officials are now looking at which companies are vulnerable, and could go under. Then it is a matter of identifying the right criteria for support, such as working in a growth sector, and having a strong research and development programme. Any government support could involve limited commercially based loans, backing for research and export credits, but not unlimited subsidies.

The Government is trying hard to keep up with, if not always ahead of, events, but these are likely to become worse for quite some time, presenting ministers with decisions as tough as they faced over the bank rescue package.

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