We seem to be entering a political price war. It's budget national insurance, cut-price inheritance tax and bargain fuel duty as the parties ask each other: “How low can you go?” Already the Bank of England has sent interest rates tumbling down down down. Now Gordon Brown, David Cameron and Nick Clegg are all considering what else they can slash and burn.

Today the Tories will announce a multibillion-pound tax cut for businesses; Labour will respond in its Pre-Budget Report, expected next week. The Liberal Democrats are promising tax cuts for all but the super-rich. It cannot be long before a politician offers free flights to Rome.

The gospel of St Barack the Tax-cutter is cited left, right and centre, although nobody has yet turned to Joe the Plumber for advice. According to some experts, any shot in the arm to the British economy must be worth at least £15 billion - 1 per cent of gross domestic product - in order to have an effect. Everything must go in this fiscal sale of the century designed to help Britain through the recession.

The real issue, though, is how do the politicians intend to pay for it all? This is what Sherlock Holmes would call the “dog that did not bark”, the clue that will solve the mystery of the next election. And for the first time in more than a decade there is a genuine ideological divide between the two main opposition parties on a fundamental economic question that could determine the way in which people vote. What is more, both sides are equally convinced they are right.

For years Labour has spun the line that it is in favour of public spending, whereas the Tories want cuts - leading to endless tit-for-tat briefing papers about black holes. Now, the dividing line is between Labour's belief that it is right to borrow to tackle the economic crisis and the Tories' conviction that any spending must be paid for by savings, not debt. It is an argument that puts the leaders on traditional sides of the left-right divide.

The Prime Minister is absolutely clear that the only way forward is to increase the national debt in order to pay for emergency measures. Already the fiscal rules on which Mr Brown based his reputation for being an Iron Chancellor have bitten the dust. As the Pre-Budget Report will make clear, government borrowing has exceeded 50 per cent of gross domestic product - and it will rise way beyond that. Dear Prudence is once more just the title of a Beatles song rather than a political philosophy.

Alistair Darling has started to praise Keynes; other Cabinet members compete to show how they have the best plans for spending their way out of a recession. One minister predicted to me recently that Mr Brown would export the strategy abroad, with proposals for a global spending spree to tackle climate change and Third World poverty. There is a sense that the Prime Minister has finally thrown off the shadow of Tony Blair, by reverting to a more traditional left-wing path. “For the first time you're seeing the real Gordon,” said a senior minister. “In a sense the Brown premiership has only just begun.”

Labour strategists are convinced that the economic downturn will play into their hands because voters want the State to intervene at a time when they feel threatened by the brutality of the markets.

The Conservatives, however, are equally certain that they are following the right course with what they call the “housewife” strategy. Their case is that just as ordinary families are going through their weekly household budgets working out which standing orders to cancel, so the Government must tighten the purse strings rather than simply wave around a public credit card. For them Mr Brown's decision to borrow more to invest is just another example of the recklessness that got us into this trouble in the first place.

Yesterday George Osborne said the next election would be “a battle between fiscal responsibility and gross irresponsibility”. The problem is that this leaves the Shadow Chancellor little room for manoeuvre. Today's measures will, for example, be paid for from benefits savings, which will be presumably not be released for several years. Is this a genuinely funded cut or are the Tories in fact borrowing from Peter to pay Paul? The position also raises questions about whether Mr Cameron can credibly stick to Labour's spending commitments on the public services at the next election.

The experts are more divided than ever about who is right. Last week Lord Burns, a former Treasury permanent secretary, told the House of Lords that it would be “very dangerous” to increase borrowing to fund spending or tax cuts. “We begin from a position of a structural budget deficit,” he said. “Adding to that deficit can only increase the problems subsequently.” But the Labour economist Lord Eatwell argued in the same debate that Herbert Hoover wanted to balance the books - and ended up fuelling the Great Depression. Robert Chote, the head of the Institute for Fiscal Studies, thinks unusual action may be needed to deal with exceptional circumstances. “If the Government decided to borrow more in the short term, I would be less inclined to be hard on them than normal,” he said.

Yesterday Gordon Brown said there was an “emerging consensus” on the need to revive the economy. The truth, however, is that the consensus that has existed since 1997 has, in fact, collapsed. The electorate will face a huge choice at the next election. One Cabinet minister admitted that the Labour strategy was a gamble - “We don't know whether it will pay off or not,” he said. The Tory position is, however, a gamble too. This is a test of political judgment but the outcome will also depend on events. It is too early to say whether on polling day the voters will prefer the housewife or the helping hand.

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