There have been many victims of the great crash of 2008. The bankers carrying their boxes out of Canary Wharf, the banks going cap in hand to No10. The workers left without a job, the families forced to sell their homes. Yesterday, the financial crisis claimed its first political victim. New Labour is dead, killed by an extraordinary Pre-Budget Report designed to deal with extraordinary times.

As Alistair Darling announced a £16 billion spending spree - paid for by taxes that will rise to £4 billion a year and a borrowing splurge that will leave £1 trillion of national debt - it was as if the Blair years had never happened. The moment the Chancellor sat down, one Cabinet minister sent me a text message that read: “Centrist consensus is dead, the old battle lines are back.”

Gordon Brown once famously declared that his party was “at our best when Labour” - a deliberate contrast to Tony Blair's new Labour rallying cry “at our best when at our boldest”. This mini-Budget was both bold and defiantly “real” Labour. “Anyone earning over £100,000 will pay substantially more in tax,” a Treasury spokesman boasted to journalists afterwards. National insurance will rise for all workers and there will be a new top rate of tax, paid by anyone earning over £150,000 - something that was for years vehemently resisted by Mr Blair, although backed by Mr Brown.

Even the teachers and policemen on £40,000 will pay more after the next election to help to balance the Government's books. There are squeezes on public spending to come but for now it is spend, spend, spend. The golden rules on which Mr Brown based his reputation are confined to history. Boom and bust is back. After years of sticking to the straight and narrow path of prudence, the Prime Minister and Chancellor are prancing along the wide and extravagant road, praying that it does not lead to destruction. It's jam today - tomorrow what?

Leftwingers are dancing delightedly on the grave of new Labour, a philosophy they only tolerated rather than embraced. The Chancellor “has changed the political debate by breaking the taboo that the super-rich should never pay more tax”, Brendan Barber, the General Secretary of the TUC, said.

However, Blairites - including some Cabinet members - are deeply concerned at the demise of a political strategy that they are convinced secured victory for their party at the last three elections. One senior minister described the package as “highly risky”. She said: “It's about the Labour Party not the country - and new Labour was successful because it was a coalition, governing for everyone. A top rate of tax is so iconic and I worry that people will see this as the thin end of the tax-raising wedge.”

Privately, a government aide described the Pre-Budget Report as a disaster. “There is a whole swath of voters in marginal seats in the South of England who got new Labour elected and are going to be thinking, ‘It's back to the bad old days'.” Does Lord Mandelson - who once said that new Labour was supremely relaxed about people getting filthy rich - really think it a good idea to squeeze people earning £150,000 with a top rate of tax? The new band raises £1.6 billion a year - it is more about symbolism than revenue.

It is hard to overstate how central the neutralisation of tax as an issue was to the creation of new Labour. Anyone involved in the 1992 election campaign recalls with horror the disastrous Shadow Budget and the Tories' “Labour tax bombshell” campaign. This was not just about money but about competence - as the American pollster Stan Greenberg put it: “Taxation was the symbol of an out-of-control Labour Party.” For years, old Labour had been associated in the public mind with high taxes and government profligacy; the aim of new Labour was to represent fiscal responsibility and aspiration instead.

In his book The Unfinished Revolution, Philip Gould writes: “We lost the 1992 election and won the 1997 one in large part because of tax... reforming tax-and-spend was the central modernising task. It was not simply a question of tactics or election strategy but a matter of political principle.” The promise not to raises taxes for higher earners was seen as key. According to Mr Gould, focus groups saw a top rate as “a tax on success” - even if they were unlikely to have to pay it.

Perhaps, as Mr Blair said after September 11, the kaleidoscope has been shaken by the economic crisis and the rules of the game have changed now that recession looms. Certainly, Labour's private polling indicates that things are different. The voters are so fed up with the bankers that Mr Brown believes they will be happy to see the rich paying more tax. Yesterday the Prime Minister said that this was no time to follow “old dogmas” - a reference to new Labour's traditions as well as Conservative ones.

If the fiscal stimulus works, and Britain comes through the recession relatively intact, his gamble may pay off. But it was when Mr Blair became starry-eyed about the War on Terror that he lost touch with the public mood. And as he gets evangelical in his own global economic war, Mr Brown is in danger of alienating the aspirational voters on whose support new Labour was based.

The public may be infuriated by the £10 million bonuses that the fat cats take home - but there are not many people on £150,000 who can afford a yacht. It will be the middle-ranking managers, suburban solicitors and hospital consultants - as well as the hedge-fund millionaires - who end up paying the new top rate. And plenty of voters in marginal seats would rather like to earn £150,000.

“£150,000 may seem a lot in Edinburgh but it isn't a lot in Reading,” one senior Labour figure said. “I fear that Gordon has just given a huge Christmas gift to the Tories. We are, to quote Lyndon Johnson, in danger of losing the South for a generation.”

Times Recommends

• We have kit and leadership. Let’s go
• Behind the scenes at the biggest deal
• Conferences — what a waste of money