It used to be Tony Blair's party trick. At every session of Prime Minister's Questions, whatever he was asked, he would conclude by promising “no return to boom and bust”. He said it so often that Labour MPs began to chant the phrase along with him, before breaking into cheers.

Now these same MPs sit more quietly as the daily news brings reports of economic slowdown, worsening government finances and rising prices - not boom followed by bust, but the prospect of something a little like both at the same time. Mr Blair, of course, is long gone. The challenge of making good his promise falls to his successor.

A large part of how the economy got into this mess and how it will get out of it has little to do with the Government, as Alistair Darling strove mighty hard yesterday to argue (see page 42). The Bank of England needs to hang tough, the private sector needs to keep wage rises down (the 14 per cent offer to tanker drivers is worryingly high), the banking sector needs to recapitalise, and some sense needs to return to oil markets. Yet Government retains great influence and big responsibilities. The biggest of these is to be fiscally prudent.

It is a virtue that Mr Brown, when Chancellor of the Exchequer, spoke of a great deal, but in his latter days stopped displaying. In the financial year 2007-08 the current public spending deficit was £34.3 billion. This was 2.4 per cent of GDP, a very high level for the beginning of a period of slower growth. This year the level will almost certainly be higher still.

Before the last downturn began in 1990-91 there was a current public spending surplus of 0.2 per cent. By the time the economy began to grow again there was a large deficit, peaking at 7.8 per cent. These figures show how badly the public finances deteriorate in a slowdown. The Government will be hoping that economic growth does not fall as badly as it did in the early 1990s, but it should be very concerned that it is entering this turbulent period in the red.

It should be very concerned, but is it? Last month, the Government borrowed £2.7 billion to finance a tax cut. This was not a good sign. And while it is making the right noises on public sector pay, one would have to be a fairly sunny optimist to believe that the Government will, as it should, resolutely yield nothing extra to the public sector unions, organisations on which the Labour Party is increasingly financially reliant.

One reason why Mr Blair and Mr Brown were able to raise spending on public services is that first the Conservatives and then Labour had reduced borrowing, thereby cutting the sum spent by Government on servicing debt. Helped by lower interest rates, the cost of debt fell from 4.6 per cent of GDP in 1987-88 to 2.2 per cent in 2006-07. Billions were freed for more useful purposes. This good work is being undone. It will not take long before it is undone completely.

The poor fiscal position increases the pressure on prices and makes interest rates higher than they would otherwise have to be. The Government must not allow this problem to get worse. Taking a tough stance now, when the Government is weak politically, will not strike it as very attractive. But Mr Brown does not have the money to fund inflationary public sector pay rises. Nor can he afford to squander what's left of new Labour's reputation for economic competence. This is no time to abandon Prudence.