At the TUC conference two years ago delegates walked out in protest at Tony Blair's farewell speech. Having got what they urgently desired - a swift change of guard in Downing Street - the unions ought now to be relishing the fruits of a new political order. Instead, living standards are being squeezed, the UK economy faces a serious risk of recession and the Labour Party is mired in discord and unpopularity.

The dominant task for the TUC as it meets for its annual conference this week is, in the circumstances, easily stated: “First, do no harm”. The unions are concerned at the pressures on their members' living standards from low growth and the rising cost of living. The principal issue at the conference will almost certainly be frictions over public sector pay. Six unions have submitted motions calling for co-ordinated action to give the Government a message that a 2 per cent settlement is inadequate. The Public and Commercial Services Union urges a “day of action” on pay; the Prison Officers' Association urges strikes. Alistair Darling's speech to conference is likely to be a magnet for protest.

It is a familiar story. While trade unions are not the cause of imported inflationary pressures, they can aggravate the effects. Brendan Barber, the TUC General Secretary, has briefed that he regards the Government's self-imposed fiscal constraints - the “golden rule” that public sector net debt must not rise above 40 per cent - as arbitrary, and that it needs to be relaxed.

The opposite is true. Abandoning fiscal rules when the going gets rough is the surest way to put further pressure on sterling, exacerbate inflationary pressures and delay an easing of monetary policy. The living standards of union members would suffer.

The unions have some evidence, however, that their voice is increasingly effective in policymaking. Proposals for a windfall tax on energy companies, which the unions have been championing, are still being pressed by many Labour MPs and, remarkably, have not yet been ruled out by the Government. It would be hugely counter-productive policy, demonstrating to business that discretionary and punitive taxes remain an option for a Labour Government. Future investment would be cut, as the activity would be riskier and the expected returns lower. There will be no escape from the current economic malaise that way, for the Treasury or for the unions.

Underlying all the TUC's discussion this week is the relation between the unions and a debt-burdened Labour Party. An uneasy accommodation was reached at Labour's National Policy Forum at the University of Warwick in July. Calls to expand the right to strike were rebuffed and union leaders refrained from worsening the party's fractious state. But not all are likely to remain quiescent.

The Labour-union link is not the most stable of relationships. It needs to be managed carefully and transparently. Having lost economic credibility through profligacy and indecision, Labour must emphasise a message of pay restraint. The unions must, conversely, accept that they are an interest group, not a policymaker.

Jack Jones, the transport union leader, warned his colleagues in 1977 amid economic crisis: “We must look for solutions which will cause the least harm to the community as a whole.” The message must be better heeded this time.