It was a brief shining moment. For a little more than a decade Britain's centre left party turned its back on past economic folly. It had realised that it could offer voters a potent combination. It become not just the party of social justice, but also the unabashed champion of economic opportunity and individual aspiration. But when faced with difficult choices in a serious crisis it has abandoned its new dogmas for old certainties.

Central to the appeal of the new movement was its claim to be economically competent and fiscally prudent, a claim it pursued in office and was, for many years, generally accepted. New Labour believed that wealth creation and social justice depended upon each other. It was, as one of its leaders put it, “intensely relaxed about people getting filthy rich”. It determined not to raise the tax rate paid by top earners, for three election this was a manifesto commitment that symbolised how it had come to share the hopes and ambitions of middle class families.

Yesterday Alistair Darling, using the sombre tones appropriate to the occasion, provided Members of Parliament with details of new Labour's tragic end.

First, he explained that in place of the confident growth forecasts that had once been a feature of new Labour budgets, there would now be a recession. The claim to have abolished such busts was a frequent boast of Mr Darling's predecessor. Unfortunately the idea that “boom and bust” had been replaced by permanent stability turned out to be an illusion. Mistaking a house price bubble for a permanent increase in prosperity, was not merely an embarassing gaffe, it was a major policy error.

Second, the Chancellor interred new Labour's message of prudence. Since 1994 the Party had repeatedly promised to borrow only to invest. This would be its golden rule. Yesterday Mr Darling announced that this was gone, replaced by something he comically called the “Temporary Operating Rule”. A technical description of this new rule is that it involves having no rules at all, and borrowing whatever the Government needs to spend.

The only other moment of humour in the Chancellor's statement was similarly unintentional - it came when he said that he intended by 2015-16 only to be borrowing to invest. This was wishful thinking that suggests that whatever else he may have learned from Keynes, Mr Darling has not learned that in the long run we do not necessarily remain in office.

The final nail in new Labour's coffin came with the announcement the symbolic commitment not to increase tax on top earners has been dispensed with.

Tony Blair and Gordon Brown both promised reform of public services that might have allowed the quality of services to be maintained at a lower rate of spending. In the absence of that reform, high spending and the maintenance of a large public sector workforce became the only way of maintaining servive levels. Yet such spending has proven unsustainable.

It is this which led Labour to its fateful decision. At the last two elections it contrasted spending growth with an offer of tax and spending cuts from the Conseratives that it characterised as ideological and unrealistic. This cannot be the dividing line at the next election because Labour will itself have to restrain spending and will be offering only tax rises. So Labour has chosen a different dividing line. It will fight, as it used to, partly on taxing the rich.

The deep international crisis would have been difficult for any Government. For this one - with excessive borrowing already underway - the challenge is particularly severe. It has mortgaged the future on the ideas of the past