Perceptions about the “state of the nation” tend to change only gradually. In the 1980s the belief that Britain was doomed to decline lingered for some time after the Thatcher reforms had paved the road to economic recovery. Labour, by contrast, has benefited from revived national confidence that Britain had rediscovered the secrets of market-led success. That confidence appears increasingly misplaced. If, as as yesterday’s dismal unemployment figures indicate, Britain’s actual prospects have become markedly more precarious, there is no wisdom, and much risk, in ministerial attempts to deny that there is serious cause for concern.

The 111,000 increase in the numbers looking for work, to 1.53 million, not only takes unemployment back over the 5 per cent mark; it is the biggest three-month surge in unemployment for 12 years. The claimant count, which includes those on jobseeker’s allowance, has been rising for 11 months in a row and now stands at 909,100 — 95,000 up on a year ago. Vacancies are down, particularly in manufacturing, which has shed 109,000 jobs this year. Where are the jobs that will get people off the incapacity benefit rolls and into work? This is not the end of the bad news. These bleak statistics understate actual rates of unemployment. They exclude, as “economically inactive”, people who have given up hope of a job.

Margaret Hodge, the Employment Minister, tried to suggest that this setback is a temporary blip, arguing that over the whole year, the numbers in work have risen by 200,000. But the bulk of that increase is in the exploding public sector, which has added 637,000 jobs since Gordon Brown’s spending spree began in 1999. In that period, the growth rate for private sector jobs has roughly halved — a fresh demonstration of the truism, evident in the tax-and-spend 1970s, that high (and inefficient) state spending crowds out private investment.

Public sector productivity is deplorably low, so that the larger the public payroll, the worse Britain’s overall economy performs. In every year since Labour came to power, British output per hour, which had previously been showing relative improvement, has fallen further behind that of the United States. This year’s productivity gain is expected to be a mere 0.9 per cent, equal to that of Germany, well behind France (1.4 per cent), and half the rate in the US (1.8 per cent) and Japan (1.9 per cent).

A strong element in Labour’s enduring electoral appeal has been Gordon Brown’s ability to persuade voters that public spending could be exponentially expanded, welfare modernised and enhanced, business regulation tightened and workers given greater protection, all without risk to competitiveness. He has held Britain up as a model for sclerotic “old Europe” to emulate, and — not least in France, which is saturated with myths about Britain’s capitalisme sauvage — has been widely believed.

The Chancellor is a masterly mythmaker. The past eight years have seen a marked “continental drift” in Britain. Taxes here are now higher than in Germany for the first time in a generation. According to the OECD, which is as objective as any institution, British state spending will swallow a bigger slice of national wealth next year than the famously profligate German welfare state. The myth has currency no more. Britain is in danger of becoming the laggard of a lagging continent.