While Gordon Brown is eating fish and chips in Southwold, Alistair Darling will be reading the Prime Minister’s red boxes in No 10. He won’t have his finger on the nuclear trigger. “Knowing Gordon as I do, I dare say he will still find time to pick up the newspapers and listen to the radio,” he said.

In the Chancellor’s view there is, however, more likely to be economic meltdown than an atomic Armageddon. Last year his Spanish holiday was ruined by Northern Rock – “after three days I picked up a copy of the FT in the supermarket and thought, that’s it then.”

This year he won’t leave Britain all summer. “We are going through a very, very difficult time,” he said. “You have the twin effect of the credit crunch and very high oil prices. That means the economic news is going to be difficult for quite some time.”

The self-confessed puritan is an appropriate Chancellor for these austere days. He has a picture called Death’s Head on his office wall and his musical hero is the notoriously depressing Leonard Cohen. “I’m going to a concert he’s giving,” he said. “After a day at the Treasury I’m going there to be cheered up.”

As we spoke for nearly an hour in his office, Mr Darling was frank about the scale of the problem facing the economy. He confirmed that he was considering revising the Government’s fiscal rules, although he would not be drawn on any detail. “This is routine work that has been going on at the Treasury for several months,” is all he would say.

It is clear though that the downturn will last far longer and go much deeper than he had expected. “At Christmas most people remained hopeful there would be an improvement by the autumn. Most people would now say it’s far more profound. It’s affecting every economy and everybody. Whether it’s a shop in Shanghai or Sheffield, prices are going up. I can’t say how long it will last.”

The gloomy days could, he believes, continue for years rather than months. When we asked whether Labour could win an election in such difficult economic circumstances, he admitted that the downturn could still be a factor when the country next went to the polls, probably in 2010. “Politics and economics are inextricably linked but it will be a choice of who can get us out of this,” he said.

Although he has already down-graded his growth forecasts twice, the Chancellor said that the true picture was “at the bottom end of my range” set out in the last Budget. He insisted that the country was not in recession but he said that oil prices would “stay high” and there was “bound to be more downward pressure” on the housing market in coming months.

He also expressed his concerns about the banking system: “The real problem we are facing today is a consequence of the fact that too many banks at a very senior level didn’t understand the extent of the risk to which they had become exposed.”

Mr Darling is tightening his own belt. “I am trying to cut back across the board. I haven’t purchased a tie for ages,” he said. “When it costs £30 more to fill up your car, and you go into Tesco and look at the prices of bread, you can see that everything is going up.” At the last Cabinet meeting he told ministers that the spending spree was over in Whitehall too. “I’ve been very clear with my colleagues that there is no point them writing in saying, ‘Can we have some more money?’ because the reply is already on its way and it’s a very short reply. I told them at the last meeting of Cabinet they’ve got to manage within the money they’ve got. I told them they would have to make the tough choices.”

There will be difficult decisions for the Treasury too in the next few months. The money coming in through tax receipts is going down but the bills are still there to be paid. Mr Darling clearly believes that it would be better to increase borrowing, even if that means rewriting the fiscal rules, than to raise tax.

“People will pay their fair share but you can’t push that,” he said. “My judgment at the moment is that there are a lot of people in this country who feel they work hard, they make their contribution and they’re feeling squeezed. People will accept that they have got to pay for the schools for their children and for the hospitals in case they get ill, but they want to make sure the Government is fair about taxation. Every Chancellor has to be very conscious that there is a balance to be struck between how much you can spend and how much people will say, ‘OK if you’ ve got another pound to spend remember me as well’.”

Mr Darling has already borrowed £2.7 billion to pay for the package that defused the row over the abolition of the 10p starting rate for income tax. He admits that the Government did not act quickly enough to compensate the losers.

“It was a mistake on our part. We should have dealt with it better, we should have done something sooner, but I take entire responsibility.”

This week, he announced that the 2p increase in fuel duty would also be postponed. It is clear that he is considering scrapping the fuel escalator altogether. “We have frozen it from time to time and I will come back to it in the Budget. It is not the same as the 1990s,” he said.

There are also growing signs that the Government may scrap the increase in vehicle excise duty. “It is very important that there is a clear environmental signal,” he said, “but we also have to be mindful that we are all taxpayers, we are all motorists.”

Many taxpayers do not understand why they should be bailing out a bank such as Northern Rock but Mr Darling insists that he had no choice. “The wellbeing of every man, woman and child in this country depends on the security of the financial system,” he said. “If you had a company making metal boxes and that went under it would be a tragedy for that company and everybody who worked for it but the economy would carry on.”

The people with savings in Equitable Life may not be so lucky. This week the Parliamentary Ombudsman, Ann Abraham, concluded that the investors should be compensated and ministers should apologise for the regulatory failures. Mr Darling said that he would consider her findings but he would also take into account the conclusions of Lord Penrose’s independent review. “He said that [Equitable Life] was to a substantial extent the author of its own misfortunes.” On compensation he said: “There are issues of principle in relation to the precedent it sets. Wherever you put your money there is always a risk that something will go wrong.”

That should, he insisted, apply to City bonuses too. “People find it very difficult to understand that if you fail you appear to walk off with more. The Government can’t pass laws about that any more than it can legislate about how much a professional footballer gets, but boards need to be far more responsible. Incentives are good but they’ve got to drive someone in the right direction.”

Mr Darling must feel that he inherited a poisoned chalice from his old friend Mr Brown, but he is not bitter. “You deal with whatever you have to deal with,” he said. “I’ve had to deal with the problems of financial stability on a very regular basis. Chancellors have not always had to do that.”

There have been reports of tension between the Chancellor and Mr Brown in recent months. Some in Downing Street have started to suggest that it might be time for Mr Darling to move on. When we asked whether he thought that he was being set up as the fall guy for the downturn, he replied with only the slightest flick of an eyebrow that it had “never entered my mind”. He has not asked Mr Brown for an assurance that he would keep his job. “We haven’t discussed these things.”

It is, however, clear that there have been rows. “Of course I can stand up to Gordon,” he said. “With any group of ministers you will have arguments about what you ought to do or what your priorities ought to be. You’ll have to wait for the memoirs to find out what they were about.”

A Labour ‘technocrat’

Name: Alistair Maclean Darling

Age 54

Education Loretto (private boarding school) followed by Aberdeen University

Family Married for 20 years to Margaret, a former journalist. They have two children, Calum (born 1988) and Anna (1990). His great uncle was a Conservative MP

Career Solicitor in Edinburgh before becoming an advocate at the Scottish Bar. Labour councillor, then an MP for Edinburgh since 1987. Cabinet jobs have included Work and Pensions, Social Security, Trade and Industry and Transport. He has been Chancellor since Gordon Brown became Prime Minister last year

Personal He lives in the Morningside area of Edinburgh, in the same street as J. K. Rowling. While he is in London his wife and children stay at home in Scotland. He has asked to be remembered as “the minister who began to eradicate poverty”, but is more often described as a “managerial technocrat”

Away from the office

Coldplay or the Killers? I like both of them. If I had to choose, the Killers

Ian Rankin or Alexander McCall Smith? Ian Rankin

Roundhead or cavalier? Roundhead

Kilt or black tie? If pressed, black tie

Black pudding or risotto? Black pudding

Sun or shade? Shade

Times Recommends

• Revealed: how Eurocrat leaked secrets over dinners
• Politicians use the net to brainstorm
• British spy in longbow plot to kill Himmler