After consulting a quartet of former chancellors, David Cameron gathered his closest allies and advisers late last month to agree a strategy that widened his party’s dividing lines with Labour.

The decision to drop the pledge to match Labour’s spending plans and to oppose the widely expected “fiscal stimulus” was taken at a meeting in the Tory leader’s Commons office overlooking the Thames in the week before the Pre-Budget Report. At the meeting were George Osborne, Matthew Hancock, his chief of staff and a former Bank of England executive, Oliver Letwin, Tory policy chief, Ed Llewellyn, Mr Cameron’s chief of staff, and Andy Coulson, Mr Cameron’s director of communications.

Mr Cameron had taken into his confidence — as he does increasingly — the former chancellors Lord Howe of Aberavon, Lord Lawson of Blaby, Lord Lamont of Lerwick and Kenneth Clarke. The move to scrap the spending pledge had become inevitable and was swiftly rubber-stamped by the Shadow Cabinet.

The policy had been in existence only since September last year, when the Shadow Chancellor announced it in an article in The Times. At the time it was thought that Gordon Brown was about to capitalise on his prime ministerial honeymoon and call a general election. Then the Tories were happy that the Government intended to reduce spending growth significantly and wanted to avoid putting themselves in a position where — as had happened in the previous three elections — they would be accused of having spending cuts ready.

The party’s right wing disliked the spending pledge because it made tax cuts less likely, and when Mr Brown pulled back from the election many senior Conservatives took the view that the policy was already out of date.

The process to ditch it began in May with a speech by Mr Cameron on the subject of “living within your means”. There were further hints before and after the party conference in October, when Mr Osborne spoke of the “cupboard being bare”.

Labour had long been seeking dividing lines with the Conservatives over the economy. By abandoning the spending pledge, the Tory leadership deliberately obliged. One of those at the meeting said: “We believed then, and we believe now, we were on the right side of that divide.” But yesterday, as a Populus poll for The Times sent shockwaves through Tory ranks by suggesting that Labour was benefiting from the downturn, Mr Cameron widened the divide even farther.

Not only would the Tories not match Labour spending plans in 2010-11, he declared, they would make cuts beyond the £5 billion in efficiency savings idenitifed by Labour, and they would go farther in future years.

The Conservative calculation is that the habitual Labour election charge of Tory spending cuts ahead will cut little ice in the straitened circumstances of the next general election.

It was hard to find many Tory MPs who disagreed with Mr Cameron yesterday when he said that the country could not afford Labour’s splurge of borrowing. But it was also difficult to find anyone who did not admit that the stance they are taking is a gamble. The confidence of the party conference just a few weeks ago has gone.

Tories have watched open-mouthed as Gordon Brown, on his last legs in the summer, has grown in stature as the recession approached and took hold. Yesterday’s poll, suggesting that the country trusts Mr Brown and Mr Darling over Mr Cameron and Mr Osborne, caused further tremors.

Mr Brown and Mr Darling are making hay with accusations that the Conservatives, in opposing their £20 billion fiscal stimulus, are the “do-nothing” party, while Labour will intervene to help ordinary families to weather the worst effects of recession.

Even though the public seems to have grave doubts about the impact of individual measures in the Pre-Budget Report, such as the 2.5 percentage point cut in VAT, people appear to be giving the Government credit for being seen to take action. Interventionism appears, for now, to be popular.

What worries many in the Shadow Cabinet and at the top of the party hierarchy is the perception — shamelessly exploited by Mr Brown and friends — that the Opposition is standing by while the country lapses into recession. Some senior MPs believe that the massive attention given by the party to Damian Green’s arrest has fuelled the impression that they are less concerned about matters that affect ordinary people than they are about MPs’ sensitivities.

It is a charge the party emphatically denies, with Tories pointing yesterday to a list of measures they are proposing to ease the impact of the recession, on guaranteeing credit, relief on council tax and help on national insurance for employers. Alan Duncan, the Shadow Business Secretary, went out of his way to emphasise that the Conservatives would strongly support targeted measures to help manufacturing industry. “Unique circumstances call for unique measures,” he said.

The dilemma for the Conservatives is that they genuinely believe that Mr Brown’s fiscal package will not work and could imperil the recovery. They fear people will pocket any short-term gains to help them to pay for the certain tax rises down the line. “If people know that they will be hit with massive tax rises in a couple of years, they are less inclined to spend more now,” Mr Cameron argued yesterday. “Labour’s short-term giveaways actually undermine confidence and hope.”

They are infuriated by claims, repeated again and again by Mr Brown and Mr Darling, that everyone who matters believes there should be a fiscal stimulus package; the Tories point to qualifications from the managing director of the IMF and the President of the European Central Bank about its dangers for countries with heavy debt and large deficits.

None of that will stop Mr Brown, who keeps throwing back at Mr Cameron the suggestion of a deputy party chairman that the “recession should be allowed to take its course”.

The Tory position will be tested further in the new year when Barack Obama injects a stimulus to the American economy that is likely to dwarf measures anywhere in Europe.

Mr Cameron and Mr Osborne are counting on being able to tell voters at election time that they gave consistent warnings that what the Government was doing was wrong and that the country is paying the price. In any case they will have to pick up the pieces from what Mr Osborne has called Labour’s “scorched earth” policy. If, however, the Conservative leadership turns out to be wrong and the economy recovers fairly quickly, all election bets are off.

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