Asked a few weeks ago about the problems piling up on his desk, Alistair Darling is said to have complained that troubles were arriving by the wheelbarrow-load.

Yesterday brought an unwelcome reminder of how stuffed with nasties his in-tray is at the moment and how little room for manoeuvre he has to deal with the woes besetting the economy. Just as some of Wall Street’s top banks are struggling to cope with the damage caused by past excesses, so Mr Darling finds that his scope to respond to the crisis is drastically curtailed by the mountain of debt rising around the Treasury.

This problem, too, is the product of excess – the excessive largesse of Gordon Brown. Prudence ought to have dictated that, while the economy boomed, the Treasury built up a nest egg to cushion it for bad times. The Prime Minister was told this often enough but chose to believe his mantra that “boom and bust” was banished.

So Britain is entering a painful downturn – and a probable recession – and battling a crisis in the City, lumbered with already hefty deficits.

Having repeatedly breached its borrowing plans under Mr Brown, the Treasury is on course to do so even more dramatically under Mr Darling as the downturn saps tax revenues. Borrowing in the first five months of the financial year was already £28.2 billion, up from £16.5 billion last year. The Chancellor’s hope of a £43 billion deficit for the year looks forlorn: experts expect a figure as high as £65 billion – 4.4 per cent of GDP.

This is the highest state borrowing for 13 years and it is set to rise farther still as the downturn deepens. Michael Saunders, a Citigroup economist, fears that the deficit could reach levels last seen during the 1970s, when it rose to 7 per cent of GDP.

All of this leaves Mr Darling scant room to bolster the economy with higher spending or tax cuts. He will face a nasty dilemma if the banking crisis leads to a need for large-scale bailouts of failing institutions that could dwarf Northern Rock.

That danger is only underlined by the US Treasury’s move yesterday to raise an extra $100 billion to give more ammunition to a firefighting Federal Reserve.

It will be little consolation to the Chancellor that the fiscal squeeze he confronts will be equally painful for any opposition successor, should Labour lose the next election.

david.wighton@thetimes.co.uk

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