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The reason the Tories have had problems is not just confusion. They are on the wrong side of a debate in which almost everybody, including the International Monetary Fund and Bank of England, thinks a fiscal stimulus is necessary. Business organisations, including the Institute of Directors with its call for a £20 billion stimulus, and the Engineering Employers’ Federation, which today calls for £30 billion, think the Tories have got it wrong.

But a consensus can be mistaken. Could the Tories have got it right? Nobody remembers better the long hangover from the recession of the early 1990s when, due to the Major government’s attempt to spend its way out of it, years of tax increases and tight public-spending constraints were needed. While the recession ended in 1992, its legacy persisted to the end of the 1990s, when infrastructure spending fell to its lowest level sice 1945.

Whether the Tories have got it right now depends what kind of recession we are in. If we are facing a short “V” shaped recession, of the kind the Bank predicted earlier this month (without assuming any fiscal stimulus), the sensible strategy for the Treasury would be to do as little in net terms as possible.

The trouble is, nobody can be sure, despite the fact that, thanks to very low interest rates and sterling’s fall, the economy is benefiting from a huge monetary stimulus. Contrast 3% Bank rate and a low pound now with a 15% rate and an overvalued sterling at the beginning of the 1990s.

So the argument for a fiscal stimulus is based on fear of something longer and deeper, akin to Japan during its “lost” decade. We do not know how big a danger this is — which is why a fiscal boost looks compelling. The fact that the banking system remains so fragile, and may not withstand a long, deep recession, adds further weight, however much the idea of the government increasing debt sticks in the craw.

For Brown there is a double advantage. If the economy pulls out of recession quickly he will be able to say it is due to the actions he took that the Tories opposed. If it does not, he will be able to claim he did everything possible to prevent it.

One thing we will get tomorrow is a plan for sorting out the public finances once the recession is over. Whether or not it is a credible plan remains to be seen.

John Hawksworth of Price Waterhouse Coopers suggests it will have to include two key elements — a stress that the tax cuts are temporary in nature and will be reversed, and a real freeze on government spending from 2011 onwards. That would allow the government’s “structural” budget deficit — as distinct from the effects of the economic cycle — to come down from a peak of more than 4% of gross domestic product to just over 1%.

As Hawksworth suggests, any plan would be more credible if it were independently policed. Keynes is much in vogue these days and we all know what he said about the long run. In the long run, one way or another, we will all have to pay for tomorrow’s announcements.

PS: The causes of recession may be different but echoes of the early 1990s are powerful. The banks’ treatment of small firms is following a very similar pattern. Then, banks faced a government investigation which resulted in a code of conduct for small-business lending, though only after the damage had been done.

Now they are under direct pressure from politicians to change their behaviour. The government has additional leverage, thanks to the banking rescue, and we will hear something tomorrow about how it aims to improve matters, mainly through pumping more into the Small Firms Loan Guarantee scheme but also with the threat of more direct action.

Improving things will be an uphill task. Eighteen months ago the word from bank head offices to regional managers was lend to increase market share. Now it is rein back hard on lending to save the bank and your job. Like the early 1990s, but a more extreme version.

Finally, last week’s competition. The challenge was to list the past seven chancellors in order, best to worst, with a tiebreaking justification for choice of champion or dud. The seven are Howe, Lawson, Major, Lamont, Clarke, Brown and Darling. The huge response warrants a league table. I’ll let it run until close of play Wednesday. Results next Sunday.

david.smith@sunday-times.co.uk

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