After the fat years come the lean. For eight long years, the public sector has enjoyed the richest of pickings as Gordon Brown used a combination of higher taxes, and higher borrowing to pump billions into the public services. Now that long period of largesse is at an end, and tougher times lie ahead. The squeeze is on, in earnest.

Yesterday’s combined Pre-Budget Report and three-year Comprehensive Spending Review marks a watershed in Labour’s management of the economy and the public finances.

This may be more than just the moment of handover from the long Brown Chancellorship to Alistair Darling’s stewardship, and of transition from public-sector plenty to more straitened times for Whitehall. It may also be the moment when the strains built up in the public finances during Mr Brown’s decade-long tenure at Number 11 finally become tellingly clear.

Close scrutiny of the detailed numbers in yesterday’s plans leaves a worrying picture of a government that is boxed in financially, and of a country in which the national finances are badly strained.

We have known for a long time that this spending round would be painfully tough, and so it has proved. So tough in fact that, as it turned out, the new Chancellor has already found it impossible to stick to the eye-wateringly tight plans set out by his predecessor, and now boss, Gordon Brown.

In his March Budget, the now Prime Minister set out a strategy for departmental spending to grow by a little under 2 per cent in real terms, after inflation, over the next three financial years, from 2008-09 to 2010-11. That would be less than half the 4 per cent average pace seen since 1999. In practice, the plans laid out by Mr Darling yesterday have been relaxed a bit at the margin, so that spending will rise by 2.1 per cent in real terms, thanks to top-ups of about £2 billion extra in 2008-09, rising to £5 billion more in 2010-11.

Most of the extra cash appears to have been used to take some of the sting from the budget squeeze now facing Labour’s priority services - and the public’s - in health and education. UK-wide, education spending will now rise by about 3 per cent a year in real terms over the next three years. That is still very sharply down from the rates of more than 5 per cent enjoyed by schools and universities over the past three years, but not nearly as tough as the 2.4 per cent spending growth that Mr Brown intended only in March. Similarly, health spending will rise by 4 per cent in real terms – down from an average of more than 7 per cent since 1999, but not as sharply as the 3.5 per cent some had forecast.

The Chancellor’s decision yesterday to ease up on his purse strings just a little, even before Labour’s big spending squeeze, has really begun raises big questions. Will the Government be able to cope with the financial corset into which it has strapped itself with a general election only two years, or less, away?

The further slide into the red by the Treasury confirmed by yesterday’s forecasts certainly emphasised the need for a period of greater stringency to place the public finances on a more secure and sustainable footing.

Prior to yesterday, the March Budget already envisaged that government borrowing in the present financial year would amount to some 2.4 per cent of GDP at a time when the economy has been enjoying boom-like growth. Most analysts believe that, at such a peak in the economic cycle, borrowing should be coming down to build up a margin of safety for more difficult times.

Yet Mr Darling was yesterday forced to add a further £4.3 billion to his 2007-08 borrowing, so that next year’s deficit rises to £38 billion, or 2.7 per cent of GDP. Then, in the following year, as the economy slows under the impact of the global credit squeeze, borrowing is now slated to be £6 billion higher than previously planned, at £36 billion. In total, the Chancellor yesterday added a further £16 billion to public borrowing plans over five years.

This repeats a familiar pattern in which Gordon Brown was repeatedly proved too optimistic over tax revenues, even as he pursued his ambitious boost to spending on public services.

This year will be the sixth out of the past seven in which the Government has overshot the borrowing levels it projected in its Budget at the start of the year. Since 2000, successive Budgets saw Mr Brown borrow £100 billion more than he originally intended, despite steep increases in the tax burden.

Yesterday Mr Darling followed the same, well-worn route, resorting to still higher borrowing despite tax measures which will raise a further net £1.8 billion over four years. The tax burden remains on course to climb to levels above 37 per cent of GDP in the next few years, taking it to its highest since the mid-Eighties.

The risk now is that public dissatisfaction with key services may rise, and the Prime Minister and Chancellor will find it hard to abide by the sharp slowdown in spending in yesterday’s plans in the face of such political pressure, so that more money may have to be found. With increased borrowing already taking much of the strain that could spell new tax increases. And past form suggests that Mr Brown will indeed find it hard to stick by the tight new spending strategy. In the present year, for example, spending is set to be £10 billion higher than the “firm” plans set out in the last three-year review in 2004. Indeed, Citigroup notes that spending has ended up higher than in the original plans in each of the past six years, by between £2 billion and £16 billion.

The real crunch will come, however, if the economy runs into more severe trouble. With borrowing still stuck at such high levels in what are relatively good times, Mr Darling would find himself without the sort of financial cushion that helped Gordon Brown steer Britain through the global downturn at the turn of the decade by allowing spending and borrowing to rise, thus bolstering growth and avoiding recession. If the economy catches another bad chill, the new Chancellor may find his own temperature rising sharply.

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