Hamish McRae: How Brown blew his big chance

The man to dig us out or the man who got us in? When we have reached a point some distance from Gordon Brown's premiership – and I shall leave to my political colleagues as to whether it will end with a whimper or a bang – we will be able to assess how well or badly he prepared us for this global downturn. That will be the defining issue, the one thing that will determine how history will regard him.

No British Prime Minister or Chancellor of the Exchequer can hope to shape the development of the world economy to any major extent: a nudge here, a push there, but nothing that will change its course. What the London end of the international banking industry does is certainly important and occasionally there have been policies developed in Britain that have changed the world. Most notable of those has been privatisation, pioneered by Denis Healy in the 1970s but of course taken much further by Margaret Thatcher. But in the case of Gordon Brown it is hard to see anything he has done that has had real influence on the world. But actually he nearly did; and there is his tragedy.

Come back to that in a moment. The issue now is how well will the UK come through the global downturn. From the narrow perspective of the international banking industry this may indeed have become the most serious crisis since the 1930s, though those of us who remember the 1970s would probably say that the sense of fear and despair was greater then. Certainly the economic disruption was far greater.

So from the wider perspective of the world economy, the downturn – even on pessimistic assumptions about the next couple of years – is likely to be fairly typical of post-war experience. There is no such thing as a "normal" recession because they are all slightly different. But your benchmarks are the slowdowns of the early 1980s, 1990s or 2000s, then we look to be in for another of that variety. My guess remains that this will be worse than the 2000s, which in some countries including the UK hardly a downturn at all, but better than the 1980s or 1990s, which were pretty nasty.

It was to avoid that nastiness, those swings from boom to bust with all the human misery that resulted, that the young Gordon Brown set out his stall. The newly independent Bank of England would ensure monetary stability under the discipline of inflation targets, while the Treasury would ensure fiscal stability under the disciple of his fiscal rules. Governments would only borrow for investment, not current spending, over the cycle, while overall borrowing would be held below 40 per cent of GDP. This framework would enable the generally pro-enterprise policies to flourish, while public services would be improved as the funds allowed.

You can criticise the detail. Maybe the single-minded focus on inflation lulled the Bank of England into neglecting the dangers to financial stability, and with regulation spun off to the Financial Services Authority there was a lack of focus on that. The fiscal rules, while fine in intent, were open to manipulation by off-balance sheet borrowing and by massaging the timing of the economic cycle. But as an aim it was admirable: stability was what Britain needed.

For a while Gordon Brown delivered. He built up a surplus in the fat years of the late 1990s dotcom boom and was able to fund the deficits of the early 2000s dotcom bust. The UK came through that downswing in better shape that any other major economy. Had he stuck to his own rules from 2002 onwards, it could have had a profound influence on fiscal policy around the world. I remember seeing him with other finance ministers at international meetings then and he was really much admired.

Then it all went wrong. Instead of recognising that additional money had to be fed into public services at an orderly pace, he stuck to unrealistic spending targets. When revenues fell short, as they did year after year, he just borrowed more. If we as individuals have been guilty of a spending spree financed by excessive borrowing, he as Chancellor was even more culpable.

Now it is payback time. Instead of there being a fiscal surplus, as there was at the same phase of the previous cycle, there is a huge and growing deficit. In the first five months of this fiscal year revenues are coming in well below budget while spending has been well above. On present trends, according to the Institute of Fiscal Studies, the fiscal deficit will reach £65bn, far surpassing the £50bn deficit under John Major. True, the economy was smaller then but next year looks even worse. We will learn how much worse – or to be more accurate, we will get an estimate of how much worse – from Alistair Darling next month. But Mr Darling did not create the problem; the mistakes were made much much earlier.

The Tories accuse Gordon Brown of pursuing a scorched earth policy: of wrecking public finances so that when they take over they will have to slash spending and put up taxes, and take the blame. I don't think that is fair. Assuming Labour can hang on somehow for another 18 months, the full catastrophe of our public accounts will become clear. We will have the largest deficit as a percentage of GDP of any major EU country and conceivably even larger next year than the US and Japan. Where the blame lies will be obvious. Voters aren't fools; tribal yes, foolish no.

Listening to Gordon Brown yesterday, the thing that struck me was that he does understand both the macro and the micro. The macro-economic issues are the big ones about what is happening in the world economy, the shift of power to Asia, the growing pressure on energy resources and so on. The micro issues (micro not in the sense that they are small but rather they refer to the actions of individuals, companies, government departments and so on) include the need for a different approach to government, one that is more responsive to people, less authoritarian, less prescriptive.

So he understands it all. He also understands he hasn't got it right. And that is hugely frustrating because he would like more time to try and undo the mistakes he knows he has made – in particular the mistakes he set out not to make in 1997. But we won't give him the time, nor should we.