Mr Prudence is splashing out at last. But is he spending enough?

Something very odd appears to be happening. The stock market is having a mini nervous breakdown. Some newspapers suggest that the middle classes are getting twitchy about the amount they are paying out in taxes. Business leaders have been fuming about their tax burden since the Budget. Yet tomorrow the Chancellor, Mr Prudence himself, will go on a spending spree. While other major economies are cutting back on public spending projects he will be pumping billions more into education and other services, having already pledged to spend billions of additional pounds on the NHS. What is going on? Is this the moment when New Labour becomes Old Labour, alienating the middle classes and its relatively new allies in business?

Evidently the Conservatives sense they are on to something. Iain Duncan Smith suggested last week that he did not believe that significantly higher public spending was necessarily required. He argued that reforms of the public services might do the trick.

Mr Duncan Smith's leadership is following a familiar pattern. Early in the last Parliament William Hague experimented with some compassionate Conservativism. He wore his youthful baseball cap and pledged to more than match government spending on schools and hospitals. When this strategy did not appear to be working he removed his cap, got a crew cut and promised to cut taxes. Metaphorically, at least, Mr Duncan Smith has replaced his baseball cap with a crew cut. After his early insistence that public services would come before tax cuts he is now suggesting that improvements in services and lower taxes might be possible simultaneously. It will not be long before he returns to the triumphant era of Mr Hague's tax guarantee.

The dividing line of this Parliament has now been set, and it is the same as the last one. Already Mr Blair looks to be enjoying himself at Prime Minister's Question Time, shooting again at the same open goal that had been offered by Mr Hague. "You complain about public services, but you would cut the amount we are spending on them."

Mr Duncan Smith would be on to something big if Mr Prudence at the Treasury had genuinely metamorphosed into a reckless spender. Perhaps the Conservative leader has bought the theory that heavy public spending is really what Mr Brown is all about and that the Chancellor is finally liberated – allowing himself at last to show his Old Labour colours. I see no evidence for this theory. Whatever the tensions between Blairites and Brownites – and there are always plenty of tensions around – there is a basic strategic consensus about the importance of fiscal rules, wooing business leaders and keeping the middle classes on board.

It was Mr Brown who cut the basic rate of income tax three years ago and who pursues relations with the private sector as doggedly as Mr Blair. Private finance initiatives and public-private partnerships for the London Underground pour out from the Treasury. They are not imposed on a reluctant Chancellor by a modernising Prime Minister. From a strategic point of view the Chancellor is as keen on maintaining a big tent as Mr Blair is.

Which is why the context of tomorrow's spending announcements is not quite as dramatic as it seems. Some newspapers suggest the middle classes are already squealing. Their council taxes are soaring. Their incomes are being recklessly taxed. It was even suggested at one point that they would have to pay an additional charge to have their rubbish collected. Perhaps the middle classes are squealing a little about taxes, but it is a pretty quiet squeal, more of a whimper. They squeal more loudly about the state of transport, the quality of secondary schools and the level of crime.

This is pretty logical given that they have more money in their pockets than ever before. Relatively low mortgage rates are worth thousands of pounds a year to some home-owners. The increase in National Insurance contributions announced in the Budget will not be implemented until next year and merely cancels out that forgotten cut in income tax announced by Mr Brown in the first term. As for the council tax, the bills are incomparably lower than they used to be under the poll tax or the old rating system. These days the Government picks up much more of the bill for local spending. Nor has the Government any intention of charging the middle classes more for collecting their rubbish. An administration still scared of tax as an issue, and obsessed by presentation, is hardly going to introduce a policy that could be christened a rubbish tax.

The spending plans have also been rigorously prepared, every penny accounted for. There are plenty of ministers and senior officials lying down in darkened rooms this weekend who will testify to that. Even as late as Friday afternoon the Home Office was in intense negotiations about its budget: a few pennies here and a few more pennies there. Tomorrow's cash will come with plenty of strings attached. Much of this week will be taken up with ministers announcing a series of reforms to accompany the additional cash. The implementation of those reforms will be carefully monitored by the Treasury and the Downing Street Delivery Unit. There will be no wild nights on the town for ministers with their brand new budgets. This is the reverse of a reckless spree. It is not Old Labour. It is different to New Labour phase one, when Mr Brown made members of the Major administration seem like reckless spenders. It is new New Labour.

Which raises a rather different question than the ones arising from the mythology of a prudent Chancellor suddenly becoming imprudent. It is a significant tribute to the stewardship of Messrs Blair and Brown that they are in a position to press ahead with a substantial increase in spending at a time when many other advanced economies are cutting back. But then again, Britain is trying to catch up with most other EU countries after decades of under-investment. The gap is still understated. Contrary to the tax- and-spend mythology, British governments were cutting back on public spending well before Mrs Thatcher's arrival in 1979; indeed, well before the imposition of spending cuts by the IMF in 1976. Nor should we forget that in several departments, including education, spending was lower as a share of national income at the last election than when Labour came to power in 1997.

The only significant question to ask tomorrow is not, "Can we afford Mr Brown's spending plans?" but, given the central importance of reviving public services, whether the Chancellor is planning to spend enough.