The Chancellor played in unchartered territory today. Both economically and politically, the rule books have been thrown out of the window. The budget deficit is now forecast to be £78bn this year and £118bn next, Labour promises to increase the top rate of tax to 45 per cent at the next election, VAT is cut – from Monday – to 15 per cent, and interest rates already at three per cent are set to fall further.

What started as problems in the US sub-prime mortgage markets have now mushroomed into an economic and financial crisis to rival the Great Depression.

There will be a debate about whether Darling’s £20bn package will work, whether more is needed. But, apart from Osborne and the Tories, no one is now questioning whether a fiscal stimulus of this size is necessary to try to draw a line under this recession.

The PBR is premised on the economic realities we face – a combination of job insecurity, rising unemployment and the withdrawal of credit available to businesses and households. The package of measures is aimed at increasing cash flow and in making our spending go further. It is also aimed at ensuring that the burdens of recession are fairly shared.

The Tories are stuck with saying that the tax cuts and spending increases won’t work, pledging meagre changes in business tax rates as an alternative which are roundly criticised as being not nearly enough to deal with the realities we face. In usual times, I would be sympathetic to the Tory view that these tax cuts would be saved rather than spent. But families and firms are cash-constrained, with banks unwilling or unable to lend. So, government lending from tomorrow to today, and from rich to poor, will have an immediate effect on spending. This is the right policy for the time.

A second, potential criticism is that the fiscal stimulus will be offset by a further fall in the pound or a hike in long term interest rates. But, the Bank of England has signalled that with inflation falling rapidly, interest rates are on a downward trajectory. Long term interest rates are likely to stay low because plans to balance the budget by 2015 have been set out by Darling. The value of the pound should be robust because the UK is not acting unilaterally. Obama, and recently appointed Treasury Secretary Tim Geitner, have promised to make a stimulus package the first thing the new administration does and other economies in, or on the brink of, a recession, will follow suit – an approach thrashed out at the G20 meeting in Washington. There is another thing that will support the pound and keep downward pressure on long-term interest rates – unless the economy is supported through a recession, the underlying rate of trend growth will fall, threatening the health of the economy. The temporary fiscal support will help truncate the recession, restoring UK Plc to robust health sooner rather than later – good for the pound and interest rates.

The Tories have been reckless in the comments on the pound and economically naïve in arguing that it is permanent tax and spending cuts that are needed. They are not and they will not help families and businesses through the crisis. The Tories are alone in their prognosis for the UK economy. Their desire to establish dividing lines with Labour has put them in a position of advocating policies that will prolong the recession and the pain that would inflict on communities. Perhaps we shouldn’t be surprised – their desire to inflict pain was clearly demonstrated in the last two recessions.

We have a long way to work through this crisis. But, as we emerge from the recession we must ensure lessons are learned. There should be a review of transparency, risk and reward in financial markets – in the UK and internationally. Financial markets should again be our servants and not our masters. Although unlikely to raise much more than £2-3bn a year, a 45 per cent tax rate for those earning more than £150,000 is now justified – earnings for the highest paid have increased more sharply in the last decade than those of middle and low earners. Moreover, decisions made by some of the highest earners have helped contribute to this crisis.

Recessions always have a disproportionate impact on the poorest – those with fewer assets have less of a cushion to get them through the downturn, those with less job security are at higher risk of unemployment and those with lower levels of skills will find it harder to get new jobs. It is only fair and right that support in the downturn is targeted at them and that as we recover those most able to pay back our shared debt bear a greater burden.

The PBR is the best chance we have of ensuring that the recession is shorter and shallower than it could have been. The next two years will still be tough but this £20bn is well spent and sets out a distinct New Labour strategy for our times. Contrast that to the Tories who choose this time to argue for less spending, less support. The PBR might be a gamble, but not as much of a gamble as sitting tight and doing nothing would be. Voters now face a clear choice between two very different philosophies on economic management, and crucially on fairness.