It hasn't yet dawned on Labour that the era of big government is over

When you see how rapidly the New Labour project is disintegrating, you start to realise what a house of cards the whole thing was. In their heart of hearts, how many Labour MPs truly believed in Blairism? Sure, there were enough of them who were happy to go along with Blair because they were hungry for power, but after 12 years in office, they seem to have forgotten why they were returned to power in the first place.

Labour MPs were never great fans of the free market, but as long as the city was booming and the tax receipts were flowing in, they were prepared to tolerate it. Then came the financial crisis and money dried up. Now Labour are biting the hand that has fed it for the last 12 years.

Whilst there is widespread revulsion about the greed of bankers, there is no evidence that the electorate has lurched to the left. The financial crisis of the last eighteen months has not closed the chapter of Reaganism/Thatcherism, but on the contrary is likely to reopen it - Millions of voters have seen their tax bills rise and corresponding rises in public spending without any tangible results. Now to cap it all, they are saddled with decades of debt that their children and grandchildren will inherit. We may not see a return to the Thatcherite policies of deregulating the financial markets, but sooner or later, we will have to address, as Thatcher did, the public sector spending that has spiralled out of control.

The 2009 budget was a golden opportunity for Gordon Brown to seize the agenda and salvage his (and New Labour's) reputation for prudence. He could accept (to quote Tony Blair) "that the rules of the game have changed" - that the money has run out and the State needs to live within its means like the rest of us. But instead of asking himself why the Tories are leading in the polls, he and his fellow MPs he have drawn all the wrong conclusions: Namely, that capitalism has failed and that the rich are responsible for our debt. That the state can keep on growing and the rich can pay for it.

Reputations take years to build but only months to unravel. After Thatcher became Prime Minister, it took nearly two decades for Labour to become electable. Gordon Brown seems determined to undo all that progress in a mere matter of weeks and drag Labour back to where it was in the early 80s. Labour is beginning to look and sound more and more like it was in the days of Michael Foot - Controlling, statist, anti-business and anti-aspiration. Tony Blair once said of John Major's government: "I lead my party, he follows his" - the same could be said about Gordon Brown.