The old wartime poster ‘Keep Calm and Carry On’ has been reprinted recently and is turning up in the strangest places around Westminster. I have seen it on an MP’s desk and emblazoned on the cufflinks of a Treasury civil servant. It certainly captures the sense that we are undergoing an economic blitz, and acknowledges implicitly the temptation to panic. But at a time when Cabinet members are describing International Monetary Fund bailouts — quite extraordinarily — as ‘a kind of spa’, the case for keeping calm looks increasingly flimsy.

The main question at the heart of the Budget on 22 April is not who will receive what, but how close the nation is to bankruptcy. Alistair Darling will have to lay out in sickening detail the scale of the collapse in tax revenues and the extent of the government’s debt: £150 billion a year, the equivalent to an Afghanistan war every five days. Should this credit supply choke at any point, then it will indeed be time for a little of the same ‘spa’ treatment that Denis Healey gave Britain in 1976.

It is now horribly clear that the so-called ‘stimulus’ announced last October has been an abject and costly failure. The VAT cut has proved a commercial irrelevance, as any junior cashier could have predicted. The overall aim of the package was to curb unemployment, which was then forecast to be 1.1 million by the end of this year. It is now forecast to reach 1.9 million. Mr Darling’s instinct is to draw a line under this — yet in Number 10 the instinct is to play one final card: to borrow even more, and go for double or quits.

Just three months ago, this looked impossible. Mr Brown had no more chips to put on the roulette table — but now he has a device with which to manufacture a fresh supply. This so-called ‘quantitative easing’ (or ‘printing money’ as it is more commonly known) has transformed the parameters of the forthcoming Budget as the PM now has the theoretical ability to hurl even more borrowed billions at the problem. This is what is unnerving Mervyn King, the Governor of the Bank of England. He knows Mr Brown is more than capable of such a gamble, and wants to stop it — which is why he has said, in public, that the spending limit has been reached.

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Mr King’s words are incredibly potent because confidence is everything when it comes to printing money. If the market thinks the so-called ‘quantitative easing’ is a genuine attempt to combat deflation, then the freshly minted bank notes cause little damage. But if it is seen as merely a ploy to fund the uncontrolled extravagance of a spendthrift government — as it was in the Weimar Republic and is in Zimbabwe — then inflation will take off. So lurking behind the Budget are two nightmare scenarios: an IMF bailout and hyperinflation.

There are ominous signs of the markets bracing themselves for the latter. An increasing number of mortgage advisers are telling clients to take low five-year fixed deals while they still last. If the Budget contains anything that looks like an unfunded stimulus — the type which Mr King warned against — then the markets will be spooked and the Treasury could find itself running out of buyers for the debt. This is the horrible paradox: what is politically most attractive for Mr Brown contains the greatest economic risk.

Alistair Darling is keeping calm and carrying on. Treasury staff remark on his almost eerie ability to sit through a doom-laden briefing without flinching. He has grown used to bad news, having been told nothing else since he became Chancellor. He is no less opposed than Mr King to a new spending binge and is saying, as clearly as he dares, that the cupboard is bare (save for a £720 billion IOU note). But he has lost battles over his budget before, and may well do again.

One of the most cherished Tory daydreams is that Mr Darling will resign in a fit of pique to deliver a Geoffrey Howe-style J’accuse from the back benches. But this is unlikely. The Chancellor does not do pique. Nor is he picking a fight with Mr Brown as a result of any personal animus or factional warfare (compare and contrast with the great Blair-Brown rows over budgets). He is simply heeding the warnings he is given by Treasury staff and making the case for restraint as best he can.

That is not to say there will not be the usual display of pyrotechnics in the Budget. Having buried New Labour in the last Pre-Budget Report, Mr Brown may well dance upon its grave by bringing forward the 45p tax on the super rich, presently scheduled for April 2011. There is talk of cash incentives to lure first-time buyers into the imploding housing market. There will be no shortage of Mr Brown’s beloved dividing lines with the Conservatives.

The Prime Minister may well pull it off. He has just delivered a G20 statement in which he claimed to have ‘injected’ a trillion dollars into the world economy. As I argued on the Spectator’s CoffeeHouse blog on the day of the summit communiqué, the figure is entirely fake. Not a cent of new money was raised. It was all debt-raising targets, double-counted trade estimates: smoke and mirrors. It was a presentational coup, but one that delivered a placebo rather than any serious economic medicine.

A few months ago, a Cabinet member was telling me how the G20 would be the ideal springboard for an election: Obama in London, an opinion poll bounce, then an early (or, more accurately, an on-time) election. It has not quite worked out this way: there is no poll bump. The notional uplift from the G20 has been countered by the ongoing scandal of MPs’ expenses, which is an ugly dramatisation of a government squandering money in times of hardship. The public mood is turning against the high-spending solutions which Mr Brown finds so politically irresistible.

These are perilous times. The Prime Minister’s accumulated losses may yet send Britain into the embrace of the IMF. To hear Lord Mandelson saying there should be no ‘stigma’ in taking a begging bowl to the fund is to know how delicately balanced the public finances truly are. Gamble after gamble has failed — yet even now, there is no reason to believe that Mr Brown has done his worst.

This article first appeared in the print edition of The Spectator magazine, dated