´óÏó´«Ã½

Glenrothes: The last ever duel in Scotland was fought a few miles from here in the aftermath of a financial crisis. A business man shot dead a banker after a row about a loan. One hundred and eighty two years later Glenrothes is the scene of a political duel between the leaders of Westminster and Scottish governments.

Not long ago no one doubted the outcome. Labour was expected to lose to the SNP like they did a couple of weeks ago in Glasgow East. What a difference an economic crisis has made.

Now some in Labour are daring to believe that they can retain this seat. Gordon Brown is now seen as an asset. The near collapse of Scotland's two major banks has raised real doubts about the capacity of this country to go it alone. Though the economic crisis is the backdrop against which this contest is being fought there is little evidence yet of its effect on this constituency.

The threat of job losses in the banks loom but unemployment for now remains low. The housing market is stagnant. But prices have fallen much less than in some other parts of the country. Thus the SNP's main focus is on the fuel bills which, it says, the London government should force energy companies to cut and the prescription charges and bridge tolls which the government in Edinburgh has cut.

Labour's response is to highlight the charges levied by an SNP controlled council which isn't to find money to freeze the council tax. The stakes of this contest can be shown by the fact that Alex Salmond has already made his ninth visit here and Gordon Brown who once insisted that prime ministers's don't do by-elections is about to make his third.

If Labour wins their victory will be hailed as evidence that Mr Brown has turned a political corner. If the SNP wins Mr Salmond will declare that he's proved wrong those who hailed the death of nationalism. It is a duel whose outcome will affect politics way beyond this part of Scotland.

PS. The facts about the last duel come from my colleague James Landale's book "The last duel".

(Note from ´óÏó´«Ã½ blog admin: an earlier version of this post was incompletely published owing to a technical error, this is the full version. Apologies for any confusion caused.)

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If economists could manage to get themselves thought of as humble, competent people on a level with dentists, that would be splendid. So said John Maynard Keynes.

Substitute the word "politicians" for "economists" and the words could easily have been uttered by Alastair Darling - a man who's never minded being written off as grey or dull, providing that description's been accompanied by a tribute to his efficiency.

The chancellor's been spending rather a lot of time recently studying the views of the great economist. On Wednesday he will deliver a wordy and worthy lecture about the future direction of economic policy. It will mark the start of a critically important political debate about the role of government in helping the country get through a recession and about the bill that will have to be paid once the worst is over.

Within weeks Mr Darling will give his pre-budget report which will reveal the true scale of the carnage that the financial crisis and looming recession have wreaked on the government's finances. He will have to spell out then what he intends to do about it.

The noises in advance of both these important speeches have been decidedly Keynsian. "Much of what Keynes wrote still makes sense," Mr Darling declared recently.

This has spawned headlines declaring a return to an era of spend, spend, spend and suggesting that ministers plan to borrow their way out of recession.

Today the Chancellor will pour a little cold water on these stories - insisting that though he believes it right to borrow more in the short term, it is also right that that borrowing is reduced once the economy starts to grow again. Keynes, he argues, has been misunderstood.

The great man's message during the depression of the 1930s was not that governments should let spending rip - but they should not cut it in order to balance the budget.

Having excited his party with talk of a new Keynsian economic policy, Mr Darling is now trying to reassure the markets that our old friend Prudence is just sleeping - and is not actually dead. Get that message wrong and not only might the pound slide further but also the Bank of England might react by stalling on interest rate cuts.

What then of Gordon Brown's much-vaunted fiscal rules - the ones that promised that borrowing would only be used for investment not day-to-day spending and that debt would never be allowed to become too big a share of the economy.

Ever so quietly Mr Darling will concede that they've been broken but promise that a new responsible fiscal framework will be put in their place. In other words, the fiscal rules are dead. Long live the fiscal rules.

The Tories mock all of this. They claim that Gordon Brown's a man with an overdraft not a plan - a man who is trying to repackage past failure to control spending and borrowing as if it's a strategy for future success. Since, they argue, the Treasury's cupboard is bare there can be no new economic policy and it is a con trick to pretend there can be.

Behind the scenes ministers are uncertain whether there's a change merely in presentation or in policy. One who's well connected makes this telling observation. The lesson that Gordon Brown's learnt from the past few weeks is to be bold and to make policy announcements big.

It's clear that the pre-budget report is still far from having been written. So what would a bold Brown do? Ministers are being asked to draw up plans to help the unemployed and those whose homes are being repossessed; to look at speeding up capital projects and to reprioritise spending in their departments.

Those options may not pass the test of looking bold or big. One thing would. A tax cut. This year the government has borrowed to cut taxes - on the £2.7 billion bail-out of the 10p debacle and the freezing of petrol duty. So, why not next year too?

One interesting political consequence is that the Tories could not easily endorse something they've already opposed as "fiscal conservatives" - borrowing to pay for tax cuts.

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The Tory leadership did not attend last night's dinner to celebrate the . They were not there to pay homage to Margaret Thatcher or to join in the chants of "10 more years". They did not hear Norman Tebbit's call on them to promise a referendum on whether Britain should stay in a Europe re-moulded in the Lady's image or have done with it and get out.

You can be sure, however, that they had spies there report back on who went (only a handful of Tory MPs went including Sir Nicholas Winterton, Andrew Rosindell and Roger Gale), what was said and the mood on the evening. Team Cameron knows all too well that Europe is a "ticking time bomb" for the Conservative Party as the Shadow Foreign Secretary, William Hague, likes to put it.

If the Irish government decides to ask the Irish people to vote again on the Lisbon Treaty, if that vote's held before a British election and if they say "yes" the Tories will have to answer the question - now what will you do? There are enough "ifs" for the party to insist in public that they're not prepared to answer a hypothetical question. Privately, however, work is going on about what to do if the Lisbon Treaty's ratified and the Tories form the next government.

All they've said so far is that they wouldn't let the matter rest. William Hague's most important task is to defuse the time bomb. He needs to find a way to negotiate a new relationship with the EU - tricky enough in itself - without destroying David Cameron's first few months in office either by alienating his fellow European leaders or leading his party to feel they've been betrayed.

Lord Tebbit last night made what he, no doubt, regards as a modest proposal:

"I hope that the Conservative Party will set out a negotiating brief that the next Conservative government will take to Brussels early in its next term and that it would within two years of the next election present to the British people the outcome of its negotiations.

"Then in a referendum the British people would decide whether to accept what was on offer or simply to leave the Union. We cannot drift on as we have been; it is not fair either to the British people or to the European Union.

"We need to show Thatcherite courage and determination to lead the country along that path."

It is a recipe for a bruising negotiation in which Britain would have few if any allies; a risky referendum in the mid term of a parliament that looks set to be dominated by the need to cut spending and raise taxes; and a possible vote for Britain to leave Europe. It's a recipe which, I suspect, will give a painful dose of indigestion to those who missed last night's dinner.

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Is Gordon Brown gambling on spending and borrowing to get us through a recession? That's certainly what he and his chancellor have led many people to believe. It is not, however, what the prime minister actually said this morning. Nor does it appear to be what the government's actually .

As so ever in politics, context is all. Last week saw the release of figures showing borrowing at a record high. For years political journalists have had fun watching and highlighting the moment in Brown budget speeches when he galloped through borrowing figures which were far higher than he'd projected.

This week will see Alastair Darling, the man he appointed to succeed him, finally being forced to admit in a speech that Brown's much vaunted fiscal rules have already been broken and will have to be torn up and replaced with a new fiscal framework. That's why ministers have spent the past few weeks making the case for borrowing as a virtue rather than a vice and it's why Gordon Brown said this morning:

"The responsible course of government is to invest at this time to speed up economic activity."

However, the prime minister also went on to say that:

"As economic activity rises, as tax revenues recover, then you would want borrowing to be a lower share of your national income."

That's because there is another part of the context - the reaction of the financial markets. The pound is on the slide and the Shadow Chancellor, George Osborne, is not the only one saying that that's because people are anxious about the state of the government's finances.

Borrowing, as any school student of economics knows, rises automatically in a recession since tax revenues shrink and benefit payments soar. In theory, governments could cut spending or raise taxes to avoid this. No serious economist or politician I know of is arguing for this. The Tories describe this as "a necessity not a virtue" - a consequence, in other words, of past failure, not a strategy for future success.

So far, Gordon Brown's argued that spending should be maintained not increased. So far, the Treasury's said it's looking at re-prioritising within existing spending totals and not re-writing those totals.

The unanswered question is whether they will go a bit further. After all, they had to borrow to pay for that £2.7bn tax cut to end the political crisis over scrapping the 10p tax rate. What, the argument might go, is a few more billion between friends? Wouldn't a little bit of extra borrowing put the Tories in the tricky position of either opposing an electorally popular goodie - a new handout here or the cancellation of a planned tax rise there - or simply saying that they would have done the same as Labour.

What ministers cannot afford to do is to appear reckless about borrowing or spending. Thus, they need to convince the markets that they have a plan to reduce it in the future. On this debate, the Tories are on firmer ground. They can fairly point out that they have argued for years that the government was living beyond its means and that they have come up with a big new idea - an office of budget responsibility - to keep spending under control in the future.

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Why, the Daily Mail's , are "the ´óÏó´«Ã½'s knives ..out for Osborne" while "Mandy is getting away with murder".

Simple, Stephen, they're not. Rather than rehearse the arguments myself let me refer you to a blog written by the ´óÏó´«Ã½'s head of news at Westminster about why we've taken the editorial decisions we have.

The Mail has also expressed some surprise that I told the Today programme that I'd resisted pressure from the Tory party and the Tory press to cover the Mandelson story. Let me explain. I get pressure all the time to cover things that suit people's political agendas and I'm paid to resist that pressure from wherever it comes.

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Not so long ago gentlemen friends who fell out would have taken their pistols to France to resolve their differences in a duel. These days it would seem that you use your PR agency to send a letter to the Times and put out statements on your behalf. The aim is not to kill your rival but to kill off his career.

So, where are we in the duel between Nat Rothschild and George Osborne? Osborne's been badly hurt but not fatally wounded.

There are now two conflicting accounts of exactly what happened in Corfu but key details are shared - the possibility of a donation by LDV - a firm controlled by Oleg Deripaska - was considered by the Tories and later rejected.

The dispute is over whether the story goes much further than that. Rothschild and now his American business associate - the financier James Goodwin - claim that Osborne pursued the idea of a donation in a discussion before, during and after a visit to the oligarch's yacht. Osborne denies that strenuously, admitting only to being present when a donation was suggested by Rothschild.

A few facts make this story curious:

A donation from LDV wouldn't have been illegal.

It would have been a pretty daft way of trying to covertly channel money to the Tory party since a Google search would reveal that LDV is controlled by the Russian oligarch.

£50,000 is a trivial sum to the Tory party and an absurdly small sum to secure from a billionaire.

So, either Osborne and Tory fundraiser, Andrew Feldman hoped for a much bigger donation or they weren't much bothered by the funds on offer but couldn't resist the prospect of a trip to meet an intriguing man on a magnificent yacht.

The question today is whether Rothschild considers the duel to be over or to have only just begun. Is he willing to go further - not just about this story but about other things he claims to know about the shadow chancellor? Friends who've known you for 20 years have plenty of stories to tell. Is Nat Rothschild ready to tell them or does he consider it time to put the pistols away?

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For the latest update on this row, go to the bottom of this entry

It is a tale of our times - a tale of how a hugely rich financier Nat Rothschild, the son of the fourth Baron Rothschild, brought together the Tory shadow chancellor, the man who would return to British politics as Gordon Brown's new business secretary and a Russian billionaire at his holiday retreat on the Greek island of Corfu. Oh, yes, and lest I forget, the media magnate Rupert Murdoch joined them as he was staying near by.

Our story begins and ends with George Osborne. On returning from his hols he couldn't quite resist telling friends of the "poison" about Gordon Brown which, he alleged, Peter Mandelson had "dripped into the ear" of anyone listening. A story which moved from amusing gossip to the front pages after Mandelson's shock return to the cabinet.

Next came questions fuelled by the Tories about Peter Mandelson's relationship with Oleg Deripaska, the Russian whose billions come from controlling the world's largest aluminium producer. Hadn't he stayed on his boat? Osborne knew he had. Weren't they friends? Osborne knew that too. Wasn't this a conflict of interest given that, as EU Trade Commissioner, Mandelson had a role in setting tariffs for the aluminium which made Derpaska so rich?

Mandelson's first instinct was to refuse to answer questions about what he said was his private life. He knew all too well that the way the media can keep a story running is to publish a list of "unanswered questions". This approach did not, however, kill the story. Nor did the backing of the EU Commission which declared him not guilty of a breach of the rules. So far, no evidence has been produced that he broke any rules but there's little doubt that had he behaved this way as a cabinet minister he would have been in breach of the ministerial code which advises against perceived conflicts of interest.

When the questions continued, it's clear that Mr Mandelson's friend, Nat Rothschild, became angry with his old Oxford chum George Osborne for breaching the privacy of his summer party. It is this that has led to , that Osborne had visited the boat of the Russian billionaire with the Tory fundraiser, Andrew Feldman in order to "solicit a donation". What's more, Mr Rothschild alleges, Feldman later proposed that the donation be "channelled" through one of Mr Deripaska's British companies. Donations from overseas are, of course, illegal.

Both George Osborne and Andrew Feldman vehemently deny these allegations. The Tory party issued legal warnings to the Times last night which led to Nat Rothschild re-writing . The Tories claim that this shows his version of events is unreliable. The Times insist that he was merely "clarifying" his allegations. My colleague Robert Peston revealed this morning that there are witnesses to Rothschild's story who are willing to appear in court if necessary.

Only three facts are undisputed here - the Tories did visit the boat, at a later stage a donation to the Tory party was discussed but no donation was, in fact, ultimately made. The rest, for now, is murky.

What can't be disputed is that this raises real questions about the judgement of the Conservative Party in pursuing allegations about Peter Mandelson's dealing with a man who they themselves had discussed money with.

There's an old saying in politics - if you get into the gutter you have to be prepared to get dirty.

PS. It's just been drawn to my attention that today is Peter Mandelson's birthday. You don't think that Nat Rothschild thought that this was the perfect present, do you?

UPDATE, 10:45AM: Sources close to Oleg Deripaska have told me that the Russian billionaire rejects the suggestion that he initiated conversations with senior Conservatives about making a donation to the party.

This comes in response to strenuous denials from the Conservative Party of allegations that they had "attempted to solicit a donation" from the billionaire.

The allegation was made by the financier Nat Rothschild who arranged a meeting between the shadow chancellor, George Osborne and the Tory fundraiser, Andrew Feldman with Mr Deripaska in Corfu last summer.

What is not disputed by those involved is that a meeting took place on the billionaire's yacht; that Nat Rothschild and Andrew Feldman discussed a possible donation to the Conservatives by Mr Deripaska in September and that, in fact, no donation was ever made. What is in dispute is who initiated the conversation about giving money to the Tories.

Sources close to Oleg Deripaska say that he has never donated to any British political party and never intends to.

UPDATE, 01:00PM: George Osborne's statement just now was very revealing.

On the one hand, he denied soliciting money from the Russian billionaire or talking about it with Oleg Deripaska or, of course, receiving any money. But, and it is a very big but, he did not deny my suggestion that he had discussed Mr Deripaska's possible donation with other people.

You would expect the shadow chancellor to avoid all conversations about how and whether to accept any donation. Mr Osborne has answered specific allegations made by Nat Rothschild but left unanswered big questions about his judgment.

UPDATE, 03:40PM: The ´óÏó´«Ã½ has learnt that the shadow chancellor, George Osborne, had a discussion with the financier Nat Rothschild during which the possibility of a donation from the Russian billionaire Oleg Deripaska was raised. The conversation took place at Mr Rothschild's villa before Mr Osborne visited the billionaire on his yacht. Other guests at the villa witnessed the conversation.

Earlier today Mr Osborne denied allegations by Mr Rothschild that he had solicited a donation from Mr Deripaska. However, he did not deny that he had been involved in conversations with others about a possible donation from the Russian billionaire or on his behalf from any of his British companies.

This is the transcript of the question I put to Mr Osborne and his replies:

ROBINSON: Mr Osborne, can you just clear this up? Were you at any stage involved in conversations about a donation with this Russian billionaire or indeed on his behalf from any of his British companies?

OSBORNE: Well, a very specific allegation has been made that we solicited a donation from Mr Deripaska and I want make it absolutely clear that we neither asked for money nor did we receive money.

ROBINSON: But I've asked you a general question about whether you were involved in conversation at any time about a donation from him or his companies?

OSBORNE: People make suggestions on behalf of other people about donations to the Conservative Party like all political parties but, we have very rigorous checks and we make it absolutely clear that donations have to be legal and I come back to this central point which is we neither solicited a donation to Mr Deripaska, we didn't ask for the money and we didn't receive any.

The shadow chancellor is expected to publish a detailed account of his dealings with Nat Rothschild and Oleg Deripaska later this afternoon.

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On the banking crisis, he can't say "I told you so" because he didn't.

He can't say "we had a better answer" because he didn't propose one and he's given his backing to the Brown plan.

On what looks like a looming recession, he won't say "let's cut taxes to stimulate the economy" - as the American and Australian governments have - because he's already declared that "the cupboard is bare" and that as a "fiscal conservative" he's not prepared to borrow to finance tax cuts.

Thus, he's limited to proposing small-scale policy responses - yesterday , today a - or to saying, like the Irishman in the old joke, "I wouldn't have started here".

What's more, Gordon Brown, fresh from taking the plaudits for saving the world's financial system, is busy laying a new trap for the Tories. He's pledging to carry on spending and borrowing in the downturn as the old master recommended. There are political as well as economic reasons for him doing this.

The government wants to sprinkle magic dust on the record borrowing and debt statistics which will be published soon so as to turn them from a negative story into a positive one - from evidence of past failure to a platform for future success.

In addition, the prime minister is addicted to his favourite electoral narrative - Labour investment versus Tory cuts - and sees the chance to run it again. Specifically, if - and it is a very big if - the government can bring forward its programme to re-build schools that would cut the money which the Tories have allocated for their "free schools" programme and allow ministers to ask "what would you cut to pay for your plans?"

This morning David Cameron warned against a government spending splurge which would keep interest rates high. However, he went on to say that if all ministers are planning is a re-ordering of their spending priorities he would back that.

Thus, the Conservative leader finds himself in the extraordinary position of facing a government presiding over a failing economy for the first time in 15 years and with relatively little he can say about it.

Now some suggest this is a turning point in politics. They point to the fact that the Tory poll lead is now down to single figures. They argue that the state and Gordon Brown are back in fashion and the Tories' inexperienced leaders find themselves on the wrong side of history.

This is massively premature. Let's remember a simple point. A government that was, in any case, vulnerable to the "time for a change" argument looks set to go through the long, slow political agony of a recession with the job cuts, housing losses and spending constraints that will accompany it.

What's changed, though, is the fact that the Tories can no longer make the political weather and will often be spectators as ministers return to centre stage. David Cameron believes that at times like these the key task he has is to avoid making blunders. That's why he refers to backing the Brown bank rescue plan as "a big call" and believes that he hasn't had enough credit for it. The next year is going to be a huge test of his and his party's nerve.

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The truce is over. The Tories have had enough of hearing that Gordon Brown is a super hero and they've decided to try to bring him down to earth.

In , David Cameron condemns what he calls "the complete and utter failure of Labour's economic record". The American sub-prime crisis is only half the story of the economic crisis he says. Just as important was the failure, "a British failure", to regulate British public and private debt. The Tory leader promises to usher in an era of responsibility with greater control of both public spending and private debt.

So why this speech now? Is it because the Tories have been panicked by Gordon Brown's recovery? Certainly, in an interview I've just done with the Tory leader the question he appeared to like least was the one when I pressed him to give personal credit to the prime minister for his handling of the past couple of weeks.

In his speech Mr Cameron comes up with another of those metaphors that he likes so much to explain why the political truce is now over. He says that it was right to man the hoses when the house was on fire - in other words to back the government in a crisis - but that it's now also right to see who built the house. Is this the same accident-prone house that only recently had a broken roof? My feeling is that this metaphor's unlikely to last quite so well as the last one.

What matters much more, of course, is whether the Tory leader's argument proves sustainable. Can he convince people that Gordon Brown is the architect of their problems rather than the failures of the global financial system?

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An MP who'd just been canvassing in the Glenrothes by-election told me that just one person had raised the financial crisis with him. It's a reminder that the that has been gripping the attention of the political and media classes must seem not just baffling but also remote to many people.

If you're not employed in a bank; if savings are what you can muster for a decent night out on Saturday rather than diversify into Icelandic banks; if you're more likely to be found watching Ant and Dec than Peston or Robinson (yes, such people really do exist) then you'll be much more worried by and than the .

The stories that will emerge in the days to come will not be about bank rescue plans but plans to cut jobs and to cut government programmes to pay for the rising costs of inflation and unemployment (see , for example).

Gordon Brown has been presented by many as a Churchill figure in the war to save global capitalism. Quicker than he might wish, politics will now turn to dealing with aftermath. The prime minister, I'm told, wants to create a mood of national unity and solidarity to help us all cope with the trial ahead. He's hoping to create a spirit of the economic Blitz. His opponents believe that we're more likely to see anger and frustration in a period of economic rationing.

UPDATE, 10:00 AM: The Ministry of Justice say that the Times story refers to old plans to limit government spending in their and other departments, and does not result from the credit crunch or economic slowdown.

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42-days is dead.

After tonight's vote in the Lords and climbdown in the Commons, I refer you to the answer I gave some days ago.

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The Masters of the Universe are dead. Long live the Master of the Universe.

The death of the banks (at least as independent institutions) has, it would appear, been accompanied by the rebirth of Gordon Brown. Not only has his bank rescue package been backed by all political parties at home but it has also inspired similar plans in the EU and in the United States (once it was clear their own plan had failed to end the rout)

Indeed, the man who was today awarded the Nobel prize for economics, the American economist Paul Krugman, declared in that the Brown/Darling plan had "defined the character of the worldwide rescue effort, with other wealthy nations playing catch-up" and praised the two men for showing a "combination of clarity and decisiveness" which "hasn't been matched by any other Western government".

This bounce in the market in Browns and indeed, Darlings too, has prompted the Conservatives to re-open hostilities and to side with the British people who, they claim, have "been handed the bill for boom turning into bust".

The Lib Dems too have warned of governmental hubris. What they both believe - and are surely right too - is that the politics of recession could be much less benign for Gordon Brown than the politics of the immediate crisis.

The political fallout of both events is, of course, no more predictable that the economic fallout. It would be unwise to speculate too much.

That surely is one lesson for all of recent events.

What can be stated with total confidence is that the prime minister himself feels more confident doing the job that at any time since he got it.

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Congratulations, you are now the proud, or maybe not, owner of a bank or two. You must now be wondering what you'll get for your share of the £37bn. The chancellor's promising you, or at least your representative, a place on the board and no cash bonuses for those who are not the people's representatives, and what's more, freer flowing loans to small businesses and homeowners. Expect more demands to follow soon.

Will, for example, the government guarantee the retention of the Scottish HQs of RBS and Bank of Scotland? And what about the Halifax headquarters of the Halifax? Will they promise to pass on interest rate cuts to mortgage holders? Will they even change that annoying muzak which plays when the bank puts you on hold? You see now that the people own the banks, the people are sure to make demands of the people's representatives who bought them on our behalf.

And what's more, there'll be demands to nationalise lots more. The new Transport Secretary Geoff Hoon dutifully took the underground home from Wembley after the England game on Saturday. Per chance, he bumped into the head of the RMT union, Bob Crow. "Now you're nationalising the banks", Crow said to him, "how about the railways?" How about it, ministers?

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As you ponder the half-a-trillion pound and counting - that's a five and 11 noughts, by the way - cost of the mother of all bank rescue plans, you may not be feeling that cheerful. Worry not.

The prime minister's maintaining the spirit of the trenches. On the evening after the long, long night before he delivered a speech to celebrate the publication of the Power List - a list of the most influential black men and women in the UK.

When someone's mobile phone interrupts his speech he joked "I don't know if another bank has fallen...", to guffaws of laughter before adding "you'll be pleased I'll not be giving financial information this evening".

Everyone at Westminster has noticed that he's grown in confidence and stature during this crisis. Could he even be enjoying it?

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Don't worry your heads. The that are basically sound and will eventually sell them and get your money back. That appears to be the message coming from some today. It begs - the admittedly facetious - question - if part-nationalising the banks was such a great idea, why didn't we do it years ago? Let's be clear.

The optimists can point to the experience of Sweden in the early 1990s. A government - of the centre right, as it happens - part-nationalised its banks and issued sweeping guarantees for inter-bank lending. The government got most of its money back in the form of dividends and the eventual re-privatisation of one of the banks it nationalised.

The pessimists can observe that saving the banks of a small country - which was not in the midst of a global financial crisis - is very different from what the British government is trying to do. There are no guarantees that we will get our cash back. What's more, even if we do, that money is not available in the intervening period to spend cutting taxes or raising public spending to get us through the recession that appears to be looming.

There is another cost too, to the reputation of London as the emerging financial capital of the world and thus to a cornerstone of our recent prosperity. That - as I wrote last night - will have huge consequences for the economy and for politics.

UPDATE, 11:45 AM: I asked Gordon Brown where the money was coming from, at his news conference this morning. His answer was that borrowing would be extended to cover up to £50 billion for taking a stake in those banks that need it, and stressed that he hoped that the taxpayer would eventually get their money back. As for the other couple of hundreds of billions of pounds, he said that these were loans on commercial terms.

What he's simply unwilling to do is to spell out the downside risks. His aides explain this by saying that he's keen to maintain confidence in the economy.

What's clear is that the old politics of tax and spend is dead. It's not long ago when any proposal to spend a few million (as against hundreds of billions) was greeted by Gordon Brown and Alistair Darling with the cry that you had to show how you'd cut spending or raise taxes to pay for it.

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The City, for so long seen as the acme of Britain's bucaneering free enterprise island spirit, looks set to be part-nationalised or, if you prefer, to become a public/private partnership.

Thus will end the City of London's mesmerising hold on the political classes for the past two decades. A hold that began - to be more precise - on 27 October 1986. That was "Big Bang" day - the day Margaret Thatcher's government deregulated the financial markets.

I remember it well. It was the month I began working for the ´óÏó´«Ã½ and watched many of the brightest and best of my generation swap stories of the extraordinary starting salaries they'd been offered by the banks and the management consultancies. Ever since, the City has creamed off talent that was denied to industry, politics and public service.

As the City grew and grew, no-one with hopes of power - whether on the left or the right - dared question the supremacy of the Masters of the Universe. One of the first signs that New Labour were heading for power was their efforts to woo the City via their "prawn cocktail offensive".

There was no greater symbol of the Tories' decline than the fact that they were shunned by their former friends in the world of finance.

Labour and the Tories competed to attarct the support of the men in the banks and, yes, those popular villains in the hedge funds.

The City - by now a fifth of the entire British economy - became the cash cow that funded the expansion of the public services.

Politicians from Ken Livingstone and Gordon Brown on the left to Boris Johnson and David Cameron on the right boasted about London overtaking New York as the world's financial capital.

A political consensus grew up that it was best not to ask too many questions about spiralling debt, the mounting complexities of the derivatives market and, yes, those enormous bonuses.

In the next few days, leading politicians on all sides will insist that the City remains a cornerstone of the British economy; that they hope taxpayers will get their money back - as the Swedes did when they tried this in the early 1990s; and that this is a temporary and not a long term measure.

Nevertheless, nothing will be quite the same again.

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The markets, the public and Parliament are all waiting to see what emerges from the 5pm . How they must wish they lived before the age of globalisation, rolling news and the web.

Gordon Brown is fond of recalling the story (told to him originally by Ed Balls) of a similar momentous moment in British economic history - the decision to devalue the pound - to illustrate how the pressures on politicians have changed. The Brown/Balls account turns like this:

On 29 July 1949, the cabinet met to decide that devaluation was necessary but did not act straight away because the Chancellor, Stafford Cripps, was convalescing in a Swiss sanatorium. The then Prime Minister, Clement Attlee, wrote a letter to Cripps and asked Harold Wilson, who was going on holiday nearby, to deliver it. Cripps told Wilson that no decision should be made until he returned to London. On his return, he spent a few days arguing unsuccessfully for delay. The cabinet confirmed its original decision on 29th August. The devaluation was not actually enacted until 18th September.

So, the 1949 devaluation decision took nearly two months. The 1967 devaluation decision took around three days. The 1992 decision to exit the ERM took just hours. If, and it is still an if, today's meeting decides anything on the same scale, the government will, in theory, have until first thing tomorrow morning to announce it - that's when the London Stock Exchange re-opens - but they'll have just minutes if they don't want any delay to impact on Wall Street or the Asian markets.

I say "if" because Downing Street insists that this is not an emergency meeting and was scheduled some days ago. We'll see...

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If it were not for the small matter of a global financial crisis or the vital debate over what , all eyes would now be on the next stage of the debate about extending detention without trial. It is clear this morning that .

Ministers have told Gordon Brown that when the proposal comes to the Lords - probably next Monday - it faces defeat by a three figure margin.They have also warned him that to use the Parliament Act to drive the bill through would be politically suicidal.

For now, the official line is that the prime minister still believes in 42-days and that ministers will try to persuade the Lords to back him.That line will last only until the Lords kick the idea out. It is possible that some form of extended detention without trial may be revised and revived for Labour's next election manifesto.

A clear sign that the game's up came in the reshuffle when two of the ministers most closely involved were moved -Tony McNulty's left the home office to go to DWP and Baroness Ashton is leaving the Lords front bench to replace Peter Mandelson in Brussels.

Even if the PM had not made up his mind, an article by Andy Hayman, Scotland Yard's former Head of Anti-Terrorism, in would have made it up for him. Hayman writes that :

"It would have been my job to make these proposals work but just trying to understand them gives me a headache... Let's get real. This will just not work... The bill is about politics and it won't work."

He adds intriguingly that :

"I was astonished when, in July last year, the government floated the idea of revisiting the detention limit. I remain curious as to what prompted this rethink."

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"Eee, I'll go to the foot of our stairs." Forgive me, for that's what they say in Macclesfield when they're gobsmacked, and I'm gobsmacked.

Peter Mandelson is back. Gordon Brown, for so long said to lack courage and to be unwilling to reach out to his enemies in the Labour Party, has now confounded his Blairite critics by putting Mandy back into the cabinet.

"He's New Labour to his core, pro-business and tough on the unions. It will light a blue touch-paper under the government", one cabinet minister told me.

Expect a lot of gloomy faces amongst those on Team Brown who saw their life's work as opposing Mandelson and all those close to him.

PS. In case you've not seen, John Hutton moves from BERR (Department for Business, Enterprise and Regulatory Reform) to Defence.

UPDATE 12:00: The moves we know so far are:

Peter Mandelson - to Business
John Hutton - to Defence
Geoff Hoon - son and grandson of railwaymen - to Transport
Ed Miliband - to new Department of Energy & Climate Change
Margaret Beckett - to be cabinet enforcer
Nick Brown - to be Chief Whip

I expect, but have not had confirmed, that Baroness Ashton will be off to Brussels to be EU commissioner. If so, a new Leader of the Lords is needed.

In addition, Gordon Brown's party spin doctor, Damian McBride, is being pulled back into the Downing Street backrooms. He's liked by political journalists but loathed by Blairites who dubbed him Damian McNasty and blamed him for malicious briefings on behalf of his boss. His replacement is to be Justin Forsyth, former Head of Policy and Campaigns at Oxfam, who was Gordon Brown's (and before that Tony Bair's) advisor on international development. Forsyth will be less matey and less gossipy with the press than McBride, and will reassure those who had demanded this change.

So, what's behind Gordon Brown's moves? The economic challenge, the strategic challenge and the threat to his position.

Downing Street are presenting this as a strengthening of the cabinet to face the economic crisis - drawing on Peter Mandelson's global experience and contacts whilst creating a new department to handle energy.

It's also clear that the PM wants political ballast - Mandelson brings huge strategic and presentational experience whilst Margaret Beckett has long experience of government and the stature to knock ministerial heads together.

Finally, and crucially, Brown is trying to shore up his position in the Labour Party. The message to the plotters is, in effect, if Mandelson is on my side, isn't it time you were? The people that founded New Labour - Brown, Blair (who's in regular contact with him), Mandelson and Alastair Campbell - are said to have put aside their differences to work together again.

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The prime minister has begun to reshuffle his government. He spoke to some people yesterday, and is expected to have spoken to everyone involved before leaving for a regional visit in an hour's time. An announcement of the names involved may take a little longer - ie formulating press releases, informing the palace... etc.

No 10 sources predict moves by a small number of cabinet ministers but quite a lot of movement at junior ministerial level.

Sources say the key to this reshuffle is strengthening the government response to economic issues, and sources confirm the creation of a new National Economic Committee to bring together ministers Cobra-style to deal with the economic crisis. It should be stressed this is a response to the overall economic situation and not just the recent markets crash.

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Wow! The mere mention of Margaret Thatcher really is toxic.

My previous blog has provoked howls of protest from Tory modernisers who loathe the idea that their leader was going "Back to the Future".

They insist that their leader was delivering a centrist speech complete with promises to tackle the causes of crime, to make tough green choices (such as cancelling Heathrow's third runway and building a high speed rail link instead) and to deliver family friendly policies.

They point to their leader's insistence that he was not an ideologue, his praise for the role of the state and his positioning as a One Nation Tory in the line of Peel, Shaftesbury and Disraeli.

All fair points. I was not and do not claim that the Tories are going backwards or that Cameron today abandoned the modernisers' agenda.

I do note, however, that the Tory leader explicitly invited the country to compare himself with Margaret Thatcher in 1979 - when she was "the novice" confronting the "experienced" Jim Callaghan during an economic crisis. His remedy, like hers, is "sound money and low taxes".

This should come as no surprise. Cameron and all those close to him were children of Thatcher (no, not literally) and, when it comes to economics, they still are.

What should also come as no surprise to the Tories is that if you mention Margaret Thatcher it will get noticed and probably cause a fuss.

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It's back to the future with David Cameron. Today he evoked the memory, the values and the policies of Margaret Thatcher. If the country had listened to the argument about needing an experienced leader, Britain would never have had Prime Minister Margaret Thatcher. He echoed her promise to deliver sound money, low taxes and a responsible society.

He even attempted to turn her infamous phrase that "there's no such thing as society" against the Labour party, arguing that they behave as if only the government mattered.

It was all very different from the Cameron of the past who appeared to delight in taking on his party and its past.

It was his answer to those critics who claim he's the new Tony Blair - all style and no substance.

Suddenly - thanks to the economic crisis - the battle between Conservatives and Labour feels all too familiar to those who remember politics before the Blair years.

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"This is no time for Brown's experience. It is time for Cameron's judgement and values." That, in a nutshell, is David Cameron's message today.

He will acknowledge that he cannot prove that he is ready to be prime minister. However, he will point to the way he has run his party as evidence of his leadership skills - for example, creating unity where before there was not, cracking down on MPs' and MEPs' expenses where before they were tolerated, taking on his party to get more women and black MPs...etc.

It is his version of Tony Blair's message that "I can change the country because I have changed my party" - New Conservatives, New Britain?

As for Gordon Brown's experience, he will argue that that is what has got the country into the mess it is in.

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