You may have thought that the dust had settled on the public spending row after the Tories last week obtained a Treasury document showing plans for departmental cuts of 9.3 per cent over four years. This seemed to prove that Labour promises of further investment were a smokescreen at best.

Could Gordon Brown deny that this was the case? It was hard to rouse anyone from Downing Street to rubbish the 9.3 per cent figure last week. After all, it is there in black and white in a government document.

But the prime minister has today tried to wriggle out of his tight spot.

He told Simon Mayo:

“No, I don’t accept these figures, this was a leaked Treasury document that I have never seen and there will be lots of…(interrupted). Hold on, there would be lots of documents that would be around the Treasury looking at different potential options, but we have said we can maintain frontline services….”

He then goes on to suggest that there could be some “extra growth” which will be registered in the Pre-Budget Report. Interesting if this is the case. If not, this appears to be new evidence of Mr Brown’s stubbornness.

Okay, it’s not the same Fred Goodwin. This one works as an analyst at Nomura, apparently.

But the Tories have seized upon Goodwin’s report which suggests “the prospect of a UK fiscal crisis is a clear and present danger”. The report suggests that a fiscal crisis is “far more likely” in the UK than in the US - because the dollar is a reserve currency.

“The UK fiscal dynamics are unsustainable. The fiscal balance is plunging deeply into the red in a spectacular and frightening way. Who will fund it? Without QE (quantative easing) the possibility of failed auctions is not trivial.”

Apparently the government’s mega-programme of gilt issuance (selling bonds) has not yet been fully tested - because it has been exceeded by QE (buying bonds).*

When the government turns net seller we will see whether there truly is a market appetite for UK gilts.

George Osborne described the Nomura report as a “wake-up call” with Britain’s “international reputation” at stake. Privately, however, the Tories must be as worried as the government is - given that the situation may still be with us in eight months.

UPDATE

The exact figures are as follows:

* As of September 10 there has been £145bn of QE (assets purchased by the creation of central bank reserves), of which £143bn has been gilts. The process began on March 11.

* Since that date the Debt Management Office has sold £95bn of gilts.

He finally said it. There will be cuts. But Gordon Brown waited until he was nearly half an hour into his speech to admit it. (Bottom of page 7 out of 8).

And he wedged the stuff about deficit, hard choices, sustainable finances, cutting costs into a handful of paragraphs. The rest of the speech was the usual glorious talk about saving the global economy, the national economy and the range of initiatives which Labour has thrown out in the last year. And - to be fair - there were two genuinely big policy pledges.

More paternity leave and the swift implementation* of the temporary workers directive will please unions and, you’d have thought, workers. The business lobby might not be so happy but neither concept is exactly a surprise (the only question on the directive was its exact timing).

*UPDATE

My eagle-eyed colleague Jean Eaglesham points out that the government is only putting the temporary workers directive on the statute book in the next Parliamentary year. This is not the same as the implementation date. We still don’t know when that is going to be. In other words, this may not be much of a gift to the unions (and temps) as it sounded at first.

The union leaders don’t want to admit it. Brendan Barber argued this morning that Labour should keep on borrowing and spending until unemployment is on the way down - which could be several years away. But the simplistic debate between cuts and investment is now over.

We’ve now heard Alistair Darling and (today) Peter Mandelson both spell out the new message; that the UK is heading for difficult choices in public spending.

Earlier this summer Gordon Brown was maintaining the illusion that Labour would be able to preserve spending increases in the coming years. Here is what I wrote at the time, as a reminder. (Brown said “They (Tories) would cut savagely by 10 per cent and that is not going to be allowed to happen.”)

Now Downing Street is briefing that Brown has always been fiscally conservative over two decades; an attempt to erase the “investment” message of June.

Nick Robinson argues on his blog today that Labour is trying to rewrite history. Francis Elliott wonders just how great the difference is between the two parties.

Not a lot, you might think. In effect, Labour has been reduced to painting the Tories as maniacal small-state ideologues who - in the words of Mandelson - are “salivating about wielding the axe”. Will the public agree?

I suspect this quote by Brendan Barber may appear in tomorrow’s headlines:

“Last time we suffered slash and burn economics we had riots in the streets here in Liverpool. I make no prediction that this would happen again, but it would take us back to the days of a deep North-South divide and once again hollow out whole areas of the economy.”

In an earlier blog today I described how rising unemployment could stop the (GDP) recovery feeling like a recovery.

Throwing out statistics about how the technical recession may have ended could provide little solace to those who have lost their jobs.

A brief passage in George Osborne’s last Andrew Marr interview stands out: In it, the shadow chancellor heaps praise at the feet of the world’s central banks for preventing financial meltdown.

“But we say the most effective form of stimulus is monetary policy, is the low interest rates, which both here and around the world I think have been the most effective tool at bringing the world back from the brink of depression.”

A statement of the obvious, you might think. But was Osborne playing up the actions of Mervyn King and others to belittle those of Gordon Brown? A Tory MP suggests that this strain could grow louder as the party seeks to rob Brown of the credit for halting the apocalypse.

For some time now I have been asking the Treasury for an explanation of Alistair Darling’s Budget claim that government actions have saved “up to 500,000 jobs”.

My questions:

1] What research is this based on?

2] Is 500,000 at the upper end of a wider range of estimates; eg “350,000 to 500,000″?

3] How much of the 500,000 is down to political action and how much is due to the actions of the Bank of England - ie quantatative easing and interest rate cuts?

It’s been at least three weeks and the Treasury still hasn’t answered the question. Although they say they may provide more detailed analysis later in the autumn.

I haven’t had a chance to number-crunch today’s unemployment figures yet. But there was an interesting chart in the Audit Commission report - also out today - on how councils are faring in the recession.

For all the talk of the public sector cutting jobs and sharing the general pain, the figures seem to show a rather different story.

The chart on page 19 (based on ONS figures) shows a fall in employment of about 210,000 in manufacturing, 195,000 in distribution and hospitality and 180,000 in finance and business services.

Meanwhile there was a rise of about 170,000 workers in public administration, education and health.

This is likely to fuel the suspicion in some quarters that state-employed workers are cossetted from the downturn; a claim which is bitterly contested by the public sector unions.

It was only yesterday that we contrasted David Cameron’s newfound enthusiasm for Tesco with his comments - a year ago - criticising supermarkets’ bullying of suppliers.

Weirdly, there is news on this front. (From today’s PA)

Supermarkets should be forced to pay for a watchdog to resolve disputes with their suppliers, a regulator told ministers today. The Competition Commission urged the Government to install an ombudsman after failing to secure agreement from a majority of grocery retail giants on a voluntary scheme.

It made the call as it published a tougher code of conduct for the sector following a lengthy investigation which uncovered problems the Commission warned could hurt consumers.

Farmers’ leaders welcomed the move which they said would help end “underhand practices” which forced them to cut their prices but retail chiefs warned it could spell the end of cheap food for shoppers.

The main aim of the ombudsman, who would be appointed by the Office of Fair Trading, would be to adjudicate on disputes under the new code “to promote the interests of consumers”, the Commission said.

So does David Cameron have any view on this? Over to you, Conservative press office.

UPDATE: 6.40pm. No comment as yet.