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It depends, I suppose, what you imagine New Labour was. If you mean the media-manipulating, bullying, authoritarian bulldozer, then it is still very much alive, and probably worse than ever. If you mean the party of big business, of cosy deals with international financiers, of yacht-based diplomacy - well, I'm willing to bet that's still going strong too. Vast sums of money have been given to the bankers, most of whom will not be forgoing their bonuses. If you mean the prudent party of low taxation, conservative economics and the free market that Tony Blair successfully sold to a befuddled electorate in 1997 and twice thereafter - that is dead, yes, but only because it never actually lived. It was a mirage, which disguised the profligate reality of vast public waste, the multiplication of non-jobs, the stealth taxes which destroyed Britain's pensions, the ratcheting up of duties, the creative accountancy of private finance initiatives, the feather-bedding of parasitical quangocrats.

What has changed with Alistair Darling's statement yesterday? The reality has not changed: yes, there is more borrowing, much more. Some of it is unavoidable, some of it - bringing forward capital projects to ease the shock to the labour market - may turn out to be beneficial, some of it, such as the VAT cut, will have little effect of total spending (though it may help some retailers survive the recession). But all of it is a continuation of the last eight years. It represents a foot placed on the accelerator, perhaps a shifting of gear - but certainly not a handbrake turn. The direction of travel remains the same. Perhaps the chancellor's most telling comment was the hope to return - perhaps as early as 2016 - to "borrowing to invest". No talk of budgets one day being balanced, no suggestion that any part of the massive national debt will be paid off in due course.

If anything, yesterday's statement was rather more conservative than the spending splurge that it brings to an end. The national debt might be set to double, but spending will be squeezed. Except in language, this scarcely represents a repudiation of the New Labour years and a return to Keynesian economics. But here's the paradox: the language of "prudence" coincided with years of financial irresponsibility; ditching that language is now to accompany a programme that, while not exactly prudent, is not incontinent either; it serves to make the government appear to be doing more than it really is.

We have been living, these past few years, in a very strange world of mirrors, in which the government has managed to convince many people - well, commentators mainly - who really ought to know better that it was something different from what it actually was. By speaking a conservative-inflected language, it persuaded conservatives (and even some Conservatives) that its aims and methods were conservative. And by sidelining traditional socialists it told them that they were internal exiles. But their disgruntlement was part of the story. Thus the holding of the higher rate of income tax to 40% - however little this mattered when set against the manipulation of National Insurance - sufficiently annoyed left-wingers that it made New Labour appear to be a continuation of Thatcherism by other means. Now, the introduction of a new tax band of 45% cheers the Polly Toynbees by letting them imagine the government now hates the rich. That, too, is an illusion: the money raised, after all, will be, when set against the total debt, negligible. But it "sends a message".

By occupying the centre ground, New Labour implied that the centre was a fixed point - while in reality it was a floating island tacking violently to the left. By emphasising prudence, it disguised prodigality. Even as the state remorselessly extended its domain - and the number of its employees - it cultivated the idea of frugality. Tony Blair looked and sounded like a right-winger when he was actually a statist authoritarian. Gordon Brown looked - and so was accounted - cautious and trustworthy. As a spectacle of legerdemain, New Labour was unprecedented. Today, as the mask slips and Labour politicians show themselves - because it now seems expedient to do so - in their true tax, borrow and spend colours, the talk of the return of Old Labour reveals just how much some people were - still are - taken in by the myth of New Labour.

Yet just a few weeks ago it was not the ditching, but the resurrection, of New Labour that was the talk of the town. The old rogue Mandelson, returned to the bosom of his old department of state, was once more thrilling reporters. Tony Blair himself, it was none too subtly leaked, had advised Mandy to accept Gordon's offer. The other old rogue Alastair Campbell is now once more offering his advice - though from a position of (very) comfortable independence. Derek Draper - Derek Draper, for heaven's sake, a man recently seen on TV declining a snack dipped in a breastmilk sourcream sauce - has been getting in on the act. The talk then was of the old troupers burying their past disagreements, throwing in their lot with Gordon Brown.

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