Sean O'Grady: Brown's revenue predictions were irrational

First, the ratings agency Standard & Poor's downgraded its outlook for the British economy, with a one-in-three chance that our precious AAA credit rating will be cut. Now comes the news that the National Audit Office has refused to sign off part of the Treasury's accounts over its exposure to vast potential losses on the money it has used to prop up the banks and the wider financial system. It is not as bad as the EU Commission's accounts, which haven't been approved by the auditors in Brussels for 15 years, but nothing to be proud of either.

The NAO is right: the blank cheque offered to the part-nationalised Lloyds and Royal Bank of Scotland groups was not approved by Parliament. More than that, even, they could eventually cost UK taxpayers well over £100bn, according to the International Monetary Fund. True, there is also a chance that, in due course, the British Government will make a profit on its stakes. However the government agency set up to look after our "investments" in bank shares, UK Financial Investments, admits that could take many, many years. If you were to design a pension fund for yourself you might not want to put all your eggs in the banking basket – if you had a choice, which of course our Government did not.

The other piece of bad news, and evidence of far greater failing in government competence, is the revelation in the accounts of HM Revenue and Customs that the Exchequer has lost £22bn in tax revenues as a result of the downturn.

The point here is that Gordon Brown quite consciously took the irrational view that the tax revenues being spun out of the credit boom were permanent rather than a one-off. The vast bonuses paid in the City and the stamp duty harvested by a property market which saw house prices treble during New Labour's first decade in power meant a bonanza in tax revenues too. It was the fiscal version of the Brownite delusion of "an end to boom and bust": it was certainly not prudent.

But even with that tsunami of cash flooding the Treasury's coffers in the good years, we're still running a budget deficit. That is the galling thing. The Governor of the Bank of England, Mervyn King, has said as much. It's too late now, but at least another independent body, the NAO, is also telling the truth: Prudence died a few years ago, although the funeral has been delayed.