In the end, this Government will be judged on performance not numbers

The future of social democracy itself is at stake. If the spending review succeeds, the centre-left will be secure

Once upon a time, in 1998, the numbers were all that mattered. Although Labour had pretended for electoral purposes that money wasn't the crucial factor, we thought we knew it was. Now it's more complicated – partly because the numbers then were fatally double counted; partly because we now realise that while money is a necessary condition of better public services, it isn't enough on its own. Which doesn't alter the fact that the (genuine) numbers unveiled yesterday are big.

Once upon a time, in 1998, the numbers were all that mattered. Although Labour had pretended for electoral purposes that money wasn't the crucial factor, we thought we knew it was. Now it's more complicated – partly because the numbers then were fatally double counted; partly because we now realise that while money is a necessary condition of better public services, it isn't enough on its own. Which doesn't alter the fact that the (genuine) numbers unveiled yesterday are big.

Education spending, increasing by 6 per cent per year, will rise, after the distinctly lean years of the first Labour term, to just above the European average of 5.5 per cent. This admittedly means lower rises for education than for health, which we already knew would rise by 7.3 per cent a year. But not only is the European average for education lower than it is for health, it's also more static, being less subject to the exponential rise in demand for healthcare thanks to advances in medical science, new technology and increased longevity.

What's more, some of it is pretty carefully targeted. Each secondary school will receive an extra £50,000 per year over the three-year review period, lending credibility to the Government's claim that it is seeking to devolve more discretion on spending to local heads. But the additional £125,000 a year for 1,400 secondary schools in urban areas that can show they have strong management is a genuine innovation.

It doesn't go as far as the more radical ideas floated by the former head of the Number 10 policy unit, David Miliband, before he became Schools minister, for massive increases in resources for schools in poorer areas. But Mr Miliband's boss, Estelle Morris, is still entitled to claim – given that health had been already settled – not only that education has the biggest increase of the spending review but also that a higher proportion of education spending will be focussed on schools in what the Treasury document yesterday delicately describes as the "most challenging areas".

True, a minority of urban middle-class schools will also benefit, with the aim of arresting the flight of better-off parents to the private sector. But it is still a welcome recognition that the direst needs – London is probably the most extreme example – are in the inner cities. As are new criteria, which Ms Morris is expected to announce today – which will mean that the performance of the local education authorities will no longer be able to rest on their best schools, but will also have to take into account the performance of those with the greatest difficulties.

But it's on a much wider canvas, as the Chancellor acknowledged yesterday, that the Government will be judged at the end of the three years: it will be on public service performance rather than on the numbers, important as they are. While the Treasury says that it will issue bulletins on how departments are faring against the rigorous criteria set out in the revised Public Service Agreements it published yesterday, it hasn't done so yet. And that's before the all-important impression of the voters as to whether the core services are improving kicks in.

That's not all. There isn't a minister, the Chancellor very much included, who isn't aware of the tensions, conflicts even, between command and control exemplified by the array of independent inspectorates and audit mechanisms he unveiled yesterday, and the stated desire to devolve more power to the front line: heads, local hospital managements, and police commanders. At the very least, in education (once again), Ms Morris will have to use all of her considerable powers of persuasion to rekindle a sense of initiative among the heads and teachers already battered by the continuous thud of circulars since 1997.

There are, nevertheless, answers to this apparent contradiction. First, the Government clearly wants to ensure that the better schools perform, the better they will be resourced. Secondly, is it really so wrong for the Treasury or the Department to requiretest results at 11 or 14 to improve, or the numbers of A-C GCSEs to increase, if schools are to benefit from the Chancellor's munificence – provided that he doesn't tell them how to achieve these things?

A still bigger problem is that by the time of the next election, the direct link between taxation and the new spending figures will be apparent in a way that it wasn't in either 1997 or 2001. It's important and true that this isn't the return to Seventies tax and spending that the Conservatives would half-like to depict it as.

For a start, the 41.3 per cent share of GDP projected for the public sector by 2006 is still less than it was in all but four of the Thatcher years. Secondly, the links between performance and spending remain a genuine departure from even Denis Healey Mark I in the 1970s. Which may be one reason why Mr Brown managed to announce the tax rises in his Budget with remarkably little voter backlash.

Nevertheless, the fact is that even in the last election the Government was not explicit about the rise of taxation that would be needed to fund the increases in spending on which it fought its campaign. For a start, the rise in direct taxation will have kicked in. And while the Treasury is pretty adamant that one won't be needed, no one can be absolutely sure that a further rise won't be needed if the Chancellor's growth forecasts fail to be fulfilled. The further fall in the stock market, which was part of the background to his statement yesterday, is a reminder of how fragile external factors continue to be.

All that said, however, the dividing lines in British politics are now even clearer than they were at the time of the Budget. On the grander level, Mr Brown began yesterday by making a case that amid increasing global insecurity, economic as well as political and military, the electors expect more, rather than less, from their governments. The Chancellor – and the Prime Minister – have put their money where their public investment mouths are.

Michael Howard is patently more formidable than his predecessors as Shadow Chancellor. But by deciding to extricate itself from the promise to match core public service spending promised by the Government, he left an opening for the Chancellor – one which Mr Brown took yesterday with brutal enthusiasm: namely, that they do not yet have an alternative to what the Government is proposing.

Now that won't necessarily be the case for ever. For the future of social democracy itself is now at stake. Of course there were a few of the usual tensions between Chancellor and Prime Minister in the run-up to yesterday's statement, on issues ranging from defence to the choice between departmental spending to tax breaks for the poor. But in reality the stakes are bigger than such differences, because they are in this together. If the public sense of services such as health and education isn't more positive by the end of the second term, then Mr Blair will have failed and Mr Brown's inheritance will be correspondingly the shakier. The electorate may be ready to try a neo-Thatcherite alternative.

If it has begun to succeed, the future of their centre-left approach will look, from the point of view of British Conservatism, dauntingly secure. Britain will be on the way to becoming a modern European country.

d.macintyre@independent.co.uk