James Bartholomew: After seven years does anybody know where Gordon is going?

Never mind all those phrases he likes to use such as "opportunity for all", "the many, not the few" and that old favourite - now heard less frequently for some reason - "prudence". Never mind the numbing details of his consultations on complex legislation on maternity rights and tax breaks for venture capital trusts. What is Mr Brown's dream? What sort of country does he think he is creating?

Never mind all those phrases he likes to use such as "opportunity for all", "the many, not the few" and that old favourite - now heard less frequently for some reason - "prudence". Never mind the numbing details of his consultations on complex legislation on maternity rights and tax breaks for venture capital trusts. What is Mr Brown's dream? What sort of country does he think he is creating?

It is odd that there is still room to wonder about this. The man has been Chancellor of the Exchequer for more than seven years. He has been more like the Prime Minister in the range of his power - calling the shots over welfare benefits, pensions, employment policy, and having quite a say about the National Health Service too, as well as dictating financial and economic policy. Yet people still perceive him in different ways.

Some regard him as New Labour - the former brother-in-arms of Tony Blair. Others see him as Old Labour, sucking up to the trade union block vote. There are even senior people in the right-wing press who forego their ritual loathing of Labour ministers to regard him as "impressive". They think he is a serious, clever man who has delivered consistent growth and low inflation. He is just "quality" and never mind the labels. I believe that uncertainty about what sort of country Gordon Brown is aiming at is about to end. The reason is that he has changed. In his first few years of government, he was at least close to being New Labour. In his first two years he kept rigidly to the spending plans of the previous Conservative government. This had all sorts of advantages, but the key thing - openly stated at the time - was a determination to avoid what had gone wrong for most previous Labour governments.

They had become overexcited about their spending ideas with the result that taxes had risen, borrowing had got out of control and the electorate had dumped them at the first opportunity. Brown was determined not to make the same mistake. After the first year or two, he was obviously excited about just how well this was going on the financial front. He was repaying the debts built up by the Conservatives. How delicious it was to be more financially virtuous than them! He boasted that by repaying the debt, he could gradually reduce the amount the Government was obliged to "waste" on paying interest each year.

He was thrilled at the idea of a virtuous cycle of reduced debt, reduced interest, economic growth, steadily increasing spending, and with no need to increase taxes much more than he did at the outset. He reckoned he had it made. But then things began to go wrong. The main problem was the NHS. The waiting lists were rising, not falling. The press was turning critical. An election was close enough to make it worrying. Brown suddenly felt obliged to change direction. He felt he had to put money - lots of it - into the NHS, to save the party's skin, and thus his own . And if this was going to have to be done, he wanted to take the credit for it. So in his budgets he began to boast about how much he was spending. This had the added benefit that it swung the trade unions solidly behind him - something he knew would be useful in any leadership vote. Thus Gordon Brown veered from New towards Old Labour.

That journey, though, still does not explain where Brown thinks he is taking us now. What is his political vision? Partly, it is indeed Old Labour. He remains keen to be seen as a spender on public services; he talks about abolishing poverty for the young and old and he wants state-subsidised childcare. But alongside his socialist agenda there sits the influence of American capitalism. From the beginning, he has been interested in structures and taxes that encourage enterprise. Some of his ideas have been, frankly, absurd, such as the notion that companies would invest more if their dividends were more highly taxed in the hands of pension funds. But one central notion has had merit: all along, he has kept a lid on taxation of incomes.

There is plenty of evidence - produced by Nicholas Crafts, the economic historian, among others - that the kind of taxation that slows down economic growth is taxation of incomes. Brown has kept intact, more or less, the standard and higher rates of income tax which he inherited. More remarkably, for a Labour chancellor, he has kept down the nominal rates of tax on companies and entrepreneurs. The taxes he has increased have generally been indirect taxes such as petrol tax, not taxes on income or profit. So he has, with some exceptions, kept alive the incentives of companies and individuals to strive for success. This is probably an important reason for the consistent - albeit unspectacular - growth we have had over the past seven years.

The Gordon Brown model has gradually turned into something resembling the Kenneth Clarke model: a socialist social policy and a capitalist economic policy. We are now experiencing rule by a novel sort of politician: a socialist capitalist. Will it work? Again, you would have thought we might know by now. But since he spent his first couple of years being strict about spending, and it took him another two or three years to catch up with the spending he would have done if he had been a consistent spender, we have only been able to see the effect of Brown's socialist capitalism for a few years now.

And how is it going? Well, it doesn't look promising. The budget deficit is growing. The optimism he expressed in the pre-budget report about keeping to his "golden rule" is based on the assumption that the tax burden will keep on rising. He is increasing spending on a wide range of childcare facilities and subsidies for parents with young children. His forecasts for tax revenue have been greeted with frank disbelief by virtually every economist, including those sympathetic to him.

Whereas in 2000, Britain had a budget surplus and was in a better position than both France and Germany according to the Organisation for Economic Cooperation and Development, in the coming year, we are predicted to have a bigger budget deficit - as a percentage of gross domestic product - than either of those countries. There is no getting away from the fact that Britain's finances are on the slide. The growth that Brown has been able to hold on to by being part-capitalist, is slowly being engulfed by the spending, which he has increased as a part-socialist. The timing is not good.

Each year that passes is likely to make it more obvious that the Brown formula does not work. In which case the longer Tony Blair holds back from moving to Connaught Square, the more Gordon Brown's reputation is in danger. It may be that his chance to head the Labour Party will come too late.

James Bartholomew's book 'The Welfare State We're In' is published by Politico's