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“I generally succeed in getting rid of money,” wrote G.K. Chesterton, “but other observances, such as bringing away the goods that I've paid for, and knowing what I bought, often pass over as secondary.”

The famously disorganised man of letters would be surprised to find his budgetary principles enshrined in public policy. But figures released yesterday showed a sharp rise in government borrowing. Receipts are lower and spending is higher than the Government expected in the Budget. The figure of £9.2 billion in public sector net borrowing is the worst June figure since records began in 1993.

The deterioration in public finances does much to explain why the Treasury is considering altering its fiscal rules (see page 1). These place limits on how much the Government can borrow.

The opposition parties maintain that rewriting the rules would undermine the Government's claims to economic competence. So it would. The fiscal rules are an integral part of the framework of economic management that Labour introduced in 1997-98. It is a powerfully symbolic issue. For the financial credibility of Gordon Brown and Alistair Darling, this is not the end of the beginning. It is The End.

For much of the postwar era, economic management suffered from ill-judged government interventions. These sought short-term benefits to growth and employment; but they ignored enduring costs. New Labour government was supposedly not of that kind. Its policies were different. More important, it sought to replace a pattern of discretionary interventions with a framework of rules. Economic policy would be more predictable and transparent.

In monetary policy, the Bank of England was given operational independence to pursue an inflation target set by the Government. In fiscal policy, Mr Brown introduced the so-called golden rule and the sustainable investment rule. The first said that over the course of the economic cycle the Government should borrow only to invest. The second specified that public sector debt should be kept below 40 per cent of national income in each year of the cycle. Unfortunately, there is no strict definition, let alone accurate measure, of an economic cycle.

The debt ceiling is now close. The Government thereby faces the painful dilemma you always face when running an excessive deficit in an economic slowdown - tax increases to boost government revenues would risk turning a slowdown into a recession. Hence the attraction of rewriting the rules to allow higher borrowing. With an expected revision to the national accounts in September, the Chancellor may take the opportunity of declaring that the economic cycle that began in 1997-98 is over, and that new rules should now apply to a new cycle.

The fiscal rules as they stand certainly can't be adhered to any more, but this is directly attributable to the way that the Government has treated them. The Government has lavished money on the public sector. And having specified the rules in the first place, the Government has behaved increasingly as if they did not exist. Unlike the successful reform of monetary policy, decisions on fiscal policy have been bound up with politics.

All public spending is paid for somehow: in taxes, or higher interest rates, or inflation. The Government needs to reform its own fiscal policy. It must also urgently reform the way that fiscal policy is made. Government should not be the arbiter of whether it has met its own fiscal rules, by judging the dates and duration of an economic cycle. There is a strong case, as the Conservatives have proposed, for independent scrutiny of the fiscal rules. The Government has tarnished the credibility of budgetary policy. That must change.