What Alistair Darling offered us in this week's budget was the worst of the left and the worst of the right. On the one hand he promised a massive increase in taxation and on the other the prospect of unprecedented cutbacks in public services. In an act of unusual political dexterity he combined the polices of Michael Foot with the inclinations of Mrs Thatcher – seldom has the complicity between New Labour and neo-liberalism been so manifest.

In so doing, Darling and Brown have managed to both enthuse and enrage the left and right in equal measure. While this plays out the most bizarre consequences of the Blairite confusion of private and public interests, it merely repeats in extreme fashion the complete ideological bankruptcy at the heart of current thinking.

All of the above conceals a fundamentally blighted economy, one still governed by low wages, poor skills, miserable workers and a purely speculative capitalism. As a whole Britain remains untouched by mass innovation, bedeviled by weak productivity, and in dire need of modern infrastructure.

In terms of the budget, the unaddressed middle of the present conundrum is public service reform or in short how do we get more for less? If we were able to genuinely innovate and produce real productivity gains in the public sector, then the need for both tax rises and service cutbacks would be mitigated. Any genuine reform has however been eschewed in favour of public service reduction and state revenue raising. Where is the budgetary recognition of the costs of productivity management through targets? Where is the drive to liberate services from external and internal managerialism? The much mooted Whitehall efficiency targets will only salami slice services, delivering a real drop in both quality and quantity. Instead, now more than ever, what we need is widespread systemic reform to revolutionise public service delivery. Everyone who works in the public sector can testify to evermore useless meetings about forms, paperwork and putative quality control. Everywhere bureaucracy and accountability cripple workers and overwhelm systems and organisations. More and more people are required to service less and less clients. Even if targets are removed the system remains the same – and no genuine transformation takes place.

If we are to save the public sector from cuts and the private sector from taxes radical innovation is required. Front line workers need to be de-managerialised and re-professionalised so that ethos and commitment can replace working by rote and dictation by form.

The real black hole in Labour's political economy is not so much cash – though that is real enough – it is the absence of ideas.